Medicare Advantage
Increased Spending Relative to Medicare Fee-for-Service May Not Always Reduce Beneficiary Out-of-Pocket Costs Gao ID: GAO-08-359 February 22, 2008In 2006, the federal government spent about $59 billion on Medicare Advantage (MA) plans, an alternative to the original Medicare fee-for-service (FFS) program. Although health plans were originally envisioned in the 1980s as a potential source of Medicare savings, such plans have generally increased program spending. Payments to MA plans have been estimated to be 12 percent greater than what Medicare would have spent in 2006 had MA beneficiaries been enrolled in Medicare FFS. Some policymakers are concerned about the cost of the MA program and its contribution to overall spending on the Medicare program, which already faces serious long-term financial challenges. MA plans receive a per member per month (PMPM) payment to provide services covered under Medicare FFS. Almost all MA plans receive an additional Medicare payment, known as a rebate. Plans use rebates and sometimes additional beneficiary premiums to fund benefits not covered under Medicare FFS, reduce premiums, or reduce beneficiary cost sharing. This report examines for 2007 (1) MA plans' projected rebate allocations; (2) additional benefits MA plans commonly covered and their costs; (3) MA plans' projected cost sharing; and (4) MA plans' allocation of projected revenues and expenses. GAO analyzed data on MA plans' projected revenues and covered benefits for the most common types of MA plans, accounting for 71 percent of all beneficiaries in MA plans.
In 2007, plans projected that relatively little of their rebates would be spent on additional benefits compared to cost-sharing and premium reductions. Of the average projected rebate amount of $87 PMPM, plans projected they would allocate about $10 PMPM (11 percent) to additional benefits, about $61 PMPM (69 percent) to reduced cost sharing, and about $17 PMPM (20 percent) to reduced premiums. Using funding from both rebates and additional premiums, plans covered a variety of additional benefits not covered by Medicare FFS in 2007, including dental and vision benefits. On the basis of plans' projections, GAO estimated that rebates would pay for approximately 77 percent of additional benefits and additional beneficiary premiums would pay for the remaining 23 percent. MA plans projected that, on average, beneficiaries in their plans would have lower cost sharing than Medicare FFS cost-sharing estimates, although some MA plans projected that their beneficiaries would have higher cost sharing for certain service categories, such as home health care and inpatient services. Because cost sharing was projected to be higher for some categories of services, beneficiaries who frequently used these services could have had overall cost sharing that would be higher than under Medicare FFS. On average, MA plans projected that they would allocate about 87 percent of total revenue ($683 of $783 PMPM) to medical expenses; approximately 9 percent ($71 PMPM) to non-medical expenses, including administration, marketing, and sales; and approximately 4 percent ($30 PMPM) to the plans' margin, sometimes called the plans' profit. About 30 percent of beneficiaries were enrolled in plans that projected they would allocate less than 85 percent of their revenues to medical expenses. Whether the value that MA beneficiaries receive in the form of reduced cost sharing, lower premiums, and additional benefits is worth the additional cost is a decision for policymakers. However, if the policy objective is to subsidize health care costs of low-income Medicare beneficiaries, it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost sharing for all MA beneficiaries, including those who are well off. As Congress considers the design and cost of MA, it will be important for policymakers to balance the needs of beneficiaries and the necessity of addressing Medicare's long-term financial health. In commenting on a draft of this report, the Centers for Medicare & Medicaid Services expressed concern that the report was not balanced because it did not sufficiently focus on the advantages of MA plans. GAO disagrees. This report provides information on how plans projected they would use rebates and identified instances in which MA beneficiaries could have out-of-pocket costs higher than they would have experienced under Medicare FFS.
GAO-08-359, Medicare Advantage: Increased Spending Relative to Medicare Fee-for-Service May Not Always Reduce Beneficiary Out-of-Pocket Costs
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
February 2008:
Medicare Advantage:
Increased Spending Relative to Medicare Fee-for-Service May Not Always
Reduce Beneficiary Out-of-Pocket Costs:
GAO-08-359:
GAO Highlights:
Highlights of GAO-08-359, a report to congressional requesters.
Why GAO Did This Study:
In 2006, the federal government spent about $59 billion on Medicare
Advantage (MA) plans, an alternative to the original Medicare fee-for-
service (FFS) program. Although health plans were originally envisioned
in the 1980s as a potential source of Medicare savings, such plans have
generally increased program spending. Payments to MA plans have been
estimated to be 12 percent greater than what Medicare would have spent
in 2006 had MA beneficiaries been enrolled in Medicare FFS. Some
policymakers are concerned about the cost of the MA program and its
contribution to overall spending on the Medicare program, which already
faces serious long-term financial challenges.
MA plans receive a per member per month (PMPM) payment to provide
services covered under Medicare FFS. Almost all MA plans receive an
additional Medicare payment, known as a rebate. Plans use rebates and
sometimes additional beneficiary premiums to fund benefits not covered
under Medicare FFS, reduce premiums, or reduce beneficiary cost
sharing.
This report examines for 2007 (1) MA plans‘ projected rebate
allocations; (2) additional benefits MA plans commonly covered and
their costs; (3) MA plans‘ projected cost sharing; and (4) MA plans‘
allocation of projected revenues and expenses. GAO analyzed data on MA
plans‘ projected revenues and covered benefits for the most common
types of MA plans, accounting for 71 percent of all beneficiaries in MA
plans.
What GAO Found:
In 2007, plans projected that relatively little of their rebates would
be spent on additional benefits compared to cost-sharing and premium
reductions. Of the average projected rebate amount of $87 PMPM, plans
projected they would allocate about $10 PMPM (11 percent) to additional
benefits, about $61 PMPM (69 percent) to reduced cost sharing, and
about $17 PMPM (20 percent) to reduced premiums.
Using funding from both rebates and additional premiums, plans covered
a variety of additional benefits not covered by Medicare FFS in 2007,
including dental and vision benefits. On the basis of plans‘
projections, GAO estimated that rebates would pay for approximately 77
percent of additional benefits and additional beneficiary premiums
would pay for the remaining 23 percent.
MA plans projected that, on average, beneficiaries in their plans would
have lower cost sharing than Medicare FFS cost-sharing estimates,
although some MA plans projected that their beneficiaries would have
higher cost sharing for certain service categories, such as home health
care and inpatient services. Because cost sharing was projected to be
higher for some categories of services, beneficiaries who frequently
used these services could have had overall cost sharing that would be
higher than under Medicare FFS.
On average, MA plans projected that they would allocate about 87
percent of total revenue ($683 of $783 PMPM) to medical expenses;
approximately 9 percent ($71 PMPM) to non-medical expenses, including
administration, marketing, and sales; and approximately 4 percent ($30
PMPM) to the plans‘ margin, sometimes called the plans‘ profit. About
30 percent of beneficiaries were enrolled in plans that projected they
would allocate less than 85 percent of their revenues to medical
expenses.
Whether the value that MA beneficiaries receive in the form of reduced
cost sharing, lower premiums, and additional benefits is worth the
additional cost is a decision for policymakers. However, if the policy
objective is to subsidize health care costs of low-income Medicare
beneficiaries, it may be more efficient to directly target subsidies to
a defined low-income population than to subsidize premiums and cost
sharing for all MA beneficiaries, including those who are well off. As
Congress considers the design and cost of MA, it will be important for
policymakers to balance the needs of beneficiaries and the necessity of
addressing Medicare‘s long-term financial health.
In commenting on a draft of this report, the Centers for Medicare &
Medicaid Services expressed concern that the report was not balanced
because it did not sufficiently focus on the advantages of MA plans.
GAO disagrees. This report provides information on how plans projected
they would use rebates and identified instances in which MA
beneficiaries could have out-of-pocket costs higher than they would
have experienced under Medicare FFS.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-359]. For more information, contact James
Cosgrove at (202) 512-7114 or cosgrovej@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
MA Plans Projected That They Would Allocate Relatively Little of Their
Rebates to Additional Benefits and the Majority to Reduced Cost
Sharing:
MA Plans Used Rebates and Additional Premiums to Cover Additional
Benefits Such as Dental, Hearing, and Vision:
MA Plans Projected That MA Beneficiaries, on Average, Would Have Lower
Cost Sharing Than if They Were in Medicare FFS, but Some MA
Beneficiaries Could Pay More:
Approximately 87 Percent of Total Revenue Projected to Be Allocated to
Medical Expenses, but Projections Varied among Individual Plans:
Concluding Observations:
Agency and Other External Comments and Our Evaluation:
Appendix I: Example of a Rebate Calculation:
Appendix II: Scope and Methodology:
Appendix III: Plan Variation in Rebate Amounts:
Appendix IV: Plan Variation in the Out-of-Pocket Maximum:
Appendix V: Comments from the Centers for Medicare & Medicaid Services:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Rebate Amount PMPM Allocated to Additional Benefits, Premium
Reductions, and Cost-Sharing Reductions by Plan Type, 2007:
Table 2: Percentage of Beneficiaries in Plans That Charge an Additional
Premium and Average Amount of Additional Premium by Plan Type, 2007:
Table 3: Average Projected PMPM Costs of Additional Benefits by Service
Category and Plan Type for Plans That Offered Benefits and Reported
Costs, 2007:
Table 4: Beneficiaries in MA Plans with Higher Projected Cost Sharing
Than Medicare FFS for a Given Service Category by Plan Type, 2007:
Table 5: MA Plans That Exclude Some Services under a Service Category
from Their Out-of-Pocket Maximum:
Table 6: The Calculation of the Rebate for Two Hypothetical MA Plans:
Table 7: Rebate Amount Allocated to Additional Benefits, Premium
Reductions, and Cost-Sharing Reductions by Plan Type, 2007:
Table 8: Variation in Values of Out-of-Pocket Maximum by Plan Type,
2007:
Figures:
Figure 1: Projected Rebate Allocation to Additional Benefits, Premium
Reductions, and Cost-Sharing Reductions by Plan Type, 2007:
Figure 2: Percentage of Beneficiaries in Plans Covering Additional
Benefits by Plan Type, 2007:
Figure 3: Average Projected Cost Sharing for MA Beneficiaries Compared
to Their Cost Sharing in Medicare FFS, by Plan Type, 2007:
Figure 4: Example of an MA Plan with Inpatient Cost Sharing Different
from the Medicare FFS Program:
Figure 5: Beneficiaries in MA Plans by Out-of-Pocket Maximum Amount and
Plan Type, 2007:
Figure 6: Percentage of Beneficiaries in MA Plans That Project
Allocating Less Than 85 Percent of Total Revenues to Medical Expenses,
by Plan Type, 2007:
Figure 7: MA Plans' Projected Marketing and Sales Expenses by Plan
Type, 2007:
Abbreviations:
AHIP: America's Health Insurance Plans:
CHAMP Act: Children's Health and Medicare Protection Act of 2007:
CMS: Centers for Medicare & Medicaid Services:
FFS: fee-for-service:
HMO: Health Maintenance Organization:
MA: Medicare Advantage:
MedPAC: Medicare Payment Advisory Commission:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
MSA: Medical Savings Account:
PFFS: Private Fee-for-Service:
PMPM: per member per month:
PPO: Preferred Provider Organization:
PSO: Provider-Sponsored Organization:
SNP: Special Needs Plan:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
February 22, 2008:
Congressional Requesters:
In 2006, the federal government spent an estimated $59 billion on the
Medicare Advantage (MA) program, an alternative to the original
Medicare fee-for-service (FFS) program.[Footnote 1] The MA program
provides health care coverage to Medicare beneficiaries through private
health plans, referred to as MA plans. As of August 2007, 8.1 million
people--about one out of every five Medicare beneficiaries--were
enrolled in an MA plan. Although private health plans were originally
envisioned in the 1980s as a potential source of Medicare savings, such
plans have generally increased overall program spending. Medicare
spending on private health plans has increased rapidly since the
enactment of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA),[Footnote 2] rising 64 percent from
2004 to 2006, while enrollment has increased by more than 50 percent.
The MMA increased payment rates for private health plans and allowed
for larger annual rate increases, among other things.[Footnote 3] These
payment increases enabled MA plans to spend more money on additional
benefits relative to those available under Medicare FFS, such as vision
and hearing coverage; reductions in cost sharing--the amount a
beneficiary pays for covered services; and reductions in the premiums
that many Medicare FFS beneficiaries pay for coverage of outpatient
services and outpatient drugs. Beginning in 2006, MA plans were
required to submit bids for providing Medicare-covered services. MA
plans that submitted bids below predetermined benchmarks received
additional payments, known as rebates, and were required to spend their
rebates on additional benefits, reduced cost sharing, reduced premiums,
or a combination of the three.
As the MA program has grown, some policymakers and congressional
advisors have raised concerns about the design and cost of the program
as well as its effect on overall Medicare spending. The Medicare
Payment Advisory Commission (MedPAC) found that payments to MA plans in
2006 exceeded by 12 percent what Medicare would have paid had MA
beneficiaries received services through Medicare FFS.[Footnote 4] The
Congressional Budget Office estimated that $54 billion in projected
Medicare spending from 2009 through 2012 is the result of setting MA
plan payments above Medicare FFS spending.[Footnote 5] MA plans'
payments thus place an additional financial burden on the Medicare
program, which the Comptroller General and others have noted already
faces serious long-term financial challenges resulting from rising
health care costs and the retirement of the baby boom
generation.[Footnote 6] Proponents of the MA program assert that the
current level of MA plan payments has allowed plans to offer valuable
additional benefits and make health care services more affordable for
beneficiaries, particularly in rural areas where private plan options
had been very limited. Further, they note that the MA program provides
beneficiaries with private plan choices and enables them to select
plans that reflect their preferences for premiums and cost sharing.
They also point out that individuals with low incomes who do not
qualify for other government health care coverage may receive some
financial relief by enrolling in an MA plan. Critics of the current MA
program suggest that if the policy objective is to subsidize the health
care of individuals with low incomes, it would be more efficient to
directly target subsidies to a well-defined low-income population
instead of subsidizing the health care costs of all MA beneficiaries.
