Medicare Advantage
Congressional research reportMar 3, 2009
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Prepared for Members and Committees of Congress
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Medicare Advantage (MA) is an alternative way for Medicare beneficiaries to receive covered
benefits. Under MA, private health plans are paid a per-person amount to provide all Medicarecovered benefits (except hospice) to beneficiaries who enroll in their plan. Eligible individuals
may enroll in an MA plan, if one is available in their area. As of January 2009, all Medicare
beneficiaries had access to an MA plan and 23% of beneficiaries enrolled in one. Private plans
may use different techniques to influence the medical care used by enrollees. Some plans, such as
health maintenance organizations (HMOs) may require enrollees to receive care from a restricted
network of medical providers; enrollees may be required to see a primary care physician who will
coordinate their care and refer them to specialists as necessary. Other types of private plans, such
as private fee-for-service (PFFS) plans, may look more like original Medicare, with fewer
restrictions on the providers an enrollee can see and minimal coordination of care.
In general, Medicare Advantage plans offer additional benefits or require smaller co-payments or
deductibles than original Medicare. Sometimes beneficiaries pay for these additional benefits
through a higher monthly premium, but sometimes they are financed through plan savings. The
extent of extra benefits and reduced cost sharing vary by plan type and geography, creating an
inequity that can frustrate some beneficiaries. However, Medicare Advantage plans are seen by
some as an attractive alternative to more expensive supplemental insurance policies found in the
private market.
Though plans that manage their enrollees’ care have the potential to be less expensive than
original Medicare, recent analyses by the Medicare Payment Advisory Commission (MEDPAC)
find that Medicare is projected to pay private plans an average of 14% more per beneficiary in
2009 than it does for beneficiaries in the original Medicare program. While some support the
higher Medicare expenditures for MA enrollees because funds are used to provide reduced cost
sharing or additional benefits, others support paying private plans no more than the cost of
covered benefits under the original Medicare program, which may result in less generous MA
benefit packages, or reduced access to MA plans. With competing health expenditure priorities,
Congress is likely to examine the MA program.
Congress may consider additional issues. First, the Comparative Cost Adjustment (CCA)
Program is slated to start in 2010. CCA is designed to test direct competition between MA and
original Medicare. As such, the Part B premiums of beneficiaries in original Medicare may be
increased or decreased depending on the efficiency of original Medicare relative to MA plans in
the area. Second, recent studies show that profits in 2005 and 2006 for MA plans were, on
average, higher than estimated because of underestimates in medical spending. If plans had more
accurately estimated future medical spending, they could have offered more generous benefit
packages without reducing their profits, though some variability in the accuracy of estimates may
be expected. Third, marketing behaviors of MA plans and their agents or brokers were a concern
in the 110th Congress; it is unclear whether they will continue to be an issue in the 111th Congress.
The Congressional Budget Office (CBO) March 2008 projection of Medicare payments under
Medicare Advantage is $112.8 billion in 2009 for coverage of 11.0 million enrollees, increasing
to $221.2 billion in 2018 for 16.6 billion enrollees. This report is an overview of the Medicare
Advantage program, and includes legislative history and analysis of recent trends. It will be
updated to reflect significant changes to the program.
