Across America, agents are waiting with considerable anxiety to see what the 2014 Medicare Advantage plans will look like. While there’s a high level of interest every year in what the new plan designs will look like, this year is perhaps the most anticipated in recent history.
That’s because the implementation of various parts of the Patient Protection and Affordable Care Act is set to strip tens of billions of dollars from the Medicare Advantage program at a time when participation is higher than ever.
According to the Kaiser Family Foundation, more than 14 million beneficiaries are enrolled in these plans — an all-time high — accounting for more than 28 percent of all Medicare beneficiaries. It’s also likely that only a fraction are even aware that pending funding cuts could possibly affect their benefits in the near future.
“Many Medicare beneficiaries have no idea about the Medicare funding cuts built into PPACA and what they could potentially do to their Medicare Advantage coverage,” says Taylor Martin, chief marketing officer for Senior Security Benefits Inc. in Fort Worth, Texas.
A closer look at the history of the Medicare Advantage program reveals a landscape littered with funding starts and stops that have created considerable instability in the program over the years.
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The program’s history
Congress enacts legislation to allow health maintenance organizations to provide coverage for Medicare beneficiaries, beginning a long history of private Medicare plan options. Originally plans were paid based on the average per capita costs of providing traditional Medicare-approved services in certain geographic locations. In some cases where per capita costs were not easy to estimate, the plans were then based on what Medicare officials determined to be the reasonable cost of providing such services.
Congress sets Medicare payments to these health plans at 95 percent of traditional Medicare payments in each county, causing an explosion in the number of available plans. Unfortunately, the growth was not uniform, and there continued to be pockets around the country where no private plan options existed. Low-income beneficiaries living outside of urban areas did not have the same access to the cost savings provided by private plans in urban areas where networks were easier to form.
The Balanced Budget Act officially names the private plan options “Medicare Plus Choice,” but redirects some of the program’s previous funding into other areas of government as part of the reconciliation of the budget. Oddly enough, the legislation sought to increase availability of the programs but also wanted to rein in costs by replacing the existing plans with tight networks of providers for greater cost control.
The result was catastrophic. By capping increases in the plan payments while at the same time growing Medicare’s regulatory reach over their operations, the legislation doomed more than half of the nearly 350 plans existing at that time. Scores of plan closures occurred around the country, resulting in more than a million beneficiaries being dumped from their plans back into the original fee-for-service Medicare system.
As costs for traditional Medicare continues to skyrocket, Congress reverses some of the cuts it enacted in the late 90s. It approves additional funds for the program in an effort to entice private plans back into the program, which now becomes the Medicare Advantage program. Insurance carriers respond predictably by rolling out new plan options and increasing benefits in existing plans. Within a few short years, a nearly complete reversal of the fallout that happened after the BBA occurs, and record numbers of enrollments ensue due to richer benefits that include disease management and care coordination.
The Patient Protection and Affordable Care Act produces another shift in payment policy by reducing federal payments to Medicare Advantage plans over time, bringing them closer to the average costs of care under the traditional Medicare program. In addition, the legislation requires plans to maintain a medical loss ratio of at least 85 percent beginning in 2014, restricting the share of premiums that Medicare Advantage plans can use for administrative expenses and profits. In 2014, plans also will begin to absorb a $220 per member annual premium tax.
What the future holds