Program critics also assert that a large portion of the additional
payments to MA plans goes to profit and administrative costs and that
some MA beneficiaries face higher cost sharing than they would if they
received coverage through Medicare FFS. Questions have also been raised
that while the MA program provides beneficiaries with many health plan
choices, it can be difficult for even a sophisticated buyer to
understand the implications of different cost-sharing arrangements. In
addition, some policymakers are concerned that because premiums paid by
beneficiaries in Medicare FFS are tied to both Medicare FFS and MA
program spending, the excess payments to MA plans result in higher
premiums for all Medicare beneficiaries.
Medicare pays MA plans a per member per month (PMPM) amount that is
based on a plan's bid--its projection of the revenue it requires to
provide a beneficiary with services that are covered under Medicare
FFS, and a benchmark--the maximum amount Medicare will pay the plan to
serve an average beneficiary. Benchmarks vary by county, and in 2007,
every county in the United States had a benchmark that was at least as
high as average Medicare FFS spending PMPM in that county. If the
plan's bid is higher than the benchmark, Medicare pays the plan the
amount of the benchmark, and the plan must charge beneficiaries a
premium to collect the amount by which the bid exceeds the
benchmark.[Footnote 7] If the plan's bid is lower than the benchmark,
Medicare pays the plan the amount of the bid and makes an additional
rebate payment to the plan equal to 75 percent of the difference
between the benchmark and the bid. Plans use the rebate to provide
their beneficiaries with additional benefits beyond those offered in
Medicare FFS, reduce premiums, reduce cost sharing, or any combination
of the three. In 2007, the total amount of rebates paid to MA plans was
about $8.3 billion. (See app. I for more information about how rebates
are calculated.) Regardless of whether a plan's bid is above or below
the benchmark, a plan may charge its beneficiaries an additional
premium to provide additional benefits or reductions in cost sharing
that are not otherwise financed by rebates.[Footnote 8]
Given the additional spending--including rebates--for the MA program,
you asked that we undertake a study on MA plans' rebates, benefit
packages, and revenues. This report examines for 2007 (1) how MA plans
projected they would allocate the rebates they receive, (2) what
additional benefits MA plans commonly covered with the rebates and
additional premiums and the projected costs of these additional
benefits, (3) how MA plans' projected beneficiary cost sharing overall
and by type of service compared to Medicare FFS, and (4) how MA plans
projected they would allocate their revenue to medical and other
expenses.
We used two primary data sources in our analyses, the 2007 Bid Pricing
Tool data and the 2007 Plan Benefit Package data that MA plans
submitted to the Centers for Medicare & Medicaid Services (CMS), the
agency that administers Medicare. The bid pricing data contain MA
plans' projections of their revenue requirements and revenue sources.
Specifically, the bid pricing data contain information on the amount of
rebates and additional premiums plans project they will require to fund
additional benefits, reduced premiums, and reduced cost sharing. The
bid pricing data also contain information about how plans' projected
cost sharing compared to estimates of cost sharing in Medicare FFS and
plans' projections of revenue requirements--spending on medical
expenses, spending on non-medical expenses (such as marketing, sales,
and administration) and their margins.[Footnote 9] The benefit package
data contain detailed information on the benefits and cost-sharing
arrangements of plans.
We analyzed bid pricing data and benefit package data from four
different plan types, which together account for 98 percent of MA
enrollment--including Health Maintenance Organizations (HMO), Private
Fee-for-Service (PFFS) Plans, Preferred Provider Organizations (PPO),
and Provider-Sponsored Organizations (PSO).[Footnote 10] Because there
were only 22 PSOs and enrollment in those plans was only 1 percent of
total MA enrollment, we did not report results separately for PSOs, but
included them in the aggregated results we reported for all MA plans.
We excluded plans that have restrictions on enrollment--such as
employer plans and Special Needs Plans (SNP)--and bids for plans that
only cover certain Medicare FFS services.[Footnote 11] We also excluded
plans with service areas that are exclusively outside the 50 states and
the District of Columbia. After all exclusions, we had 2,055 plans in
our study that accounted for 71 percent of all beneficiaries in MA
plans. Unless otherwise noted, the analyses were based on these 2,055
plans and their beneficiaries. To address our study questions, we did
the following:
* To determine how plans projected they would allocate the rebates they
receive, we used the bid pricing data. We applied the proportion of the
combined rebate and additional premium allocated to additional
benefits, reduced premiums, and reduced cost sharing to the projected
total. We restricted this analysis to those plans that received a
rebate--1,874 of the 2,055 plans.
* To identify the additional benefits MA plans commonly covered with
rebates and additional premiums, and the projected costs of these
additional benefits, we analyzed both the benefit package and bid
pricing data. We used the benefit package data to identify the
additional benefits plans covered and used the bid pricing data to
identify the projected cost of these additional benefits. When we
analyzed the projected cost of additional benefits, we included both
the rebate payments and additional premiums. We included rebates and
additional premiums, rather than solely considering the effects of
rebates, because rebates and premiums together fund the additional
benefits that MA beneficiaries will receive. If we had estimated the
cost of additional benefits funded only by the rebates, that amount
would have been lower than the amount we report.
* To compare projected beneficiary cost sharing in the MA and Medicare
FFS programs, we used both the bid pricing and the benefit package
data. We used the bid pricing data to quantify the projected cost-
sharing reduction, using the plans projections of the average cost-
sharing expenditure on a PMPM basis, and compared this to CMS estimates
of what the average PMPM cost-sharing expenditure would be in Medicare
FFS. To obtain details on the specific cost-sharing arrangements used
by the plans, we used the benefit package data. As was the case for our
analysis of additional benefits, the amounts we reported for average
PMPM cost sharing and cost-sharing reductions were based on the amounts
projected by the plans and included funding from both rebates and
additional premiums. If we had estimated the amount of cost sharing
funded only by the rebates, the PMPM cost-sharing amounts would have
been higher and the cost-sharing reduction amounts would have been
lower.
* To identify how plans projected they would allocate their revenue to
medical and other expenses, we used the bid pricing data.
Throughout the report, dollar amounts are adjusted to reflect a
beneficiary of average health status. Where noted, we used August 2007
MA plan enrollment numbers to weight our results.
To determine the reliability of the bid pricing, benefits, and
enrollment data, we spoke with CMS officials about the strengths and
limitations of these data sets. We also conducted logic tests to ensure
that the bid pricing data were reasonable and consistent, and compared
the bid pricing and benefits data to ensure consistency, where
applicable, across the data sets. In some cases, there were
discrepancies between the two data sources. For example, some plans
indicated that they had an additional benefit in the benefit package
data, but did not price that additional benefit in the bid pricing
data. CMS officials indicated that these discrepancies could be due, in
part, to the different purposes of the benefit package and bid pricing
data sets, and resulting different benefit categorizations. CMS
officials said discrepancies may also be the result of some plans with
low projected amounts for additional benefits categorizing those
benefits as Medicare-covered services, or the bid pricing data may
accurately reflect low projected prices that round to zero. In general,
based on CMS's recommendations, we used the benefit package data as the
most reliable data source for identifying specific benefits covered by
plans, and used the bid pricing data to identify costs. We determined
that the data used were sufficiently reliable for the purposes of this
report. However, verifying that the projections presented in the bid
pricing data actually reflect plan revenues and expenditures was beyond
the scope of our work. See appendix II for more details on our scope
and methodology. We conducted our work from April 2007 through February
2008 in accordance with generally accepted government auditing
standards.
Results in Brief:
In 2007, MA plans that received rebates projected that relatively
little of the rebates would be spent on additional benefits compared to
cost-sharing and premium reductions. Of the average projected rebate
amount of $87 PMPM, plans projected that they would allocate about $10
PMPM (11 percent) to additional benefits, about $61 PMPM (69 percent)
to reduced cost sharing, and about $17 PMPM (20 percent) to reduced
premiums.
Using funding from rebates, additional premiums, or both, plans covered
a variety of additional benefits in 2007, including dental, hearing,
and vision benefits. The average projected PMPM costs of specific
additional benefits across all MA plans ranged from $0.11 PMPM for
international outpatient emergency services to $4 PMPM for dental care.
On the basis of plans' projections, we estimated that rebates would pay
for approximately 77 percent of these additional benefits, and
additional beneficiary premiums would pay for the remaining 23 percent.
MA plans projected that, on average, beneficiaries in their plans would
pay less in cost sharing than what their cost sharing would be in the
Medicare FFS program, although some MA plans projected that their
beneficiaries would have higher cost sharing for certain service
categories. For example, 19 percent of MA beneficiaries were in plans
that projected higher cost sharing for home health services and 16
percent of beneficiaries were in plans that projected higher cost
sharing for inpatient services. Because cost sharing was projected to
be higher for some categories of services, beneficiaries who frequently
used these services could have had overall cost sharing that would be
higher than under Medicare FFS. Similar to payments for additional
services, we estimated that rebates would pay for about 77 percent of
the cost-sharing reduction and the remainder would be paid for with
additional beneficiary premiums.
Plans' total revenues in 2007 were $783 PMPM, on average, of which
plans projected they would allocate approximately 87 percent ($683
PMPM) to medical expenses--referred to as a medical loss ratio of 0.87.
In addition, they projected that they would allocate approximately 9
percent of total revenue ($71 PMPM) to non-medical expenses, and
approximately 4 percent ($30 PMPM) to the plans' margin--sometimes
called a profit. About 30 percent of beneficiaries were enrolled in
plans with a medical loss ratio of less than 0.85.
Medicare spends more per beneficiary in the MA program than it does for
beneficiaries in Medicare FFS, at an estimated additional cost to
Medicare of $54 billion from 2009 through 2012. MA beneficiaries
generally, but not always, receive additional value in the form of
reduced cost sharing, lower premiums, and extra benefits, compared to
Medicare FFS beneficiaries. Whether the additional value that MA
beneficiaries receive is worth the additional cost to Medicare FFS
beneficiaries and other taxpayers is a decision for policymakers. If
the policy objective is to subsidize health care costs of low-income
Medicare beneficiaries, it may be more efficient to directly target
subsidies to a defined low-income population than to subsidize premiums
and cost sharing for all MA beneficiaries, including those who are well
off. As Congress considers the design and cost of the MA program, it
will be important for policymakers to balance the needs of MA
beneficiaries and Medicare FFS beneficiaries with the necessity of
addressing Medicare's long-term financial health.
In commenting on a draft of this report, CMS stated that we did not
consider that the majority of MA benefit packages in 2007 were better
than Medicare FFS and expressed concern that the report was not
balanced because it did not sufficiently focus on the advantages of MA
plans. They also noted that while they did not disagree with our
finding that some beneficiaries in MA plans could have higher out-of-
pocket costs, we did not recognize certain factors that would have
mitigated the impact of the finding. We disagree with CMS.
Specifically, we recognized in the report that, on average, plans
projected MA beneficiary cost sharing that was 42 percent of estimated
cost sharing in Medicare FFS. Our report provides an assessment of how
MA plans projected they would use their rebates in 2007, and identified
important issues related to cost sharing. America's Health Insurance
Plans (AHIP) indicated that they agreed with our methodology, but
raised certain points that they thought the report should have made or
emphasized. We added these points to the report as appropriate.
Background:
MA plans are required to cover benefits that are covered under the
Medicare FFS program.[Footnote 12] Medicare FFS consists of Part A;
hospital insurance--which covers inpatient stays, care in skilled
nursing facilities, hospice care, and some home health care, and Part
B, which covers certain physician, outpatient hospital, and laboratory
services, among other services. Persons aged 65 and older who meet
Medicare's work requirement, certain individuals with disabilities, and
most individuals with end-stage renal disease receive coverage for Part
A services and pay no premium.[Footnote 13] Individuals eligible for
Part A can also enroll in Part B, although they are charged a Part B
premium.[Footnote 14] For 2007, the monthly Part B premium was set at
$93.50, although high-income beneficiaries paid more. Most Medicare
beneficiaries who are eligible for Medicare FFS can choose to enroll in
the MA program instead of Medicare FFS.[Footnote 15] MA plans operate
under Medicare Part C.
All Medicare beneficiaries, regardless of their source of coverage, can
choose to receive prescription drug coverage through Medicare Part D.
Medicare FFS beneficiaries can enroll in stand-alone prescription drug
plans, which are operated by private plan sponsors, and they generally
must pay a premium to receive Part D coverage. MA beneficiaries who opt
for prescription drug coverage generally receive that coverage through
their MA plans, which may or may not charge an additional premium for
Part D coverage. Beneficiaries enrolled in a PFFS plan that does not
offer Part D coverage are allowed to enroll in a stand-alone
prescription drug plan.
Beneficiaries in both Medicare FFS and MA face cost-sharing
requirements for medical services. Cost sharing gives beneficiaries a
financial incentive to be mindful of the costs associated with using
services. Medicare FFS cost sharing takes different forms. It includes
both a Part A and a Part B deductible, which is the amount a
beneficiary pays for services before Medicare FFS begins to pay. For
2007, Medicare FFS required a deductible payment of $992 before it
began paying for an inpatient stay, and $131 before it began paying for
any Part B services. Cost sharing also includes coinsurance--a
percentage payment for a given service that a beneficiary must pay,
such as 20 percent of the total payment for physician visits, and
copayments--a standard amount a beneficiary must pay for a medical
service, such as $248 per day for days 61 through 90 of an inpatient
stay in 2007.
Medicare allows MA plans to have cost-sharing requirements that are
different from Medicare FFS's cost-sharing requirements. Plans may
require more or less cost sharing than Medicare FFS for a given
service, although, on average, a plan cannot require overall cost
sharing that exceeds what beneficiaries would be expected to pay under
Medicare FFS. MA plans may establish dollar limits on the amount a
beneficiary spends on cost sharing in a year of coverage. In contrast,
Medicare FFS has no total cost-sharing limit.[Footnote 16] Plans can
use both out-of-pocket maximums, limits that can apply to all services
but can exclude certain service categories, and service-specific
maximums, limits that apply to one service category. These limits help
provide financial protection to beneficiaries who might otherwise have
high cost-sharing expenses.