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Introduction ..................................................................................................................................... 1
Background ..................................................................................................................................... 1
Current Payment System ................................................................................................................. 4
Trends in Availability and Enrollment............................................................................................. 6
Plan Type and Enrollment ......................................................................................................... 8
Coordinated Care Plans (CCP) ........................................................................................... 8
Health Maintenance Organizations (HMOs) ...................................................................... 9
Preferred Provider Organizations (PPOs) ........................................................................... 9
Provider Sponsored Organization (PSO) .......................................................................... 10
Specialized Plans for Special Needs Individuals (SNPs).................................................. 10
Private Fee for Service plans (PFFS)................................................................................ 10
Reasonable Cost Plans (COST) .........................................................................................11
Medical Savings Accounts (MSA).....................................................................................11
Health Care Prepayment Plans (HCPP) .............................................................................11
Availability by Contract Type ..................................................................................................11
Enrollment Patterns in Urban and Rural Locations................................................................. 13
Regional and Geographic Variation in Enrollment ................................................................. 14
Rules for Eligibility and Enrollment ............................................................................................. 16
Eligibility ................................................................................................................................ 16
Residency Requirements......................................................................................................... 16
Enrollment Periods.................................................................................................................. 16
Special Election Periods.......................................................................................................... 17
Supplemental Benefits................................................................................................................... 17
Premiums....................................................................................................................................... 18
Coverage for Prescription Drugs ................................................................................................... 19
Beneficiary Protections ................................................................................................................. 20
Enrollment............................................................................................................................... 20
Access to Providers ................................................................................................................. 20
Access to Benefits ................................................................................................................... 21
Beneficiary Financial Liability Protections............................................................................. 21
Quality Standards .................................................................................................................... 21
Consumer Disclosure Requirements ....................................................................................... 22
Marketing Requirements......................................................................................................... 22
Grievance and Appeals............................................................................................................ 23
Program Standards and Contract Requirements............................................................................ 23
Minimum Enrollment Standards ............................................................................................. 23
Organizational and Financial Requirements ........................................................................... 24
Provider Protections and Requirements .................................................................................. 24
Protections Against Fraud ....................................................................................................... 24
Prompt Payment Requirements............................................................................................... 24
Contract Terminations and Sanctions...................................................................................... 25
Issues for Congress........................................................................................................................ 25
Per Beneficiary Expenditure Differences Between MA and Original Medicare..................... 25
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Medical Expenditures and Profits ........................................................................................... 27
Comparative Cost Adjustment in 2010 ................................................................................... 28
Marketing ................................................................................................................................ 28
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Figure 1. Number of Coordinated Care and PFFS Contracts in Medicare Part C........................... 7
Figure 2. Percentage of Beneficiaries Enrolled in Medicare Private Plans, Actual
and Projected ................................................................................................................................ 8
Figure 3. Percentage of MA Enrollment, by Plan Type, 2008......................................................... 9
Figure 4. Concentration of Medicare Beneficiaries (2007), Medicare Advantage Enrollees
(2007), and Medicare+Choice Enrollees (2003) in Urban and Rural Locations........................ 13
Figure 5. Percentage of Medicare Beneficiaries Enrolled in Medicare Advantage, by
State, January 2008..................................................................................................................... 15
Figure 6. Percentage of M+C and MA Enrollees Offered Benefits Beyond Traditional
Medicare Covered Services, in the Lowest Premium Package Available, 1999, 2002,
and 2005. .................................................................................................................................... 18
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Table 1. Changes in Access to Coordinated Care Plans, Private Fee-for-Service Plans, and
Both, by Proportion of Counties and Beneficiaries.................................................................... 12
Table 2. Shares of Medicare+Choice and Medicare Advantage Enrollment and Medicare
Population Residing in Four States ............................................................................................ 15
Table 3. Changes in Access to or Coverage Under a Medicare+Choice or Medicare
Advantage Coordinated Care Plan with a Zero Premium, 1999 to 2006. .................................. 19
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Appendix. Legislative History, 1997 to 2008................................................................................ 30
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Author Contact Information .......................................................................................................... 36
Acknowledgments ......................................................................................................................... 36
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Medicare Advantage (MA) is an alternative way for Medicare beneficiaries to receive covered
benefits. Under MA, private health plans are paid a per-person amount to provide all Medicare
covered benefits (except hospice) to beneficiaries who enroll in their plan. Eligible individuals
may enroll in an MA plan, if one is available in their area. As of January 2009, all Medicare
beneficiaries had access to an MA plan and 23% of beneficiaries enrolled in one. Private plans
may use different techniques to influence the medical care used by enrollees. Some plans, such as
health maintenance organizations (HMOs) may require enrollees to receive care from a restricted
network of medical providers; enrollees may be required to see a primary care physician who will
coordinate their care and refer them to specialists as necessary. Other types of private plans, such
as private fee-for-service (PFFS) plans, may look more like original Medicare, with fewer
restrictions on the providers an enrollee can see and minimal coordination of care.
In general, Medicare Advantage plans offer additional benefits or require smaller co-payments or
deductibles than original Medicare. Sometimes beneficiaries pay for these additional benefits
through a higher monthly premium, but sometimes they are financed through plan savings. The
extent of extra benefits and reduced cost sharing vary by plan type and geography, creating an
inequity that can frustrate some beneficiaries. However, Medicare Advantage plans are seen by
some as an attractive alternative to more expensive supplemental insurance policies found in the
private market.
