Academic journal article Health Care Financing Review

Trends in the Health Status of Medicare Risk Contract Enrollees

Academic journal article Health Care Financing Review

Trends in the Health Status of Medicare Risk Contract Enrollees

Article excerpt

INTRODUCTION

Medicare's risk contracting program has been operational since 1985, following passage of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Under TEFRA, risk contracts were entered into by health maintenance organizations (HMOs), which received capitation payments in return for providing covered services to their enrollees. The program was designed to produce cost savings for Medicare, as well as to expand the range of health plan choices available to Medicare beneficiaries (Brown et al., 1993). Risk-based plans were not available in all parts of the U.S., but tended to be concentrated in particular urban areas, where Medicare FFS expenditures (the basis of payment under risk contracts) were relatively high. The ability of risk-based plans to provide the Medicare benefit package for less than the level of expenditures in FFS enabled the plans to offer extra benefits and lower out-of-pocket costs, resulting in their ability to attract enrollees. Other factors also played a part in the extent to which Medicare plans attracted enrollment (Brown and Gold, 1999).

Legislative History

Congress has attempted to improve and expand Medicare's risk contracting program on several occasions, notably through the 1997 Balanced Budget Act (BBA) and the 2003 Medicare Modernization Act (MMA). One goal of each of these laws was to expand the availability of plans to rural areas and to other areas that did not have risk plans available to Medicare beneficiaries. The BBA created the Medicare+Choice program, which expanded the types of health plans permitted to enter into risk contracts to include preferred provider organizations (PPOs), provider-sponsored organizations, and private FFS plans. It also significantly changed the payment formula, including the phased introduction of a new risk adjustor. The BBA also introduced a payment floor for risk-based plans which resulted in health plan payment rates doubling in some counties. Further payment changes and expansions in plan types were made in subsequent legislation, including the 2000 Benefits Improvement and Protection Act (BIPA), which introduced a payment floor applicable to metropolitan statistical areas.

The MMA created the Medicare Advantage (MA) program and introduced two new types of plans--regional and special needs plans (SNPs). Regional plans were intended to be the means by which every part of the country would have a Medicare private health plan available; such plans have to be offered on a region-wide basis, among the 26 designated regions. By contrast, local plans can operate in an area as small as a single county. SNPs are unique in that they may limit their enrollment to certain categories of Medicare beneficiaries--those with special needs. Special needs beneficiaries include Medicare/Medicaid dual eligibles, the institutionalized, and those with chronic or disabling conditions. However, the SNP restricted enrollment provision sunsets at the end of 2008. That is, unless Congress extends the provision, after 2008 SNPs may not limit their enrollment to only individuals with special needs.

Because the MMA added outpatient prescription drug coverage as a voluntary choice available to all Medicare beneficiaries, risk-based plans lost a feature that many Medicare beneficiaries found attractive in contrast to the traditional FFS program. However, MA plans are able to use savings they generate in covering Medicare Parts A and B benefits to reduce their premiums for the Part D (drug) benefit and/or increase the generosity of the Part D benefit. Presumably, health plans should generally be able to provide the drug benefit at a lower cost than stand-alone prescription drug plans because of their ability to coordinate drug coverage with other health care coverage through the same network of providers.

The MMA also authorized the comparative cost adjustment program. Beginning in 2010 and authorized for 6 years, the program calls for the Medicare FFS program to compete against private plans in certain areas. …

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