CMS officials said that they evaluate the cost-sharing arrangements of
MA plans to determine if cost sharing is too high for services likely
to be used by a beneficiary with below average health status. According
to CMS officials, in 2007, if an MA plan (1) had no out-of-pocket
maximum, (2) had an out-of-pocket maximum above $3,100, or (3) had an
out-of-pocket maximum of $3,100 or below and excluded certain
categories of service from that maximum, CMS compared the plan's cost
sharing for certain service categories to thresholds that CMS based on
Medicare FFS cost-sharing levels.[Footnote 17] If a plan exceeded one
or more thresholds, CMS may have sought to negotiate with the plan over
its cost sharing. According to CMS officials, the decision to negotiate
was based on various factors, including the extent to which the
thresholds were exceeded, local market comparisons, and the extent to
which high cost sharing in one category was balanced with low cost
sharing in another.[Footnote 18]
MA Plans Projected That They Would Allocate Relatively Little of Their
Rebates to Additional Benefits and the Majority to Reduced Cost
Sharing:
MA plans that received rebates projected, on average, that their
rebates would be $87 PMPM. The plans projected that they would allocate
a relatively small amount to additional benefits, compared to cost-
sharing and premium reductions. Plans projected that, on average, about
11 percent of their rebates would be allocated to additional benefits,
69 percent to reduced cost sharing, 17 percent to Part D premium
reductions, and 3 percent to Part B premium reductions. The average
projected rebate allocation to additional benefits and reduced premiums
varied by plan type. For example, PPOs projected that they would
allocate less to Part D premium reductions and more to additional
benefits than other plan types. PFFS plans projected that they would
allocate less to additional benefits than other plan types. (See fig.
1)
Figure 1: Projected Rebate Allocation to Additional Benefits, Premium
Reductions, and Cost-Sharing Reductions by Plan Type, 2007:
[See PDF for image]
This figure is a stacked vertical bar graph depicting the following
information:
Plan type: HMO [plans: 1,179; beneficiaries: 3,747,087];
Percentage of rebate, Cost-sharing reduction: 69%;
Percentage of rebate, Part B premium reduction: 2%;
Percentage of rebate, Part D premium reduction[B]: 18%;
Percentage of rebate, Additional benefits: 12%;
Total: 100%.
Plan type: PFFS [plans: 367; beneficiaries: 1,361,668];
Percentage of rebate, Cost-sharing reduction: 73%;
Percentage of rebate, Part B premium reduction: 5%;
Percentage of rebate, Part D premium reduction[B]: 14%;
Percentage of rebate, Additional benefits: 8%;
Total: 100%.
Plan type: PPO [plans: 306; beneficiaries: 268,460];
Percentage of rebate, Cost-sharing reduction: 73%;
Percentage of rebate, Part B premium reduction: 2%;
Percentage of rebate, Part D premium reduction[B]: 8%;
Percentage of rebate, Additional benefits: 16%;
Total: 100%.
Plan type: All plans[A] [plans: 1,874; beneficiaries: 5,454,573];
Percentage of rebate, Cost-sharing reduction: 69%;
Percentage of rebate, Part B premium reduction: 3%;
Percentage of rebate, Part D premium reduction[B]: 17%;
Percentage of rebate, Additional benefits: 11%;
Total: 100%.
Source: GAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: Percentages may not sum to 100 due to rounding. Percentages are
weighted by August 2007 plan enrollment. Employer plans, Part B only
plans, SNPs, regional PPOs, and plans with service areas that are
exclusively outside of the 50 states and the District of Columbia were
excluded from the analysis. This analysis includes only the 1,874 plans
that received a rebate.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[B] Of the 1,874 plans that received a rebate, 1,423 offered Part D
benefits to their beneficiaries. Of those that offered Part D, 1,037
reduced Part D premiums.
[End of figure]
In dollar terms, the average projected rebates varied by plan type,
from $55 PMPM for PPOs to $93 PMPM for HMOs. The dollar portions of the
rebates that plans allocated to cost sharing varied, reflecting the
variation in the average amount of the rebate. For example, on average,
both PFFS plans and PPOs projected that they would allocate 73 percent
of their rebate to cost-sharing reductions, but PFFS plans projected
this would average $51 PMPM while PPOs projected this would average $41
PMPM.[Footnote 19] (See table 1.) For more information on the variation
in how plans allocated rebates and the rebate amounts, see appendix
III.
Table 1: Rebate Amount PMPM Allocated to Additional Benefits, Premium
Reductions, and Cost-Sharing Reductions by Plan Type, 2007:
Rebate average:
HMO Plans = 1,179, Beneficiaries = 3,747,087: $93.29;
PFFS Plans = 367, Beneficiaries = 1,361,668: $70.06;
PPO Plans = 306, Beneficiaries = 268,460: $55.26;
All plans[A] Plans = 1,874, Beneficiaries = 5,454,573: $87.44.
Amount of rebate allocated to: Additional benefits[B];
HMO Plans = 1,179, Beneficiaries = 3,747,087: $11.36;
PFFS Plans = 367, Beneficiaries = 1,361,668: $5.58;
PPO Plans = 306, Beneficiaries = 268,460: $9.08;
All plans[A] Plans = 1,874, Beneficiaries = 5,454,573: $9.95.
Amount of rebate allocated to: Part D premium reduction[C];
HMO Plans = 1,179, Beneficiaries = 3,747,087: $16.35;
PFFS Plans = 367, Beneficiaries = 1,361,668: $9.51;
PPO Plans = 306, Beneficiaries = 268,460: $4.51;
All plans[A] Plans = 1,874, Beneficiaries = 5,454,573: $14.70.
Amount of rebate allocated to: Part B premium reduction;
HMO Plans = 1,179, Beneficiaries = 3,747,087: $1.59;
PFFS Plans = 367, Beneficiaries = 1,361,668: $3.62;
PPO Plans = 306 Beneficiaries = 268,460: $1.06;
All plans[A] Plans = 1,874, Beneficiaries = 5,454,573: $2.29.
Amount of rebate allocated to: Cost-sharing reduction[B];
HMO Plans = 1,179, Beneficiaries = 3,747,087: $63.99;
PFFS Plans = 367, Beneficiaries = 1,361,668: $51.34;
PPO Plans = 306, Beneficiaries = 268,460: $40.61;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $60.51.
Source: GAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: Values are weighted by August 2007 plan enrollment and are
standardized to represent a beneficiary of average health status.
Employer plans, Part B only plans, SNPs, regional PPOs, and plans with
service areas that are exclusively outside of the 50 states and the
District of Columbia are excluded from the analysis. This analysis
included only the 1,874 plans that received a rebate.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[B] The rebate amounts allocated to cost sharing and additional
benefits included some non-medical expenses, such as administrative
costs and plans' margins.
[C] Of the 1,874 plans that received a rebate, 1,423 offered Part D
benefits to their beneficiaries. Of those that offered Part D, 1,037
reduced Part D premiums.
[End of table]
While nearly all MA enrollees were in plans that received rebates, some
plans charged additional premiums either in addition to the rebate or
as the sole funding source to pay for additional benefits, reduced cost
sharing, or a combination of the two. In 2007, approximately 41 percent
of beneficiaries (about 2.3 million people) were enrolled in an MA plan
that charged an additional premium. There were differences in the
extent to which plans charged additional premiums by plan type. For
example, 31 percent of beneficiaries enrolled in PFFS plans were
charged an additional premium, compared to 83 percent of beneficiaries
enrolled in PPOs. Of plans that charged an additional premium, the
average additional premium was $58 PMPM.[Footnote 20] (See table 2.)
Plans that received rebates and charged additional premiums had lower
rebates ($54 PMPM on average), than plans that received rebates and did
not charge an additional premium ($107 PMPM on average), and these
plans allocated less of their rebates to premium reductions and more to
additional benefits and cost-sharing reductions.[Footnote 21]
Table 2: Percentage of Beneficiaries in Plans That Charge an Additional
Premium and Average Amount of Additional Premium by Plan Type, 2007:
Percentage of beneficiaries in plans that charge an additional premium
and do not receive a rebate:
HMO Plans = 1,209, Beneficiaries = 3,977,161: 6;
PFFS Plans = 479, Beneficiaries = 1,408,103: 3;
PPO Plans = 345, Beneficiaries = 301,746: 11;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: 5.
Percentage of beneficiaries in plans that charge an additional premium
and receive a rebate:
HMO Plans = 1,209, Beneficiaries = 3,977,161: 36;
PFFS Plans = 479, Beneficiaries = 1,408,103: 28;
PPO Plans = 345, Beneficiaries = 301,746: 72;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: 35.
Average amount of additional premium (PMPM):
HMO Plans = 1,209, Beneficiaries = 3,977,161: $61.87;
PFFS Plans = 479, Beneficiaries = 1,408,103: $42.09;
PPO Plans = 345, Beneficiaries = 301,746: $60.47;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: $58.00.
Source: GAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: Values are weighted by August 2007 plan enrollment and are
standardized to represent a beneficiary of average health status.
Employer plans, Part B only plans, SNPs, regional PPOs, and plans with
service areas that are exclusively outside of the 50 states and the
District of Columbia were excluded from the analysis.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[End of table]
MA Plans Used Rebates and Additional Premiums to Cover Additional
Benefits Such as Dental, Hearing, and Vision:
MA plans covered several common additional benefits with the rebates,
additional premiums, or both. These benefits included:
* dental benefits, which may include oral exams, teeth cleanings,
fluoride treatments, dental X-rays, or emergency dental services;
* health education benefits, which may include nutritional training,
smoking cessation, health club memberships, or nursing hotlines;
* hearing benefits, which may include coverage for hearing tests,
hearing aid fittings, and hearing aid evaluations;
* inpatient facility stays, which may include additional inpatient
facility days beyond those covered under Medicare FFS;
* international coverage for outpatient emergency services;
* skilled nursing facility stays, which include days in a skilled
nursing facility beyond those covered under Medicare FFS; and:
* vision benefits, which may include coverage for routine eye exams,
contacts, or eyeglasses (lenses and frames).
Almost all plans covered international outpatient emergency services
and additional days in a skilled nursing facility and inpatient
facility beyond what Medicare FFS covers. The percentage of plans
covering dental, vision, or hearing services varied by plan type. For
example, PFFS plans were more likely to cover hearing and less likely
to cover dental and vision services than HMOs and PPOs. (See fig. 2.)
Figure 2: Percentage of Beneficiaries in Plans Covering Additional
Benefits by Plan Type, 2007:
[See PDF for image]
This figure is a multiple vertical bar graph, depicting the Percentage
of Beneficiaries in Plans Covering Additional Benefits by Plan Type,
2007, as follows:
Service category: Dental[A];
Plan type and percentage of beneficiaries: HMO (plans = 1,209;
beneficiaries = 3,977,161): 33;
Plan type and percentage of beneficiaries: PFFS (plans = 479;
beneficiaries = 1,408,103): 24;
Plan type and percentage of beneficiaries: PPO (plans = 345;
beneficiaries = 301,746): 45.
Service category: Health Education[B];
Plan type and percentage of beneficiaries: HMO (plans = 1,209;
beneficiaries = 3,977,161): 83;
Plan type and percentage of beneficiaries: PFFS (plans = 479;
beneficiaries = 1,408,103): 80;
Plan type and percentage of beneficiaries: PPO (plans = 345;
beneficiaries = 301,746): 89.
Service category: Hearing[C];
Plan type and percentage of beneficiaries: HMO (plans = 1,209;
beneficiaries = 3,977,161): 61;
Plan type and percentage of beneficiaries: PFFS (plans = 479;
beneficiaries = 1,408,103): 89;
Plan type and percentage of beneficiaries: PPO (plans = 345;
beneficiaries = 301,746): 52.
Service category: Inpatient stays[D];
Plan type and percentage of beneficiaries: HMO (plans = 1,209;
beneficiaries = 3,977,161): 96;
Plan type and percentage of beneficiaries: PFFS (plans = 479;
beneficiaries = 1,408,103): 88;
Plan type and percentage of beneficiaries: PPO (plans = 345;
beneficiaries = 301,746): 98.
Service category: International outpatient emergency;
Plan type and percentage of beneficiaries: HMO (plans = 1,209;
beneficiaries = 3,977,161): 95;
Plan type and percentage of beneficiaries: PFFS (plans = 479;
beneficiaries = 1,408,103): 95;
Plan type and percentage of beneficiaries: PPO (plans = 345;
beneficiaries = 301,746): 94.
Service category: Skilled nursing facility stays[D];
Plan type and percentage of beneficiaries: HMO (plans = 1,209;
beneficiaries = 3,977,161): 95;
Plan type and percentage of beneficiaries: PFFS (plans = 479;
beneficiaries = 1,408,103): 89;
Plan type and percentage of beneficiaries: PPO (plans = 345;
beneficiaries = 301,746): 94.
Service category: Vision[E];
Plan type and percentage of beneficiaries: HMO (plans = 1,209;
beneficiaries = 3,977,161): 89;
Plan type and percentage of beneficiaries: PFFS (plans = 479;
beneficiaries = 1,408,103): 49;
Plan type and percentage of beneficiaries: PPO (plans = 345;
beneficiaries = 301,746): 82.
Source: GAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: The percentages of beneficiaries in plans that have additional
benefits are as of August 2007. This analysis included additional
benefits funded by both rebates and additional premiums. Employer
plans, Part B only plans, SNPs, regional PPOs, and plans with service
areas that are exclusively outside of the 50 states and the District of
Columbia were excluded from the analysis.
[A] Dental benefits may include oral exams, teeth cleanings, fluoride
treatments, dental X-rays, or emergency dental services.
[B] Health education benefits may include nutritional training, smoking
cessation, health club memberships, or nursing hotlines.