The 111th Congress may examine several aspects of the MA program. First, Medicare is projected
to pay MA plans more per beneficiary than it does for beneficiaries in original Medicare—an
effect of a payment formula designed to encourage plan participation. Though a portion of the
higher expenditure results in extra benefits and reduced cost sharing for some enrollees, some
argue that private plans should not be paid more than the cost of original Medicare. Second,
starting in 2010, the Comparative Cost Adjustment (CCA) Program will test direct competition
between MA and original Medicare in selected areas. As such, the Part B premiums of
beneficiaries in original Medicare may be increased or decreased depending on the efficiency of
original Medicare relative to MA plans in the area. Third, recent studies show that profits in 2005
and 2006 for MA plans were, on average, higher than estimated because of underestimates in
medical spending. If plans had more accurately estimated medical spending, they could have
offered more generous benefit packages without reducing their profits, though some variability in
the accuracy of estimates may be expected. Finally, marketing behaviors of MA plans and their
agents or brokers were a concern in the 110th Congress; it is unclear whether they will continue to
be an issue in the 111th. All of these issues are discussed in more detail in the “Issues for
Congress” section at the end of this report.
The Congressional Budget Office (CBO) March 2008 projection of Medicare payments under
Part C is $112.8 billion in 2009 for coverage of 11.0 million enrollees, increasing to $221.2
billion in 2018 for 16.6 billion enrollees.
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Medicare has a long-standing history of offering its beneficiaries health insurance coverage
through private plans. Beginning in the 1970s, private health plans were allowed to contract with
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Medicare on a cost-reimbursement basis. Under a cost contract, plans are reimbursed for the
actual costs of delivering health care services. In 1982, Congress passed the Tax Equity and Fiscal
Responsibility Act (TEFRA, P.L. 97-248), which created the first Medicare risk contracting
program. Under a risk contract, participating health plans are paid a fixed monthly payment per
enrollee to furnish all Part A and B Medicare-covered services (except hospice) to beneficiaries.
This is in contrast to the original fee-for-service (FFS) Medicare, where Medicare pays providers
directly for each item or service delivered.
With the passage of TEFRA, payments to private health plans were set at 95% of the cost of
providing Medicare benefits in the original FFS program. FFS costs were measured by units
called Average Adjusted Per Capita Costs (AAPCCs). By 1997, 15 years after the start of the risk
contract program, Medicare private plans covered more than 5 million beneficiaries, or about
14% of beneficiaries. However, despite its lengthy tenure as the basis for private plan payment,
the calculation of AAPCCs was criticized for a number of reasons. Principal among these was
that payments fluctuated from year to year and varied widely across the country. In an attempt to
remedy this problem, Congress, in the Balanced Budget Act of 1997 (BBA, P.L. 105-33),
replaced Medicare’s risk contract program with the Medicare+Choice (M+C) program. The BBA
substantially restructured the system for setting Medicare payment rates to private plans. By
establishing a new payment methodology, Congress hoped to reduce Medicare spending, expand
access to managed care options, and decrease variation in payment rates across the country.
Under the M+C program, the per capita rate for a payment area was set at the highest of three
amounts calculated for each county:
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a blended rate, which was a blend of an area-specific (local) rate and a national
rate;
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a minimum payment (or floor) rate; or
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a rate reflecting a minimum increase from the previous year’s rate.
The blended per capita rate was intended to shift payment amounts away from local (generally
county) rates, which reflect the wide variations in fee-for-service costs, toward a national average
rate. The floor rate was designed to raise payments in certain counties more quickly than would
occur through the blend alone; the minimum increase percentage was to protect counties that
would otherwise receive only a small increase (if any). This formula was subject to a budget
neutrality provision to keep expenditures from exceeding expected expenditures in the absence of
the new formula.
Although the intent of the BBA was to increase access to private plans, particularly in markets
where availability was limited or non-existent, the program did not work as well as intended. The
goal of controlling Medicare spending may have dampened the interest of private plans to
develop new markets and add plan options. Their cautious behavior may have been a reaction to a
slowdown in the rate of increase in payments. Among plans, there was also a great deal of
uncertainty about the future of the M+C program and the stability of payments to sustain the
program. Between 1999 and 2003, private plans left the program or reduced their service areas,
affecting thousands of enrollees each year. Some enrollees were able to switch to other private
Medicare plans, while others had no M+C plans available to them. Despite a small surge in
enrollment initially, the percentage of beneficiaries enrolled in M+C dropped from 17% in 1999
to approximately 12% in 2003. To address the decreased plan participation, the 106th Congress
inserted provisions in the Balanced Budget Refinement Act of 1999 (BBRA, P.L. 106-113) and
the Medicare, Medicaid, and SCHIP Benefits, Improvements, and Protection Act of 2000 (BIPA,
P.L. 106-554) to increase reimbursement to M+C plans.
