Academic journal article Health Care Financing Review

Impact of Medicare SELECT on Cost and Utilization in 11 States

Academic journal article Health Care Financing Review

Impact of Medicare SELECT on Cost and Utilization in 11 States

Article excerpt


Medicare SELECT is an individually purchased Medicare supplemental insurance policy that requires beneficiaries to use the insurer's provider network (to the extent that a network exists) to receive supplemental benefits. Medicare benefits are unaffected by whether the beneficiary uses the supplemental insurer's network (and receives supplemental benefits) or goes outside the network (and forfeits supplemental benefits). In creating SELECT Congress expected that it would direct beneficiaries to networks of efficient providers established by the supplemental insurers. This would in turn reduce fee-for-service (FFS) Medicare claims and enable SELECT insurers to offer beneficiaries lower premiums. In this article we present an evaluation of the impact of SELECT (during the January 1, 1992--December 31, 1994 demonstration period) on Medicare program costs and beneficiary utilization in 11 States. The impact of SELECT on supplemental insurance premiums and beneficiary access and satisfaction is addressed elsewhere (Garfinkel et al., 1996).

Medicare SELECT is one of several attempts to introduce managed care incentives into the FFS Medicare system. Although enrollment in Medicare health maintenance organizations (HMOs) has grown rapidly in recent years, it still represents only 13 percent of the Medicare population and may continue to represent a minority of the Medicare population for the foreseeable future. Thus, the growth of expenditures in the FFS Medicare system will continue to be a key factor in the financial health of the Medicare program. This evaluation not only bears on the extent to which SELECT has achieved its cost-containment objectives but also contributes to the growing body of information about the prospects for managed care techniques as a way to reduce the long-term growth in Medicare program expenditures.


The Omnibus Budget Reconciliation Act (OBRA) of 1990 made two important changes in the regulation of Medicare supplemental insurance. First, the law imposed mandatory standards for individually purchased medigap insurance. These standards, which took effect in 1992, limited medigap policies to 10 standard plans, labeled A through J, and guaranteed issue for Medicare beneficiaries within 6 months of eligibility for Medicare Part B. Second, OBRA 1990 allowed medigap insurers in 15 States to market network-based medigap products, called Medicare SELECT policies, on a 3-year demonstration basis.

SELECT products offer a managed care alternative to traditional medigap insurance. In most instances the SELECT benefits are the same as standard medigap plans.(1) Like an HMO, however, SELECT plans pay supplemental benefits only when contracting network providers are used. Because Medicare SELECT plans are supplemental policies, they have no effect on Medicare program payments. The FFS Medicare program makes its payments whether or not services are delivered in or out of the SELECT network. Thus, from the beneficiary's perspective, SELECT plans function like a preferred provider organization (PPO) in that, when out-of-network providers are used, most of the cost (i.e., the Medicare program's obligation) is still covered, but some of the cost (i.e., the supplemental insurer's obligation) is not.

The 15 States initially designated as SELECT States are Alabama, Arizona, California, Florida, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Ohio, Oregon, Texas, Washington, and Wisconsin. Oregon and Michigan, however, quickly withdrew because of a lack of insurer interest and, in mid-1993, Illinois and Massachusetts were selected as replacements.

Although the Health Care Financing Administration (HCFA) was responsible for supervising the SELECT program, actual implementation was the responsibility of the department of insurance in each State. Within the guidelines of the National Association of Insurance Commissioners' (NAIC) model legislation, each State implemented SELECT according to its own insurance regulations, procedures, and standards. …

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