[C] Hearing benefits may include coverage for hearing tests, hearing
aid fittings, and hearing aid evaluations.
[D] Inpatient stays and skilled nursing facility stays may include
additional days beyond what Medicare FFS covers.
[E] Vision benefits may include coverage for routine eye exams,
contacts, or eyeglasses (lenses and frames).
[End of figure]
The average projected dollar amount of the common additional benefits
across all MA plans ranged from $0.11 PMPM for international outpatient
emergency services to $4 PMPM for dental care. These estimates were
based on the subset of plans that provided cost projections in the
categories associated with the benefits. The number of plans included
in the averages varies from the number of plans offering the benefits
in part because some plans did not consistently include the same
additional services in the same benefit categories. For example, some
plans categorized all or part of the costs associated with additional
vision benefits in other categories, such as professional
services.[Footnote 22] These estimates are also based on plans'
reported funding for additional benefits from both rebates and
additional premiums. Had we limited our analysis to additional benefits
funded only from rebates, the estimated amounts of the additional
benefits would have been lower. On the basis of plan projections, we
estimated that rebates would pay for most of the additional benefits
plans provided (77 percent), while additional premiums would pay for
the remainder (23 percent). Table 3 provides a summary of the projected
costs of additional benefits.
Table 3: Average Projected PMPM Costs of Additional Benefits by Service
Category and Plan Type for Plans That Offered Benefits and Reported
Costs, 2007:
Dental[B]:
HMO: Number of plans: 435;
HMO: Average cost (PMPM): $3.72;
PFFS: Number of plans: 29;
PFFS: Average cost (PMPM): $4.34;
PPO: Number of plans: 80; PPO: Average cost (PMPM): $5.79;
All plans[A]: Number of plans: 555;
All plans[A]: Average cost (PMPM): $4.00.
Health education[C]:
HMO: Number of plans: 641;
HMO: Average cost (PMPM): $2.01;
PFFS: Number of plans: 97;
PFFS: Average cost (PMPM): $1.12;
PPO: Number of plans: 165;
PPO: Average cost (PMPM): $1.95;
All plans[A]: Number of plans: 920;
All plans[A]: Average cost (PMPM): $1.88.
Hearing[D]:
HMO: Number of plans: 865;
HMO: Average cost (PMPM): $0.86;
PFFS: Number of plans: 185;
PFFS: Average cost (PMPM): $0.97;
PPO: Number of plans: 235;
PPO: Average cost (PMPM): $1.51;
All plans[A]: Number of plans: 1301;
All plans[A]: Average cost (PMPM): $0.92.
Inpatient stays[E]:
HMO: Number of plans: 966;
HMO: Average cost (PMPM): $1.74;
PFFS: Number of plans: 255;
PFFS: Average cost (PMPM): $1.31;
PPO: Number of plans: 240;
PPO: Average cost (PMPM): $1.75;
All plans[A]: Number of plans: 1482;
All plans[A]: Average cost (PMPM): $1.69.
International outpatient emergency:
HMO: Number of plans: 698;
HMO: Average cost (PMPM): $0.13;
PFFS: Number of plans: 165;
PFFS: Average cost (PMPM): $0.05;
PPO: Number of plans: 204;
PPO: Average cost (PMPM): $0.06;
All plans[A]: Number of plans: 1083;
All plans[A]: Average cost (PMPM): $0.11.
Skilled nursing facility stays[E]:
HMO: Number of plans: 576;
HMO: Average cost (PMPM): $1.33;
PFFS: Number of plans: 119;
PFFS: Average cost (PMPM): $0.38;
PPO: Number of plans: 94;
PPO: Average cost (PMPM): $1.55;
All plans[A]: Number of plans: 801;
All plans[A]: Average cost (PMPM): $1.14.
Vision[F]:
HMO: Number of plans: 1,076;
HMO: Average cost (PMPM): $3.41;
PFFS: Number of plans: 182;
PFFS: Average cost (PMPM): $2.37;
PPO: Number of plans: 280;
PPO: Average cost (PMPM): $5.76;
All plans[A]: Number of plans: 1559;
All plans[A]: Average cost (PMPM): $3.37.
Source: GAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: Dollar amounts are weighted by August 2007 plan enrollment and
are standardized to represent a beneficiary of average health status.
We considered an MA plan to have covered an additional benefit if it
projected that it would allocate at least $.01 PMPM of revenue to the
additional benefit. Employer plans, Part B only plans, SNPs, regional
PPOs, and plans with service areas that are exclusively outside of the
50 states and the District of Columbia were excluded from the analysis.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there are only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[B] Dental benefits may include oral exams, teeth cleanings, fluoride
treatments, dental X-rays, or emergency dental services.
[C] Health education benefits may include nutritional training, smoking
cessation, health club memberships, or nursing hotlines.
[D] Hearing benefits may include coverage for hearing tests, hearing
aid fittings, and hearing aid evaluations.
[E] Inpatient stays and skilled nursing facility stays may include
additional days beyond what Medicare FFS covers.
[F] Vision benefits may include coverage for routine eye exams,
contacts, or eyeglasses (lenses and frames).
[End of table]
MA Plans Projected That MA Beneficiaries, on Average, Would Have Lower
Cost Sharing Than if They Were in Medicare FFS, but Some MA
Beneficiaries Could Pay More:
For 2007, MA plans projected that MA beneficiary cost sharing would be
42 percent of estimated cost sharing in Medicare FFS. (See fig 3.)
Plans projected that their beneficiaries, on average, would pay $49
PMPM in cost sharing, and they estimated that Medicare FFS equivalent
cost sharing for their beneficiaries was $116 PMPM. On the basis of
plans' projections, we estimated that about 77 percent of the reduction
in beneficiary cost sharing was funded by rebates with the remainder
being funded by additional beneficiary premiums.
Figure 3: Average Projected Cost Sharing for MA Beneficiaries Compared
to Their Cost Sharing in Medicare FFS, by Plan Type, 2007:
[See PDF for image]
This figure is a vertical bar graph depicting the following
information:
Plan type: HMO;
Percentage of Medicare FFS cost-sharing estimate: 40%.
Plan type: PFFS;
Percentage of Medicare FFS cost-sharing estimate: 51%.
Plan type: PPO;
Percentage of Medicare FFS cost-sharing estimate: 45%.
Plan type: All plans[A];
Percentage of Medicare FFS cost-sharing estimate: 42%.
Source: GAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: Employer plans, Part B only plans, SNPs, regional PPOs, and
plans with service areas that are exclusively outside of the 50 states
and the District of Columbia were excluded from the analysis. Numbers
are weighted by August 2007 plan enrollment.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[End of figure]
Although plans projected that beneficiaries' overall cost sharing was
lower, on average, than Medicare FFS cost-sharing estimates, some MA
plans projected that cost sharing for certain categories of services
was higher than Medicare FFS cost-sharing estimates. For example, 19
percent of MA beneficiaries were enrolled in plans that projected
higher cost sharing for home health services, on average, than Medicare
FFS, which has no cost sharing for this service at all, and 16 percent
of beneficiaries were enrolled in plans that projected higher cost
sharing for inpatient services compared to Medicare FFS
estimates.[Footnote 23] (See table 4.) Because cost sharing is higher
for some categories of services, some beneficiaries who frequently use
these services can have overall cost sharing that is higher than what
they would pay under Medicare FFS.
Table 4: Beneficiaries in MA Plans with Higher Projected Cost Sharing
Than Medicare FFS for a Given Service Category by Plan Type, 2007:
Home health services[B]:
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 422,078;
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 11;
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 393,523;
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 28;
PPO Plans = 345, Beneficiaries = 301,746: Number: 253,242;
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 84;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number:
1,069,023;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 19.
Inpatient services[C]:
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 699,763;
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 18;
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 170,737;
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 12;
PPO Plans = 345, Beneficiaries = 301,746: Number: 66,746;
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 22;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 937,246;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 16.
Skilled nursing facility services:
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 384,960;
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 10;
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 67,017;
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 5;
PPO Plans = 345, Beneficiaries = 301,746: Number: 47,094;
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 16;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 499,071;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 9.
Durable medical equipment, prosthetics, and supplies:
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 92,070;
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 2;
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 110,147;
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 8;
PPO Plans = 345, Beneficiaries = 301,746: Number: 13,324;
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 4;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 215,541;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 4.
Part B drugs[D]:
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 88,458;
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 2;
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 7,975;
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 1;
PPO Plans = 345, Beneficiaries = 301,746: Number: 4,806;
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 2;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 101,416;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 2.
Outpatient facility services[E]:
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 31,359;
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 1;
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 0;
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 0;
PPO Plans = 345, Beneficiaries = 301,746: Number: 138;
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 0;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 31,497;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 1.
Professional services[C]:
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 14,641;
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 0;
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 5,781;
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 0;
PPO Plans = 345, Beneficiaries = 301,746: Number: 26,611;
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 9;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 47,033;
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 1.
Source: GAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: Employer plans, Part B only plans, SNPs, regional PPOs, and
plans with service areas that are exclusively outside of the 50 states
and the District of Columbia were excluded from the analysis.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[B] Home health services include skilled nursing services, home health
aides, and certain therapy services, all provided in the home setting.
[C] Many MA plans include cost sharing for professional services, such
as physician visits received during a hospital stay, in their inpatient
cost-sharing amount. As a result, the cost sharing for professional
services may be understated for MA plans, while the inpatient cost
sharing may be overstated for MA plans. Professional services include
physician visits, therapy, and radiology, among other services.
[D] Part B drugs are drugs that are covered under Medicare Part B, and
they include drugs that are typically administered by a physician. Many
plans excluded Part B drugs from the out-of-pocket maximum if they were
obtained from a pharmacy, but according to CMS, did not exclude Part B
drugs administered by a physician.
[E] Outpatient facility services include surgery, emergency, and other
services provided in an outpatient facility.
[End of table]
Cost sharing for particular categories of services varied substantially
among MA plans. For example, we found significant variation in cost
sharing for inpatient services. Some MA beneficiaries were in plans
with no cost sharing for inpatient services. More than half a million
MA beneficiaries, representing 9 percent of MA beneficiaries, were in
193 plans with no deductibles, copayments, or coinsurance requirements
for inpatient services as of August 2007. Beneficiaries in these plans
with long or frequent hospital stays could have saved thousands
compared to what their cost sharing would have been if they were
enrolled in Medicare FFS, which typically included a $992 deductible, a
$248 daily copayment for hospital stays lasting between 61 and 90 days,
and additional coinsurance payments for professional services provided
in the hospital.[Footnote 24]
Other MA beneficiaries, however, could have paid substantially more
than Medicare FFS beneficiaries for inpatient care. We found 80 MA
plans that charged a daily copayment of $200 or more for the first 10
days of a hospital admission and placed high or no limits on out-of-
pocket costs for inpatient services.[Footnote 25] These 80 MA plans
also had more than half a million beneficiaries. Beneficiary cost
sharing in these 80 plans could have been $2,000 or more for a 10-day
hospital stay, and $3,000 or more for three average-length hospital
stays.[Footnote 26] Figure 4 provides an illustrative example of an MA
plan that could have exposed a beneficiary to higher inpatient costs
than under Medicare FFS. While the plan in this illustrative example
had lower cost sharing than Medicare FFS for initial hospital stays of
4 days or less as well as initial hospital stays of 30 days or more,
for stays of other lengths the MA plan could have cost beneficiaries
more than $1,000 above out-of-pocket costs under Medicare FFS. The
disparity between out-of-pocket costs under the MA plan and costs under
Medicare FFS was largest when comparing additional hospital visits in
the same benefit period, since Medicare FFS does not charge a
deductible if an admission occurs within 60 days of a previous
admission.
Figure 4: Example of an MA Plan with Inpatient Cost Sharing Different
from the Medicare FFS Program:
[See PDF for image]
This figure is a multiple line graph depicting an example of an MA Plan
with inpatient cost sharing different from the Medicare FFS Program.
The vertical axis of the graph represents total cost to beneficiaries
from 0 to $3,500. The horizontal axis of the graph represents length of
stay in days from 1 to 35. Three lines are depicted, representing the
following information:
MA plan cost sharing consisting of a copayment for days 1-10 of a
hospital stay:
This line shows a cost of about $275 on day one, rising steadily to
about $2,750 by day ten, and remaining constant for the remaining
number of days. There is a $275 per day copayment under the MA plan for
days 1-10 and no per day copayment under the MA plan for days 11-90.
Medicare FFS estimated cost sharing for an initial hospital stay
consisting of coinsurance for physician services received in the
hospital and a deductible:
This line shows a cost of about $1,100 on day one, rising steadily to
about $3,000 by day 35.
Medicare FFS estimated cost sharing for a subsequent hospital stay
consisting of coinsurance for physician services received in the
hospital (no deductible):
This line shows a cost of 0 on day one, rising steadily to about $2,000
by day 35.
Source: GAO analysis of 2007 CMS Plan Benefit Package data and CMS
actuarial data.
Notes: In this example, the MA plan charged a $275 daily copayment for
the first 10 days of the hospital stay, and charged no additional
copayment for days 11 through 90. The plan had a $4,000 out-of-pocket
maximum. In contrast, in 2007 Medicare FFS charged a $992 deductible
for an initial hospital stay in a benefit period and $248 per day for
days 61 through 90 of a hospital stay. Medicare FFS beneficiaries paid
no deductible for a subsequent hospital stay if it occurred within 60
days of the previous stay in an inpatient facility. In addition,
Medicare FFS beneficiaries must pay coinsurance for physician services
received while in the hospital. The charges associated with these
physician services averaged $73 per day for the first 4 days of the
hospital stay, and $58 per day for the remaining days of a hospital
stay through 90 days. This example assumes that the beneficiary was
charged the average coinsurance. The actual amount of coinsurance a
beneficiary pays varies based on the amount of services a beneficiary
receives, and charges can be above or below the average.