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In 2003, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA, P.L. 108-173), which made substantial changes to Medicare’s private plan option.
In creating Medicare Advantage (MA) to replace the M+C program, the MMA established an
entirely new payment methodology to pay private plans. Under the new payment system,
Medicare continues to pay plans a fixed monthly amount per enrollee, but these monthly
payments are determined, at least in part, by competitive bidding. In addition, Congress increased
payments to plans and introduced regional Preferred Provider Organizations—a popular option in
the private health insurance market. Finally, the MMA created a new benefit package for
Medicare enrollees: beginning in 2006, beneficiaries have been able to enroll in a Medicare Part
D prescription drug plan whether they are in original Medicare or Medicare Advantage. In
general, a beneficiary who wants to enroll in an MA plan and receive Part D prescription drug
coverage must enroll in an MA-PD plan—an MA plan that includes the Part D coverage. A
beneficiary who wants to remain in original Medicare may only enroll in Part D through a
Prescription Drug Plan (PDP).
Today Medicare beneficiaries can choose to enroll in several different types of private plans.
These include coordinated care plans, also known as managed care plans, such as health
maintenance organizations (HMOs), preferred provider organizations (PPOs), and provider
sponsored organizations (PSOs) as well as plans that do not manage or coordinate the health care
of enrollees, such as private fee-for-service organizations (PFFS) and medical savings accounts
(MSA). Certain other plan types operate under exceptions or demonstration authority and may or
may not manage care. Not all types are available in all locations.
Prior to the passage of MMA, enrollment in private plans fluctuated. Since the passage of the
MMA, overall enrollment in private plans has been steadily increasing. In 2009, approximately
10.4 million, or 23%, of Medicare beneficiaries are enrolled in a MA plan, and all Medicare
beneficiaries have access to at least one private plan. Despite these successes, reforming the
payment methodology for private plans remains a key issue among policymakers. According to
the Medicare Payment Advisory Commission (MEDPAC), Medicare is expected to pay private
plans an average of 14% more per beneficiary in 2009 than it does for beneficiaries enrolled in
the original Medicare program.1 A comparable analysis for 2008 showed that Medicare was
expected to pay private plans an average of 13% more per beneficiary in 2008 than it did for
beneficiaries enrolled in original Medicare.2 Based on the 2008 analysis, the greater expected
payments to plans relative to spending in original Medicare varies by plan type; payments to
HMOs are approximately 112% of original Medicare, while payments to PFFS plans are 117% of
original Medicare. Since MA payments are based, in part, on historical payment rates, this 13%
difference is linked to the 1997 BBA legislation, which created payment floors to attract private
plans to certain counties, particularly rural counties. These floors, which exceeded FFS spending
levels in many areas, continue to be used in the calculation of MA payment rates today. MA plans
use these payments to provide extra benefits to enrollees, but the value of these benefits vary
across plan types and across counties. In addition, these higher payments have attracted private
plans to areas previously underserved by Medicare private plans, and beneficiaries today have
more private plans to choose from than they did 10 years ago.
1
http://www.medpac.gov/transcripts/MIPPA_MA0109.pdf.
Medicare Payment Advisory Commission (MEDPAC), Report to Congress: Medicare Payment Policy, Chapter 3,
Medicare Advantage, March 2008, p. 247, http://www.medpac.gov/chapters/Mar08_Ch03.pdf.