[A] Nearly 88 percent of hospital stays under Medicare were 10 days or
less in 2004 according to CMS data. About 3 percent of hospital stays
were 20 days or longer, and 1 percent of stays were longer than 30
days.
[End of figure]
As of August 2007, about 48 percent of MA beneficiaries were enrolled
in plans that had an out-of-pocket maximum, which helps protect
beneficiaries against high spending on cost sharing.[Footnote 27] (See
fig. 5.) Of the three most common MA plan types, beneficiaries in PFFS
plans were the most likely to be in a plan with an out-of-pocket
maximum, but PFFS plans also had the highest average out-of-pocket
maximum. For MA plans that had an out-of-pocket maximum, the average
amount was $3,463. See appendix IV for further details on out-of-pocket
maximums.
Figure 5: Beneficiaries in MA Plans by Out-of-Pocket Maximum Amount and
Plan Type, 2007:
[See PDF for image]
This figure is a stacked vertical bar graph depicting the following
information:
Plan type: HMO, Plans = 1,209, beneficiaries = 3,977,161:
Percentage of beneficiaries, Overall out-of-pocket maximum of $3,100 or
below: 20;
Percentage of beneficiaries, Overall out-of-pocket maximum of greater
than $3,100: 16;
Percentage of beneficiaries, No overall out-of-pocket maximum: 64.
Plan type: PFFS, Plans = 479, beneficiaries = 1,408,103:
Percentage of beneficiaries, Overall out-of-pocket maximum of $3,100 or
below: 28;
Percentage of beneficiaries, Overall out-of-pocket maximum of greater
than $3,100: 50;
Percentage of beneficiaries, No overall out-of-pocket maximum: 23.
Plan type: PPO, Plans = 345, beneficiaries = 301,746:
Percentage of beneficiaries, Overall out-of-pocket maximum of $3,100 or
below: 57;
Percentage of beneficiaries, Overall out-of-pocket maximum of greater
than $3,100: 11;
Percentage of beneficiaries, No overall out-of-pocket maximum: 32.
Plan type: All plans[A], Plans = 2,055, beneficiaries = 5,764,368:
Percentage of beneficiaries, Overall out-of-pocket maximum of $3,100 or
below: 24;
Percentage of beneficiaries, Overall out-of-pocket maximum of greater
than $3,100: 24;
Percentage of beneficiaries, No overall out-of-pocket maximum: 52.
Notes: For 2007, CMS generally applied less stringent criteria in
evaluating a plan's cost-sharing requirements if the plan had an out-
of-pocket maximum of $3,100 or below. If a plan had two out-of-pocket
maximums--one for in-network services and one for combined in-and out-
of-network services, then we used the lower value for this analysis.
Some plans without an out-of-pocket maximum did have a service-specific
maximum. Twenty-one percent of plans with no out-of-pocket maximum had
a service-specific maximum for inpatient acute services, and 16 percent
of plans with no out-of-pocket maximum had a service-specific maximum
for inpatient psychiatric services. Employer plans, Part B only plans,
SNPs, regional PPOs, and plans with service areas that are exclusively
outside of the 50 states and the District of Columbia were excluded
from the analysis. Some numbers do not add up to 100 due to rounding.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[End of figure]
An out-of-pocket maximum does not always cover all categories of
services. Some MA plans excluded some services from the out-of-pocket
maximum. Beneficiaries who use these excluded services may pay more in
total cost sharing than is indicated by the plan's out-of-pocket
maximum. Part B drugs, which include drugs that are typically
physician-administered drugs, were most often excluded from the out-of-
pocket maximum--29 percent of MA plans with an out-of-pocket maximum
excluded some Part B drugs from that maximum.[Footnote 28] (See table
5.) Plans that excluded a certain service category from the out-of-
pocket maximum did not necessarily exclude all services from that
category. For example, many plans excluded Part B drugs from the out-
of-pocket maximum if they were obtained from a pharmacy, but according
to CMS, did not exclude Part B drugs administered by a physician.
Table 5: MA Plans That Exclude Some Services under a Service Category
from Their Out-of-Pocket Maximum:
Part B drugs[A]:
Number of plans, Plans = 1,016: 296;
Percentage of plans, Plans = 1,016: 29;
Number of beneficiaries, Beneficiaries = 2,738,531: 1,107,876;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 40.
Outpatient substance abuse:
Number of plans, Plans = 1,016: 233;
Percentage of plans, Plans = 1,016: 23;
Number of beneficiaries, Beneficiaries = 2,738,531: 645,997;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 24.
Physician specialist, excluding psychiatric:
Number of plans, Plans = 1,016: 230;
Percentage of plans, Plans = 1,016: 23;
Number of beneficiaries, Beneficiaries = 2,738,531: 641,270;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 23.
Mental health, non-physician:
Number of plans, Plans = 1,016: 230;
Percentage of plans, Plans = 1,016: 23;
Number of beneficiaries, Beneficiaries = 2,738,531: 630,504;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 23.
Psychiatric:
Number of plans, Plans = 1,016: 218;
Percentage of plans, Plans = 1,016: 21;
Number of beneficiaries, Beneficiaries = 2,738,531: 602,500;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 22.
Home health services:
Number of plans, Plans = 1,016: 211;
Percentage of plans, Plans = 1,016: 21;
Number of beneficiaries, Beneficiaries = 2,738,531: 569,618;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 21.
Prosthetics and medical supplies:
Number of plans, Plans = 1,016: 128;
Percentage of plans, Plans = 1,016: 13;
Number of beneficiaries, Beneficiaries = 2,738,531: 603,952;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 22.
Durable medical equipment:
Number of plans, Plans = 1,016: 116;
Percentage of plans, Plans = 1,016: 11;
Number of beneficiaries, Beneficiaries = 2,738,531: 565,413;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 21.
Outpatient hospital:
Number of plans, Plans = 1,016: 72;
Percentage of plans, Plans = 1,016: 7;
Number of beneficiaries, Beneficiaries = 2,738,531: 192,182;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 7.
Inpatient hospital, psychiatric:
Number of plans, Plans = 1,016: 37;
Percentage of plans, Plans = 1,016: 4;
Number of beneficiaries, Beneficiaries = 2,738,531: 149,105;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 5.
Skilled nursing facility:
Number of plans, Plans = 1,016: 34;
Percentage of plans, Plans = 1,016: 3;
Number of beneficiaries, Beneficiaries = 2,738,531: 100,700;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 4.
Inpatient hospital, acute:
Number of plans, Plans = 1,016: 19;
Percentage of plans, Plans = 1,016: 2;
Number of beneficiaries, Beneficiaries = 2,738,531: 29,937;
Percentage of beneficiaries, Beneficiaries = 2,738,531: 1.
Source: GAO analysis of 2007 CMS Plan Benefit Package data.
Notes: We considered an MA plan to have an out-of-pocket maximum if the
plan had either an in-network out-of-pocket maximum or an out-of-pocket
maximum for both in-network and out-of-network services. A plan was
considered to have excluded a service category from the out-of-pocket
maximum if the out-of-pocket maximum did not cover that service
category and if the plan had no service-specific maximum for that
category. Plans that excluded a certain service category from the out-
of-pocket maximum did not necessarily exclude all services from that
category. HMOs, PFFS plans, PPOs, and PSOs were included in the
analysis. Employer plans, Part B only plans, SNPs, regional PPOs, and
plans with service areas that were exclusively outside of the 50 states
and the District of Columbia were excluded from the analysis. Only
plans with an out-of-pocket maximum were included in this analysis.
[A] Many plans excluded Part B drugs from the out-of-pocket maximum if
they were obtained from a pharmacy, but according to CMS, did not
exclude Part B drugs administered by a physician.
[End of table]
Approximately 87 Percent of Total Revenue Projected to Be Allocated to
Medical Expenses, but Projections Varied among Individual Plans:
For 2007, MA plans projected that of their total revenues ($783 PMPM),
they would allocate approximately 87 percent ($683 PMPM) to medical
expenses, resulting in an average medical loss ratio of approximately
0.87. MA plans projected that they would allocate approximately 9
percent of total revenue ($71 PMPM) to non-medical expenses, and
approximately 4 percent ($30 PMPM) to the plans' margin, on
average.[Footnote 29]
While there was little variation in the average projected medical loss
ratio by plan type, there was variation among individual plans. For
example, we found that about 30 percent of beneficiaries--about 1.7
million--were enrolled in plans with a medical loss ratio of less than
0.85--the threshold included in the Children's Health and Medicare
Protection Act of 2007 (CHAMP Act).[Footnote 30] (See fig. 6.) A CMS
official we spoke to stated that the medical loss ratio may vary for
reasons other than utilization and the cost of providing care. For
example, some MA plans may categorize the costs of delivering care
management services as a medical expense, while other plans may include
this as a non-medical expense.
Figure 6: Percentage of Beneficiaries in MA Plans That Project
Allocating Less Than 85 Percent of Total Revenues to Medical Expenses,
by Plan Type, 2007:
[See PDF for image]
This figure is a vertical bar graph, depicting the following
information:
Plan type: HMO, Plans = 1,209; beneficiaries = 3,977,161;
Percentage of beneficiaries: 33%.
Plan type: PFFS, Plans = 479; beneficiaries = 1,408,103;
Percentage of beneficiaries: 24%.
Plan type: PPO, Plans = 345; beneficiaries = 301,746;
Percentage of beneficiaries: 7%.
Plan type: All plans[A], Plans = 2,055; beneficiaries = 5,764,368;
Percentage of beneficiaries: 30%.
Source: GAAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: A CMS official indicated that the percentage of revenues
allocated to medical expenses (the medical loss ratio) may vary across
plans for reasons other than utilization and the cost of providing
care. For example, some MA plans may categorize the costs of delivering
care management services as a medical expense, while other plans may
include this as a non-medical expense. Employer plans, Part B only
plans, SNPs, regional PPOs, and plans with service areas that are
exclusively outside of the 50 states and the District of Columbia were
excluded from the analysis.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[End of figure]
MA plans projected expenses separately for four distinct non-medical
expense categories--marketing and sales, direct administration,
indirect administration, and the net cost of private
reinsurance.[Footnote 31] On average, MA plans projected allocating
total revenue to non-medical expenses approximately as follows:
* 2.4 percent to marketing and sales;
* 2.9 percent to direct administration, such as customer service and
medical management;
* 3.7 percent to indirect administration, such as accounting operations
and human resources; and:
* 0.1 percent to the net cost of private reinsurance.
Of these four non-medical expense categories, the largest difference
between plan types' allocation of revenue to non-medical expenses was
in the category of marketing and sales. On average, as a percentage of
total revenue, projected marketing and sales expenses were 2 percent
($16 PMPM) for HMOs, 3.6 percent ($27 PMPM) for PFFS plans, and 2
percent ($17 PMPM) for PPOs. (See fig. 7.)
Figure 7: MA Plans' Projected Marketing and Sales Expenses by Plan
Type, 2007:
[See PDF for image]
This figure is a vertical bar graph, depicting the following
information:
Plan type: HMO, Plans = 1,209; beneficiaries = 3,977,161;
Percentage of total revenue: 2.0%.
Plan type: PFFS, Plans = 479; beneficiaries = 1,408,103;
Percentage of total revenue: 3.6%.
Plan type: PPO, Plans = 345; beneficiaries = 301,746;
Percentage of total revenue: 2.0%.
Plan type: All plans[A], Plans = 2,055; beneficiaries = 5,764,368;
Percentage of total revenue: 2.4%.
Source: GAAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: Percentages are weighted by August 2007 enrollment. Employer
plans, Part B only plans, SNPs, regional PPOs, and plans with service
areas that are exclusively outside of the 50 states and the District of
Columbia were excluded from the analysis.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[End of figure]
Concluding Observations:
Medicare spends more per beneficiary in MA than it does for
beneficiaries in Medicare FFS, at an estimated additional cost to
Medicare of $54 billion from 2009 through 2012. Under the current
payment system, the average MA plan receives a Medicare rebate equal to
approximately $87 PMPM, on average. In 2007, MA plans projected that
they would use the vast majority of their rebates--approximately 89
percent--to reduce enrollees' premiums and to lower their out-of-pocket
costs for Medicare-covered services. Plans projected that they would
use a relatively small portion of their rebates--approximately 11
percent--to provide benefits that are not covered under Medicare FFS.
Although the rebates generally have helped to make health care more
affordable for many beneficiaries enrolled in MA plans, some
beneficiaries may face higher expenses than they would in Medicare FFS.
Further, because premiums paid by beneficiaries in Medicare FFS are
tied to both Medicare FFS and MA costs, the additional payments to MA
plans have increased the premiums paid by beneficiaries in Medicare FFS
as well as contributed to the substantial long-term financial challenge
that Medicare faces. Whether the value that MA beneficiaries receive in
the form of reduced cost sharing, lower premiums, and extra benefits is
worth the increased cost borne by beneficiaries in Medicare FFS and
other taxpayers is a decision for policymakers. However, if the policy
objective is to subsidize health care costs of low-income Medicare
beneficiaries, it may be more efficient to directly target subsidies to
a defined low-income population than to subsidize premiums and cost
sharing for all MA beneficiaries, including those who are well off. As
Congress considers the design and cost of the MA program, it will be
important for policymakers to balance the needs of beneficiaries--
including those in MA plans and those in Medicare FFS--with the
necessity of addressing Medicare's long-term financial health.
Agency and Other External Comments and Our Evaluation:
CMS provided us with written comments on a draft of this report which
are reprinted in appendix V, and AHIP, a national association that
represents companies providing health insurance coverage, provided us
with oral comments.