2
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Beginning in 2006, the Secretary began determining MA payment rates by comparing plan bids to
a benchmark. By the first week of June each year, plans are required to submit their bids for all
MA plans they intend to offer in the upcoming year. Each bid represents the plan’s estimated
revenue requirement for providing required Parts A and B Medicare services to an average
Medicare beneficiary. The revenue requirement includes the estimated cost of providing required
health care, plus administrative costs and a return on investment. After plans submit their bids, the
Secretary has, with one exception, the authority to negotiate the bid amount, similar to the
authority of the Director of the Office of Personnel Management (OPM) with respect to the
Federal Employees Health Benefits program. The Secretary’s authority to negotiate bids does not
extend to bids submitted by Private Fee for Service (PFFS)3 organizations. The Secretary then
compares each plan’s bid to a benchmark. The benchmark amounts represent the maximum
amount the federal government will pay a plan for providing required Medicare benefits. If a
plan’s bid is less than the benchmark, its payment equals its bid plus a rebate of 75% of the
difference between the benchmark and the bid. The rebate must be used to provide additional
benefits to enrollees, reduce Medicare cost sharing expenses, or reduce a beneficiary’s monthly
Part B, prescription drug, or supplemental premium (for services beyond required Medicare
benefits). The remaining 25% of the difference is retained by the federal government. If a plan’s
bid is equal to or above the benchmark, its payment is equal to the benchmark amount, and each
enrollee in that plan will pay an additional premium equal to the amount by which the bid
exceeds the benchmark. Any MA plan that provides Part D prescription drug coverage receives
reimbursement for premiums and cost-sharing reductions for its qualifying low-income enrollees.
Additional payments may be available to certain types of plans in specific areas, or for enrollment
of certain beneficiaries. The MMA increased payments to MA regional plans in three ways. First,
the MMA established a regional plan stabilization fund to encourage plans to serve at least one
entire region or even all regions, and to encourage plans to stay in regions they might otherwise
leave. Originally, $10 billion was to be made available to this fund for years 2007 through 2013,
with additional money entering the fund from savings in the regional plan bidding process.
However, subsequent legislation reduced the initial $10 billion to one dollar. Money from the
regional plan bidding process continues to flow into the fund and will be available for distribution
in 2014. Second, the MMA allows the Secretary to provide an increased payment in special
circumstances for certain hospitals that provide inpatient hospital services to MA regional plan
enrollees. Third, Medicare shared risk with MA regional plans in 2006 and 2007. If a plan’s costs
fell outside of a specified range or “risk corridor,” plans assumed only a portion of the risk for
unexpectedly high costs and plans were required to return a portion of the savings to Medicare for
unexpectedly low costs.
In general, the MA benchmarks in each local area (county) are updated annually by a minimum
increase over the previous year’s rate. The minimum increase is set at the larger of either 2% or
the overall growth in Medicare expenditures, otherwise known as the National MA Growth
Percentage, subject to a budget neutrality adjustment. In certain years (known as rebasing years),
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Private fee for service plans (PFFS) are one type of private plan that may participate in the Medicare Advantage
program. PFFS plans are defined as those that (1) reimburse providers on a fee-for-service basis without placing
providers at a financial risk, (2) do not vary rates for a provider based on utilization related to that provider, and (3) do
not restrict the selection of providers among those who are lawfully authorized to provide services and agree to the
plan’s terms and conditions of participation.
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plan payments are updated by the greater of the minimum increase or 100% of fee-for-service
(FFS) costs, with adjustments. Statutorily required adjustments to the 100% of FFS amount
include (1) exclusion of the direct cost of medical education, (2) phase-out of the indirect cost of
medical education, and (3) adjustment to reflect the additional per capita payments that would
have been made in the area if individuals entitled to benefits under Medicare had not received
services from the Department of Defense or the Department of Veterans Affairs. (As of CY2009,
CMS had been unable to make the third of these adjustments.) According to statute, the Secretary
is required to rebase FFS costs at least once every three years. However, CMS has chosen to
rebase more frequently. The Secretary opted to rebase FFS rates for 2007 and 2009, but not 2008.
In rebasing years, all benchmarks are either equal to or greater than the estimated adjusted
average spending in original Medicare in that county. In a non-rebasing year, it is possible for
spending in original Medicare in a county to exceed the benchmark amount. But in general,
benchmarks are set at or above spending in original Medicare. According to MEDPAC,
benchmarks are, on average, 18% greater than expected spending in original Medicare.4 The
National MA Growth Percentage rate (prior to the budget neutrality adjustment discussed below)
is 5.7% in 2008 and 4.2% in 2009.
The benchmark is calculated differently for local MA plans than for regional MA plans. The local
benchmark is based solely on statutorily or administratively defined increases. The regional
benchmark is competitive in that the benchmark consists of two components: a statutorily
determined increase and a weighted average of plan bids. The latter component introduces a new
form of competition among regional plans, by basing a portion of the benchmark amount on bids
submitted by the plans.