CMS Comments:
In general, CMS commented that the report did not recognize that the
majority of MA benefit packages in 2007 were better and provided more
protection for out-of-pocket costs than Medicare FFS. It stated that
the report failed to acknowledge that MA plans provide beneficiaries
with the ability to choose a plan that best meets individual medical
and financial needs. CMS also expressed concern that the report was not
balanced because it did not sufficiently focus on the advantages of MA
plans. We disagree with CMS that we did not consider that most MA plans
offered better cost sharing than Medicare FFS. We noted in the first
paragraph of our cost sharing finding that, overall, plans projected MA
beneficiary cost sharing that was 42 percent of estimated cost sharing
in Medicare FFS. Regarding the absence of information about MA plans
providing beneficiaries with choices, this was not the focus of our
research. However, we agree the issue provides important context and
therefore we noted in the report's introduction the additional choice
MA plans provide Medicare beneficiaries. We disagree that the report is
not balanced. We provided a fact-based assessment of how rebates were
projected to be used in 2007, and identified important issues related
to cost sharing. Even though cost sharing would be less, on average, in
MA plans than in Medicare FFS, an important finding of our report is
that beneficiaries who use certain services with high cost sharing in
MA plans could have higher overall out-of-pocket costs than under
Medicare FFS.
CMS provided several additional comments. CMS commented that it did not
disagree with our finding that 16 percent of beneficiaries were in
plans with higher inpatient cost sharing than Medicare FFS. However, it
noted that our discussion of the issue and accompanying table and
figure did not account for several factors that would have mitigated
the impact of the finding. Specifically, CMS commented that we should
have considered that MA plans generally combine physician cost sharing
in the hospital with inpatient hospital cost sharing, which would have
decreased the difference in cost sharing between MA plans and Medicare
FFS. Although we had noted this in table notes in the draft, we agree
that this should be clearer and modified our text and accompanying
figure comparing MA and Medicare FFS cost sharing, and clarified
existing table notes. We also modified the text and accompanying figure
to differentiate between first and subsequent admissions within the
same benefit period, in response to CMS comments. These changes did not
affect our finding that some beneficiaries could have cost sharing that
was considerably higher than in Medicare FFS.
CMS also commented that we should have discussed the mitigating impact
of particularly long hospitalizations because beneficiaries with long
inpatient hospitals stays in MA plans are likely to have lower cost
sharing than under Medicare FFS. We acknowledged CMS's point and
addressed this issue in the finding and modified the accompanying
figure. However, most beneficiaries have relatively short lengths of
stay. For example, in 2005, the average length for an inpatient stay
was 5.4 days. This modification did not change our message that some
beneficiaries in MA plans could have higher out-of-pocket costs.
In addition, CMS commented that we should have noted that many plans
have "effective" out-of-pocket maximums for inpatient stays even if
they are not specified as such in the plan benefit package. For
example, plans may require copayments for specific days of an inpatient
stay, such as days 1 through 6, but not for any days beyond the sixth
day, thereby capping maximum cost sharing for the stay. We agree that
most plans have "effective" or actual out-of-pocket maximums for
inpatient hospital services. We also agree that in many cases these
maximums can limit beneficiary inpatient cost sharing to levels below
inpatient cost sharing under Medicare FFS. However, MA plans projected
that about 16 percent of beneficiaries were enrolled in plans that
projected higher cost sharing than under Medicare FFS even after
accounting for "effective" or actual out-of-pocket maximums. While some
of the 16 percent of plans may have bundled physician services with
their inpatient estimates, we also showed that 80 plans with high out-
of-pocket maximums for inpatient services could have higher cost
sharing than Medicare FFS even with "effective" out-of-pocket maximums
for inpatient hospital services.
CMS raised other concerns about our out-of-pocket maximum analysis,
specifically stating that we overestimated the impact of the exclusion
of Part B drugs from out-of-pocket maximums. It noted that Part B drugs
administered in a physician's office would be included under an out-of-
pocket maximum and that only a subset of plans excluded Part B drugs
obtained from a pharmacy from the out-of-pocket maximum. We relied on
the Plan Benefit Package for information regarding the analysis of Part
B drug exclusions from out-of-pocket maximums. According to these data,
there were 1.1 million beneficiaries in plans that reported such
exclusions in 2007. We noted that the exclusions applied to Part B
drugs obtained from a pharmacy and that the plans did not indicate the
coverage for Part B drugs administered by a physician. We sought
clarification from CMS for which Part B drugs were excluded from the
out-of-pocket maximum and were told by a CMS official that plans
excluded spending on Part B drugs from the out-of-pocket maximum if
beneficiaries received them on an outpatient basis. We added this point
of clarification to a footnote in the draft. Given CMS's subsequent
agency comments on this issue, we clarified in the text that the
exclusions applied to Part B drugs obtained from a pharmacy and do not
typically apply to Part B drugs administered by a physician. However,
we are concerned that the information in the Plan Benefit Package--
information that beneficiaries rely on when they are seeking benefit
coverage information--does not indicate whether chemotherapy drugs are
included or excluded under the out-of-pocket maximums.
CMS also provided technical comments and clarifications, which we
incorporated as appropriate.
AHIP Comments:
AHIP representatives stated that they agreed with our methodology, but
raised certain points that they thought the report should have made or
emphasized.
AHIP representatives said that while they understood why we made a
distinction between additional benefits and cost-sharing reductions,
they believed that we characterized additional benefits as being the
more valuable of the two. We disagreed with AHIP's assessment. While we
did include a discussion of how MA plans projected they would allocate
their rebates to additional benefits, premium reductions, and cost-
sharing reductions, it was beyond the scope of our work to assess the
relative value of the allocation options.
With regard to our cost-sharing finding, AHIP stated that while MA
beneficiaries may have higher cost sharing for some categories of
services, these may be offset by lower cost sharing for other
categories of services. Like CMS, AHIP contended that our example of an
MA plan with higher cost sharing for inpatient services, relative to
FFS, did not account for the additional cost sharing Medicare FFS
beneficiaries would pay for physician services during their inpatient
stays. As both CMS and AHIP pointed out, most MA plans do not charge
extra for physician services during inpatient stays. We have made
changes to the text of our report and the accompanying figure to
clarify this point. However, as our report noted, beneficiaries who
frequently use high cost-sharing services could have overall cost
sharing that would be higher than under Medicare FFS.
AHIP stated that although some beneficiaries may face higher cost
sharing under an MA plan than if they were enrolled in Medicare FFS,
their out-of-pocket costs could be lower if their MA plan has a lower
premium than Medicare FFS. While this may be true in some cases--we
found that, on average, plans used 3 percent of their rebates to reduce
Part B premiums--it was beyond the scope of our work to make such a
determination. AHIP further stated that MA plans provide beneficiaries
with options. Beneficiaries who prefer more predictable expenses can
choose MA plans with higher premiums and lower cost sharing, while
beneficiaries who are less averse to risk can choose MA plans with
lower premiums and higher cost sharing. We agree that the MA program
provides beneficiaries with options and have added this point to the
text of our report.
With regard to our reporting on MA plan medical loss ratios, AHIP
representatives indicated that our point was fairly stated, but they
asked us to mention this point in the Results in Brief section of the
report. We believed that we made this point clear in our discussion of
medical loss ratios and that the issue did not warrant mentioning in
our high-level summary.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from its date. At that time we will send copies to the Administrator of
CMS and interested congressional committees. We will also make copies
available to others upon request. The report will also be available at
no charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report please
contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major contributions
to this report are listed in appendix VI.
Signed by:
James C. Cosgrove:
Acting Director, Health Care:
List of Requesters:
The Honorable John D. Dingell:
Chairman:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Frank Pallone, Jr.
Chairman:
Subcommittee on Health:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Henry A. Waxman:
Chairman Committee on Oversight and Government Reform:
House of Representatives:
The Honorable Charles B. Rangel:
Chairman Committee on Ways and Means:
House of Representatives:
The Honorable Pete Stark:
Chairman:
Subcommittee on Health:
Committee on Ways and Means:
House of Representatives:
[End of section]
Appendix I: Example of a Rebate Calculation:
For most Medicare Advantage (MA) plan types, Medicare provides plans
with a rebate if the plan's bid is below the benchmark, but provides no
rebate if the plan's bid exceeds the benchmark.[Footnote 32] Table 6 is
an example of rebate calculations for two hypothetical plans, both in
the same county.
Table 6: The Calculation of the Rebate for Two Hypothetical MA Plans:
County's fee-for-service spending:
Plan A dollars per member per month: $720;
Plan B dollars per member per month: $720.
County's benchmark:
Plan A dollars per member per month: $800;
Plan B dollars per member per month: $800.
Plan bid:
Plan A dollars per member per month: $700;
Plan B dollars per member per month: $840.
Amount by which bid is lower than benchmark;
Plan A dollars per member per month: $100;
Plan B dollars per member per month: $0.
Plan's rebate (75 percent of amount by which bid is lower than
benchmark):
Plan A dollars per member per month: $75;
Plan B dollars per member per month: $0.
Medicare payment:
Plan A dollars per member per month: $775;
Plan B dollars per member per month: $800.
Mandatory plan premium:
Plan A dollars per member per month: $0;
Plan B dollars per member per month: $40.
Additional benefits, reduced premiums, and reduced cost sharing to
beneficiary:
Plan A dollars per member per month: $75;
Plan B dollars per member per month: $0.
Source: GAO.
Note: All numbers in this example are standardized to represent a
beneficiary of average health status.
[End of table]
Both plans have the same benchmark because they are in the same county.
Plan A submits a bid of $700 per member per month (PMPM). Because the
plan's bid is $100 PMPM below the benchmark, it receives a rebate equal
to 75 percent of that amount, or $75 PMPM. Plan A must use the $75 PMPM
rebate to provide additional benefits, reduced premiums, reduced cost
sharing, or any combination of the three. Plan B, however, submits a
bid that is $40 PMPM above the benchmark. As a result, the plan
receives no rebate. Medicare's payments to plans cannot exceed the
benchmark, so Medicare's payment to Plan B is set at $800 PMPM, the
amount of the benchmark. Plan B must make up the remainder of the bid
by charging its beneficiaries a mandatory plan premium of $40 PMPM.
Since Plan A has extra benefits and no additional premium, while Plan B
has no extra benefits and an additional premium, Plan A may attract
more beneficiaries. If most beneficiaries choose Plan A over Plan B,
Plan B is given an incentive to become more efficient in the following
year and lower its bid.
[End of section]
Appendix II: Scope and Methodology:
This section describes the scope and methodology used to analyze our
four objectives: (1) how MA plans projected they would allocate the
rebates they receive, (2) what additional benefits MA plans commonly
covered with the rebates and additional premiums, and the projected
costs of these additional benefits, (3) how MA plans' projected
beneficiary cost sharing, overall and by type of service, compared to
Medicare fee-for-service (FFS), and (4) how MA plans projected they
would allocate their revenue to medical and other expenses.
We used two primary data sources to analyze our four objectives: the
2007 Bid Pricing Tool data and the 2007 Plan Benefit Package data.
These data are submitted by MA plans to the Centers for Medicare &
Medicaid Services (CMS), the agency that administers Medicare. The bid
pricing data contain MA plans' projections of their revenue
requirements and revenue sources. Specifically, the bid pricing data
include MA plans' projections of revenue requirements--spending on
medical expenses, spending on non-medical expenses, and the margin. The
bid pricing data also contain information on the benefits and cost-
sharing arrangements of plans, including how MA plans' projected cost
sharing compares to cost sharing in Medicare FFS. In addition, the bid
pricing data contain information on the amount of rebates and
additional premiums plans project they will require to fund additional
benefits, reduced premiums, and reduced cost sharing. The benefit
package data contain detailed information about the benefits and cost-
sharing requirements that MA plans offer to Medicare beneficiaries.
For our objectives, we focused our analysis on plan types that account
for 98 percent of MA enrollment: Health Maintenance Organizations (HMO)
(71 percent), Private Fee-for-Service (PFFS) Plans (21 percent),
Preferred Provider Organizations (PPO) (5 percent), and Provider-
Sponsored Organizations (PSO) (1 percent).[Footnote 33] We excluded
Medical Savings Account plans and regional PPOs from our analysis
because they follow a different bidding process. We excluded plan types
that have unique restrictions on enrollment--such as employer plans,
Special Needs Plans (SNP), and demonstration plans--and bids for plans
that only cover Part B services. We also excluded plans with service
areas that are exclusively outside the 50 states and the District of
Columbia. Plans sponsors are permitted to submit separate bids for a
single package of benefits by dividing the service area into segments;
in these cases, benefits would be the same for each segment, but each
segment's cost sharing and premiums may differ. We counted each segment
as a separate plan. We used August 2007 enrollment numbers to weight
our results. As a result of our methodology, we included 2,055 plans
and 5,764,368 beneficiaries (71 percent of total MA enrollment) in our
analysis--these numbers apply to all tables and figures in the report,
unless otherwise noted. Because there were only 22 PSOs after the
exclusions, and enrollment in those plans was 1 percent of MA
enrollment, we do not report results separately for PSOs, but we
include them in the aggregated results we report for all MA plans.
To determine how plans projected they would allocate the rebate to
additional benefits, reduced premiums, and reduced cost sharing, we
used the bid pricing data. The bid pricing data contain the total
amounts plans projected they would spend on additional benefits,
reduced premiums, and reduced cost sharing. However, since MA plans use
both rebates and additional premiums as a funding source for these
additional benefits, reduced premiums, and reduced cost sharing, we
calculated the proportion of total funding plans projected they would
spend on additional benefits, reduced premiums, and reduced cost
sharing and applied these projections to the projected rebate. We
restricted our analysis of rebate allocations to the 1,874 plans that
received a rebate.
To identify the additional benefits that MA plans commonly covered with
rebates and additional premiums, we used the benefit package data. The
benefit package data provide the most detailed and accurate information
about benefits offered, including additional benefits. We used the
crosswalk CMS recommended--but did not require--plans to use to match
service categories in the benefit package data to categories in the bid
pricing data, and identified the percentage of beneficiaries in plans
that offered additional benefits using bid pricing categories.[Footnote
34]
To identify the costs associated with these additional benefits, we
used the bid pricing data. Plans did not use consistent categories for
their additional benefits in the bid pricing data. For example, some
plans categorized additional vision benefits under the category of
other non-covered services. Therefore, our estimates of the costs of
additional benefits do not include all plans that offer those benefits,
but are based on a smaller number of plans that specified that
additional benefit and the associated cost of providing that benefit.
In addition, some categories, such as professional services and other
non-covered services, were identified by CMS as unreliable because they
likely included a variety of services, and we excluded these categories
from our analysis. Other categories of additional services may include
some inconsistent services, and the cost estimates for additional
benefits should therefore be considered as approximations.
To calculate estimated costs for each of the additional service
categories, we identified plans that offered the additional benefit and
that had projected a cost of at least $0.01 PMPM. The projected amounts
of plans' additional benefits were adjusted for the health status of
the plans' projected population by dividing the amount of the plans'
additional benefits by the plans' projected risk scores--a number
representing how a plan's beneficiaries' health expenditures are
predicted to differ from the average beneficiary in Medicare
FFS.[Footnote 35] We then calculated the average amount of the
additional benefit, weighting the average by the number of enrollees in
the plans. If we had estimated the amount of additional benefits funded
only by the rebates, the PMPM amounts of additional benefits would be
lower.
To compare projected beneficiary cost sharing in MA plans and Medicare
FFS, we analyzed plans' cost sharing for Medicare-covered services as
reported in the bid pricing data and the equivalent Medicare FFS cost-
sharing amounts, also included in the bid pricing data. The equivalent
Medicare FFS cost sharing represents an MA beneficiary's expected cost
sharing under Medicare FFS if the beneficiary's MA plan had the same
pricing and utilization as Medicare FFS. The Medicare FFS equivalent
cost sharing for each service category was calculated by applying the
average cost-sharing percentage under Medicare FFS for a given service
category to each plan's total cost estimates for providing benefits in
that service category. For example, if the cost-sharing percentage
under Medicare FFS for inpatient services is 10 percent for a given
county, and an MA plan in that county projects spending on inpatient
services at $200 PMPM, then the equivalent inpatient cost sharing is 10
percent of $200, or $20 PMPM. For Part A services, the cost-sharing
percentage under Medicare FFS is calculated for each county--one county
may have an equivalent inpatient cost-sharing percentage of 10 percent,
while another county may have a percentage of 8 percent. For Part B
services, however, the cost-sharing percentages are a national average,
so the same percentages were applied to all counties. We divided each
plan's estimated cost sharing and the Medicare equivalent cost sharing
by each plan's projected risk score to get estimated cost sharing for a
beneficiary with average Medicare health spending. We reported the
percentage of plans that had cost sharing higher than the estimated
Medicare cost sharing for a given service category.
When we calculated the amount of reduced cost sharing, we used the
total amounts reported in the bid pricing data. We included both
rebates and additional premiums because this provided the accurate
amount of cost-sharing reductions that MA plans projected their
beneficiaries will receive. The amounts of the additional benefits and
cost-sharing reductions in our analyses would be lower if we had
restricted our analysis to rebates as the sole funding source.
To determine plans' out-of-pocket maximums, we examined the in-network
out-of-pocket maximum and the combined out-of-pocket maximum (a maximum
that applies to both in-network and out-of-network services) fields in
the benefit package data. If the two fields were the same value, then
we defined the out-of-pocket maximum as equal to that value. If one of
the fields was blank, and the other field was a positive number, then
we defined the out-of-pocket maximum as equal to the value of the field
with the positive number. If both fields had a positive number, but
they were not equal, then we defined the out-of-pocket maximum as equal
to the value of the field with the lower value. We categorized a plan
as having an out-of-pocket maximum even if the plan excluded certain
categories of service from that maximum. We did not categorize a plan
that had only a service-specific maximum as having an out-of-pocket
maximum.
To determine the percentage of total revenue allocated to medical
expenses and other expenses, we used the bid pricing data and
calculated the projected values of medical expenses, non-medical
expenses, and margin as a percentage of revenue for all plans and by
plan type.[Footnote 36] We reported the percentages of beneficiaries in
plans that projected medical expenses less than 85 percent. We also
analyzed the percentage of revenue projected to go to sales and
marketing from the bid pricing data.
[End of section]
Appendix III: Plan Variation in Rebate Amounts:
Rebate amounts, as well as the allocation of rebates, varied
considerably from plan to plan. To provide a measure of this variation,
we calculated rebate amounts and the amounts of additional benefits,
reduced premiums, and reduced cost sharing at the 25th and 75th
percentiles, weighted for enrollment. A percentile is the value below
which a certain percentage of beneficiaries fall. For example, the
value of the cost-sharing reduction at the 25th percentile was $39.02
PMPM and at the 75th percentile was $78.90 PMPM, meaning that at least
25 percent of beneficiaries were in plans that projected a cost-sharing
reduction of $39.02 PMPM or less, and at least 75 percent of
beneficiaries were in plans that projected a cost-sharing reduction of
$78.90 PMPM or less. (See table 7.)
Table 7: Rebate Amount Allocated to Additional Benefits, Premium
Reductions, and Cost-Sharing Reductions by Plan Type, 2007:
Average: Rebate total; 25th percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $57.81;
PFFS Plans = 367 Beneficiaries = 1,361,668: $59.70;
PPO Plans = 306 Beneficiaries = 268,460: $37.33;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $56.32.
Average: Rebate total; 75th percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $118.19;
PFFS Plans = 367 Beneficiaries = 1,361,668: $83.30;
PPO Plans = 306 Beneficiaries = 268,460: $69.83;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $108.55.
Amount of rebate allocated to Additional benefits[B]; 25th percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $4.14;
PFFS Plans = 367 Beneficiaries = 1,361,668: $0.00;
PPO Plans = 306 Beneficiaries = 268,460: $3.56;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $2.75.
Amount of rebate allocated to Additional benefits[B]; 75th percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $15.51;
PFFS Plans = 367 Beneficiaries = 1,361,668: $11.41;
PPO Plans = 306 Beneficiaries = 268,460: $13.96;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $13.70.
Amount of rebate allocated to Part D premium reduction[C]; 25th
percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $0.21;
PFFS Plans = 367 Beneficiaries = 1,361,668: 0.00;
PPO Plans = 306 Beneficiaries = 268,460: 0.00;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: 0.00.
Amount of rebate allocated to Part D premium reduction[C]; 75th
percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $24.04;
PFFS Plans = 367 Beneficiaries = 1,361,668: $24.12;
PPO Plans = 306 Beneficiaries = 268,460: $7.25;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $24.12.
Amount of rebate allocated to Part B premium reduction; 25th
percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $0.00;
PFFS Plans = 367 Beneficiaries = 1,361,668: $0.00;
PPO Plans = 306 Beneficiaries = 268,460: $0.00;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $0.00.
Amount of rebate allocated to Part B premium reduction; 75th
percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $0.00;
PFFS Plans = 367 Beneficiaries = 1,361,668: $0.00;
PPO Plans = 306 Beneficiaries = 268,460: $0.00;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $0.00.
Amount of rebate allocated to Cost-sharing reduction[B]; 25th
percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $42.89;
PFFS Plans = 367 Beneficiaries = 1,361,668: $39.02;
PPO Plans = 306 Beneficiaries = 268,460: $26.79;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $39.02.
Amount of rebate allocated to Cost-sharing reduction[B]; 75th
percentile;
HMO Plans = 1,179 Beneficiaries = 3,747,087: $84.88;
PFFS Plans = 367 Beneficiaries = 1,361,668: $68.95;
PPO Plans = 306 Beneficiaries = 268,460: $52.60;
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $78.90.
Source: GAO analysis of 2007 CMS Bid Pricing Tool data.
Notes: Values are weighted by August 2007 plan enrollment and are
standardized to represent a beneficiary of average health status.
Employer plans, Part B only plans, SNPs, regional PPOs, and plans with
service areas that are exclusively outside of the 50 states and the
District of Columbia were excluded from the analysis. There were 1,874
plans that received a rebate.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted1 percent of total
MA enrollment.
[B] The rebate amounts allocated toward cost sharing and additional
benefits included some non-medical expenses, such as administrative
costs and plans' margins.
[C] Of 1,874 plans that received a rebate, 1,423 offered Part D
benefits to their beneficiaries. Of those that offered Part D, 1,037
reduced Part D premiums.
[End of table]
[End of section]
Appendix IV: Plan Variation in the Out-of-Pocket Maximum:
In 2007, about half of MA beneficiaries were in plans that had an out-
of-pocket maximum, a dollar limit on a beneficiary's cost sharing. The
out-of-pocket maximum varied from plan to plan. To provide a measure of
this out-of-pocket maximum variation, we calculated the out-of-pocket
maximum at the 25th and 75th percentiles, weighted for enrollment. A
percentile is the value below which a certain percentage of
beneficiaries fall. For example, the out-of-pocket maximum at the 25th
percentile was $2,750, and at the 75th percentile it was $4,600,
meaning that at least 25 percent of beneficiaries were in plans with an
out-of-pocket maximum $2,750 or less, and at least 75 percent of
beneficiaries were in plans with an out-of-pocket maximum of $4,600 or
less. (See table 8.)
Table 8: Variation in Values of Out-of-Pocket Maximum by Plan Type,
2007:
Value of out-of-pocket maximum: Average;
Plan type: HMO, Plans = 444, Beneficiaries = 1,436,148: $3,204;
Plan type: PFFS, Plans = 350, Beneficiaries = 1,087,383: $4,026;
Plan type: PPO, Plans = 219, Beneficiaries = 205,713: $2,377;
Plan type: All plans[A], Plans = 1,016, Beneficiaries = 2,738,531:
$3,463.
25th percentile;
Plan type: HMO, Plans = 444 Beneficiaries = 1,436,148: $2,750;
Plan type: PFFS, Plans = 350 Beneficiaries = 1,087,383: $3,000;
Plan type: PPO, Plans = 219 Beneficiaries = 205,713: $1,000;
Plan type: All plans[A], Plans = 1,016, Beneficiaries = 2,738,531:
$2,750.
Value of out-of-pocket maximum: 75th percentile;
Plan type: HMO, Plans = 444 Beneficiaries = 1,436,148: $4,000;
Plan type: PFFS, Plans = 350 Beneficiaries = 1,087,383: $5,000;
Plan type: PPO, Plans = 219 Beneficiaries = 205,713: $3,100;
Plan type: All plans[A], Plans = 1,016, Beneficiaries = 2,738,531:
$4,600.
Source: GAO analysis of 2007 CMS Plan Benefit Package data.
Notes: Values are weighted by plan enrollment. If a plan had two out-
of-pocket maximums--one for in-network services and one for combined
in-and out-of-network services, then we used the lower value for this
analysis. Determination of a plan's overall out-of-pocket maximum did
not take into account whether a plan had a maximum for a specific
category of service. Employer plans, Part B only plans, SNPs, regional
PPOs, and plans with service areas that are exclusively outside of the
50 states and the District of Columbia were excluded from the analysis.
[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs.
Results are not reported separately for PSOs because there were only 22
PSO plans and enrollment in those plans constituted 1 percent of total
MA enrollment.
[End of table]
[End of section]
Appendix V: Comments from the Centers for Medicare & Medicaid Services:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services:
Office of the Administrator:
Washington, DC 20201:
Date: February 1, 2008:
To: James C. Cosgrove:
Director, Health Care:
Government Accountability Office:
From: [Signed by] Kerry Weems:
Acting Administrator:
Subject: Government Accountability Office (GAO) Draft Report: Medicare
Advantage: Increased Spending Relative to Medicare Fee for Service May
Not Always Reduce Beneficiary Out of Pocket Costs (GAO-08-359).
Thank you for the opportunity to review and comment on the GAO draft
report referenced above. In this draft report. the GAO examined (1)
Medicare Advantage (MA) plans' projected rebate reallocations; (2)
additional benefits MA plans commonly covered and their costs: (3) MA
plans' projected cost-sharing; and (4) MA plans' allocation of
projected revenues and expenses.
General Comments:
Inpatient Cost Sharing:
The report finds that out of pocket costs for inpatient services arc
more than double for 16 percent of MA enrollees than in Fee-For-Service
(FFS). We do not disagree with the findings: however the report does
not address a number of areas that mitigate the impact of the finding:
(1) MA bundling of cost sharing versus unbundled FFS cost sharing: We
believe that GAO did not take into consideration that an inpatient stay
under FFS is not comprised of just the deductible amount for each
hospitalization. It also contains a professional service charge which
is billed to the beneficiary. As an example of the type of expense
incurred by a FFS beneficiary for a 90-day hospital stay. the average
professional service co-pay under FFS alone is equal to S5.286. MA
enrollees do not receive a separate bill for professional services. The
cost of these Part B services were not incorporated into the GAO
analysis and therefore overstate the effect of inpatient cost sharing
on the possible MA enrollees cited in the draft report.
2) MA is more protective for longer hospitalizations than FFS: The
report also does not contemplate the FFS costs for a long
hospitalization (e.g., more than 15 days) compared to a long
hospitalization under MA. The Centers for Medicare & Medicaid Services
(CMS) has data to show that MA plans have lower cost sharing for an
inpatient stay than an FFS stay for longer stays ” for example 95
percent of MA plans have a lower cost share than FFS for a 90-day stay,
and 85 percent of MA plans have a lower cost share than FFS for a 25-
day stay. Figure 4 on Page 21 is misleading in that it only compares
out-of-pocket costs for 15 days of hospitalization or less. Less
healthy beneficiaries may have longer than 15-day hospitalizations in a
year. We would recommend providing longer inpatient hospitalization
information and a figure demonstrating it to give a more balanced
perspective on inpatient hospitalizations.
3) The report does not address effective out-of-pocket maxes for
inpatient stays: Maximum out-of-pocket values in the plan benefit
package (PBP) data are not the only way to specify the maximum amount
an enrollee will pay for a specific benefit. For example, a plan
showing no out of pocket maximum value in its PBP but having a $200 per
day copay for days 1 through 6 of inpatient stays has an effective
maximum enrollee out-of-pocket cost of $I,200 for inpatient stays
regardless of the length of stay. In fact, most plans "max out" their
out of pocket costs for inpatient stays at values far less than those
for FFS. Our data show that, for the same population of plans GAO
includes, 74 percent of enrollees in 2007 were in plans having an
effective maximum out of pocket for inpatient stays of $1,000 or less
and nearly 100 percent of enrollees were in plans having an effective
maximum out of pocket costs less than the FFS Medicare value.
4) Misrepresentations of data in text, table and figures on inpatient
cost sharing:
* Footnote b to Table 4 states: "In some cases, MA plans include cost
sharing for professional services, such as physician visits in, in the
inpatient category." We believe that because plans include professional
services in the bundled inpatient cost sharing, the data in Table 4 is
a misrepresentation of a true comparison between MA inpatient cost
sharing and FFS inpatient cost sharing. That is, inpatient cost sharing
for MA will naturally look higher than FFS in your table because of the
inclusion of professional services under the inpatient services
category for MA.
* Also, about 1/3 of Medicare FFS inpatient admissions fall within an
existing benefit period resulting in no beneficiary liability for the
Part A deductible. Also, FFS beneficiaries are required to pay cost
sharing beginning on day 61 of an inpatient admission. Further, FFS
beneficiaries are required to pay certain Part B cost sharing for care
provided in inpatient facilities. Accordingly, the FFS representation
in Figure 4 has an incorrect level and slope, and we suggest that the
chart be modified accordingly, or removed from the report.
5) Part B Drugs and out-of-pocket exclusion and more than 1 million
affected enrollees: We believe that the number and impact contained in
the report is overstated. Part B drugs administered in a physician's
office would be included under an out-of-pocket cap because the bill
for the Part B coinsurance would be incurred as a physician office
visit. The exclusion of Part B drugs from out of pocket maximums is for
those drugs obtained from a pharmacy (as opposed to at the physician's
office). We believe Part B drugs obtained at the pharmacy represents a
subset of the 2007 plans with a Part B drugs out-of-pocket maximum
exclusion.
6) We believe that the report misses the fact that the majority of MA
benefit packages in 2007 are better and are more protective for out-of-
pocket costs than FFS. Overall, MA benefit packages in 2007 are richer
than FFS. Some examples include:
* MA plans are not required to cap out-of-pocket expenses for
enrollees; however, almost one-half (48 percent in 2007) cap out-of-
pocket expenses for enrollees, making them far more protective than an
FFS beneficiary who has no cap on out-of-pocket costs.
* 72.8 percent of enrollees are in plans with a 21-day inpatient
psychiatric stay cost less than that of FFS.
* 93.6 percent of enrollees are in plans with an out-of-pocket cost for
annual renal visits (dialysis) less than that of FFS.
* 98.4 percent of eligibles have access to a plan with a maximum out-of-
pocket value of $3.150 or less that includes key specific benefit
categories.
* 87.3 percent of the plans cover additional inpatient hospital days
beyond the FFS allowed 90-day maximum.
7) We believe that the report fails to acknowledge that MA plans
provide beneficiaries with a variety of choices in benefit structures
other than original Medicare. These choices allow beneficiaries to
select a benefit structure that best suits their medical needs while
taking their financial considerations into account. For example, some
beneficiaries may prefer to pay lower cost-sharing for some Medicare
benefits that they anticipate using during the year, and are willing to
accept the risk of paying higher cost-sharing on other benefits should
they need them.
8) We are also concerned that this report is unfairly skewed. To name a
few that we believe should he addressed:
* The title is misleading and does not reflect the content of the
report. GAO report titles should be neutral, or, at least, not
misrepresent the contents of the report.
* On page 1 of the report, the discussion of the payment increases
based on the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 fails to address the intention of Congress to expand access
to MA plans in rural areas.
* The presentation of MA plans that offer cost sharing that is higher
than Medicare FFS does not provide a similarly structured presentation
of examples of plans offering cost sharing lower than FFS. As such, the
report relies on outlier plan designs (high inpatient cost sharing)
with outlier plan services (e.g. long inpatient lengths of stay) to
make its point.
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov:
Acknowledgments:
Other contributors to this report include Christine Brudevold,
Assistant Director; Jennie Apter; William Black; Alexander Dworkowitz;
Gregory Giusto; Dan Lee; Hillary Loeffler; and Christina C. Serna.
[End of section]
Footnotes:
[1] Medicare is the federally financed health insurance program for
persons aged 65 and over, certain individuals with disabilities, and
individuals with end-stage renal disease. Medicare Part A covers
hospital and other inpatient stays. Medicare Part B is optional
insurance, and covers hospital outpatient, physician, and other
services. Medicare Parts A and B are known as original Medicare or
Medicare FFS. Medicare beneficiaries have the option of obtaining
coverage for Medicare Part A and B services from private health plans
that participate in Medicare's MA program--also known as Medicare Part
C. All Medicare beneficiaries may purchase coverage for outpatient
prescription drugs under Medicare Part D.
[2] Pub. L. No. 108-173, § 201, et. seq., 117 Stat. 2066, 2176.
[3] Private health plans had previously provided heath coverage to
Medicare beneficiaries through the Medicare + Choice program. MMA
renamed the program "Medicare Advantage" and changed certain payments
and other aspects of the program.
[4] Medicare Payment Advisory Commission, The Medicare Advantage
Program and MedPAC Recommendations (Washington, D.C.: April 2007).
[5] Congressional Budget Office, The Medicare Advantage Program:
Enrollment Trends and Budgetary Effects (Washington, D.C.: April 2007).
[6] For a discussion of Medicare's long-term financial challenges, see
GAO, Long-Term Budget Outlook: Saving Our Future Requires Tough Choices
Today, GAO-07-342T (Washington, D.C.: Jan. 11, 2007).
[7] Medicare compares a plan's bid to the benchmark after adjusting the
benchmark to reflect the health status of the plan's enrollees.
[8] About 95 percent of MA beneficiaries are in plans that receive
rebates and 41 percent of MA beneficiaries are in plans that charge
additional premiums. Some plans also offer optional benefits, which
beneficiaries can purchase with the standard benefit package. Rebates
can not be used for optional benefits.
[9] Margins, sometimes referred to as profits, refer to plans'
remaining revenue after medical and non-medical expenses are paid. In
certain circumstances, such as for new market entrants, CMS allows a
plan to have a negative margin, meaning that the plan's revenue is less
than its combined medical and non-medical expenses.
[10] HMOs account for 71 percent of total MA enrollment; PFFS plans 21
percent; PPOs 5 percent; and PSOs 1 percent, totaling to 98 percent of
enrollment. The remaining 2 percent of beneficiaries were enrolled in
Medical Savings Accounts and regional PPOs. Beneficiaries in HMOs are
generally restricted to seeing providers within a network, while PFFS
beneficiaries can see any provider that accepts the plan's payment
terms. Beneficiaries in PPOs can see both in-network and out-of-network
providers but must pay higher cost-sharing amounts if they use out-of-
network services. PSOs are MA plans that are operated by a provider or
providers.
[11] Some MA plans only cover Medicare Part B services.
[12] MA plans do not cover hospice care, a benefit that is provided
under Medicare FFS.
[13] U.S. citizens and permanent residents meet Medicare's work
requirement if they worked for at least 10 years in Medicare-covered
employment or if their spouse worked for at least 10 years in Medicare-
covered employment.
[14] Beneficiaries who are also eligible for Medicaid can have their
Part B premium paid for by their state Medicaid program.
[15] Individuals with end-stage renal disease are not eligible for most
MA plans, unless they develop the disease while enrolled in an MA plan.
42 U.S.C. § 1395w-21(a)(3)(B)(2000).
[16] Many Medicare FFS beneficiaries pay premiums for a type of
supplemental insurance known as Medigap, which limits beneficiary cost
sharing for Medicare-covered services. Medigap policies do not cover
the cost sharing of MA beneficiaries.
[17] CMS officials said that the thresholds that trigger further review
by CMS are at or above Medicare FFS cost-sharing levels. For example,
in 2007 Medicare FFS beneficiaries were charged a $992 deductible for
hospital services, so the cost-sharing threshold was at or above $992.
[18] CMS officials indicated that in evaluating 2008 plans, they
stratified plans based on having an out-of-pocket maximum of $3,250,
instead of $3,100.
[19] The rebate amounts allocated to cost sharing include some non-
medical expenses, such as administrative costs and plans' margins.
[20] The average additional premium has been standardized to represent
a beneficiary of average health status.
[21] The 888 plans that received a rebate and did not charge an
additional premium projected that they would allocate 11 percent ($11
PMPM) of their rebate to additional benefits, 21 percent ($22 PMPM) to
Part D premium reductions, 3 percent ($4 PMPM) to Part B premium
reductions, and 65 percent ($70 PMPM) to cost-sharing reductions. The
986 plans that charged additional premiums and received a rebate
projected that they would allocate 14 percent ($8 PMPM) of their rebate
to additional benefits, 3 percent ($2 PMPM) to Part D premium
reductions, 0 percent ($0 PMPM) to Part B premium reductions, and 83
percent ($44 PMPM) to cost-sharing reductions. These numbers are
enrollment weighted.
[22] Some categories were identified by CMS as unreliable and were
excluded from our analysis.
[23] Average cost sharing reflects expenditures for the entire
population and includes both beneficiaries who are projected to use a
certain category of service and beneficiaries who are not projected to
use that service.
[24] Medicare FFS beneficiaries could have paid the deductible more
than once for multiple visits under some circumstances. The 2007
deductible was $992 for each benefit period. Under Medicare FFS, a
benefit period begins the day a beneficiary enters a hospital, skilled
nursing facility, or critical access hospital, and it ends when the
beneficiary has not been an inpatient of a hospital, skilled nursing
facility, or critical access hospital for 60 consecutive days. A
Medicare FFS beneficiary who had three hospital stays in one benefit
period in 2007 would have paid a $992 deductible, while a beneficiary
who had three hospital stays in three separate benefit periods would
have paid a $992 deductible for each hospital stay, or $2,976.
[25] The plans either had no out-of-pocket maximum or had a maximum
that was above $3,100. In addition, the plans had no service-specific
maximum for inpatient services.
[26] The average length of stay in Medicare FFS was 5.4 days in 2005,
according to a MedPAC analysis of Medicare cost report data. For plans
with no out-of-pocket maximum and a per day copayment of $200 or more
for the first 10 hospital days, beneficiaries would have been billed at
least $2,000 for a 10-day hospital stay and at least $3,000 for three
stays that are each 5 days long. However, beneficiaries in plans with
an out-of-pocket maximum and a per day copayment of $200 or more could
have been billed less than these amounts if they had already paid cost
sharing for other categories of services. About 15 percent of hospital
stays under Medicare lasted 10 days or more in 2004, according to CMS
data.
[27] Medicare FFS does not have an out-of-pocket maximum. However,
Medicare FFS beneficiaries who have supplemental insurance can have
some or all of their cost sharing paid for. Medicare FFS beneficiaries
who buy Medigap insurance have their Part A and Part B cost sharing
paid for by their Medigap plan, although they still may pay
deductibles. Medicare FFS beneficiaries with Medicaid and with employer
plans can also have some or all of their cost sharing paid for by their
plan. As of 2004, 26 percent of Medicare beneficiaries had Medigap
insurance, 17 percent had Medicaid, and 38 percent had employer
insurance, with some beneficiaries having more than one type of
supplemental insurance. Data are based on MedPAC's analysis of the 2004
Medicare Current Beneficiary Survey.
[28] A plan was considered to have excluded a service category from the
out-of-pocket maximum if the out-of-pocket maximum did not cover that
service category and if the plan had no service-specific maximum for
that category.
[29] Non-medical expenses include administration, marketing, and sales.
Margin is the amount of revenue above or below the revenue needed to
cover medical and non-medical expenses. Allocations to medical
expenses, non-medical expenses, and margins do not add to $783 PMPM due
to rounding.
[30] There is no definitive standard for what a medical loss ratio
should be. For example, the CHAMP Act, H.R. 3162, 110th Cong., § 414
(2007), which was passed in the House of Representatives on August 1,
2007, included a medical loss ratio threshold of 0.85. In contrast,
individual Medigap policies are currently required to achieve a medical
loss ratio of at least 0.65, while group Medigap policies are required
to achieve a medical loss ratio of at least 0.75. AHIP reported that
from 1960 to 2003, the medical loss ratio for private plans averaged
about 0.88.
[31] Direct administration accounts for functions that are directly
related to the administration of the MA program, such as customer
service and medical management. Indirect administration accounts for
functions that may be considered "corporate services," such as
accounting operations and human resources. Private reinsurance is the
insurance provided by another company that assumes financial risk
previously assumed by the MA plan. The net cost of private reinsurance
is equal to the reinsurance premium less projected reinsurance
recoveries.
[32] For Medical Savings Account (MSA) plans, Medicare makes a deposit
into a beneficiary's savings account if the bid is lower than the
benchmark, instead of providing the plan with a rebate. Regional
Preferred Provider Organizations (PPO) can receive rebates, but their
benchmarks are determined differently than local plans. Due to these
differences, the example in this appendix does not refer to MSA plans
and regional PPOs.
[33] Percentage of MA enrollment by plan type is based on August 2007
enrollment.
[34] Centers for Medicare & Medicaid Services, Instructions for
Completing the Medicare Advantage Bid Pricing Tool For Contract Year
2007 (Baltimore, Md.: May 2006).
[35] If a plan has a population with health expenditures that on
average are the same as those for Medicare FFS, then the plan would
have a risk score of one. If a plan has a population with projected
health expenditures that on average are greater than or less than those
for an average beneficiary in Medicare FFS, then the plan's risk score
would be greater than or less than one, respectively.
[36] The bid pricing data exclude the additional revenue requirements
for beneficiaries with end-stage renal disease from this calculation.
[End of section]
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