After determining the annual update, the Secretary adjusts payments for the health status of
enrollees and for budget neutrality. To adjust for health status, the Secretary calculates a risk score
for each enrollee based on the beneficiary’s previous health care utilization. (This is known as
risk adjustment.) Previously, payments to managed care plans were adjusted for a combination of
demographic factors such as age, gender, and institutional status. In 1999, Congress urged the
Secretary to implement a more clinically based risk adjustment methodology to supplement the
existing demographic adjustment factors. It was fully phased in by 2007. The methodology was to
be implemented without reducing overall payments to managed care plans. Typically, risk
adjustment would have the effect of lowering payments to plans enrolling healthier beneficiaries
and raising payments to plans enrolling sicker beneficiaries. To prevent overall payments to
managed care plans from going down, the Secretary applied a budget neutrality adjustment.
Under budget neutrality, total payments to managed care plans using 100% risk adjusted rates
must be equal to total payments to plans using 100% demographic rates. When Congress passed
the Deficit Reduction Act of 2005, it included a provision mandating the phaseout of this budget
neutrality adjustment by 2011. As a result, the MA benchmark update for 2008 was, on average,
3.5%. The update for 2009 is an average of 3.6% for all areas that did not receive a rebased
amount.
MA plans offering prescription drug coverage receive a separate benchmark payment for Part D
prescription drug benefits. The benchmark for Part D benefits is based on an adjusted average of
all plan bids for the area and is therefore competitively determined.
4
Medicare Payment Advisory Commission (MEDPAC), Report to Congress: Medicare Payment Policy, Chapter 3,
Medicare Advantage, March 2008, p. 247, http://www.medpac.gov/chapters/Mar08_Ch03.pdf.
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Over time, the number of contracts under MA and its predecessors has fluctuated. From 1987 to
the early 1990s, many risk plans terminated existing contracts, decreasing the number of available
contracts from 161 in 1987 to 93 in 1991. The number of Medicare risk plans began increasing
again in 1992, more than tripling from 110 in 1993 to 346 in 1998. With the implementation of
the M+C program in 1999, M+C organizations withdrew from the Medicare program or reduced
the size of their service area. As shown in Figure 1, the number of contracts dropped from a high
of 346 in 1998 to a low of 146 in March 2003. With the passage of the MMA in 2003, the trend
began to reverse. The number of MA contracts more than doubled between 2005 and 2006. This
increase coincides with the start of the Part D prescription drug program and may reflect an
overall increased interest in private plan participation in Medicare at that time. There were 600
MA coordinated care and PFFS contracts in 2008, increasing to 623 in 2009.
Organizations withdrawing from the program or reducing their service area between 1998 and
2004 cited several reasons for leaving the program: inadequate payments, increasing regulatory
burden, and difficulty developing or maintaining provider networks. The withdrawals may have
reflected strategic business decisions that transcended payment issues. Other factors may have
contributed to withdrawals, such as low enrollment and market competition. For each year
between January 1999 and January 2003, from 4% to 15% of M+C enrollees either had to change
plans or leave the program because of plan withdrawals and service area reductions. Some
beneficiaries were required to switch plans multiple times between 1999 and 2003. Of those
beneficiaries that lost their plans, between 7% and 24% lost access to any M+C plan each year.
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Figure 1. Number of Coordinated Care and PFFS Contracts in Medicare Part C
(1985 to 2008)
number of contracts
700
PFFS
Coordinated Care
600
500
400
300
200
100
0
1982
1983
1984
1985 1986
1987 1988
1989
1990
1991 1992
1993
1994
1995
1996
1997
1998 1999
2000 2001
2002
2003
2004 2005
2006 2007
2008
Year
Prepared by the Congressional Research Service based on April CMS Medicare Managed Care
Contract (MMCC) Monthly Reports through 2005, and CMS Medicare Advantage Monthly Summary Reports for
2006 to 2008.
Notes: Medicare managed care contracts include risk contracts through 1998, Medicare+Choice contracts
beginning in 1999, and Medicare Advantage contracts beginning in 2006. This figure does not contain data for
reasonable cost contracts, demonstrations, Health Care Pre Payment (HCPP) plans, PACE plans, Medical Savings
Accounts, employer sponsored plans, or pilot projects.
Source:
Enrollment in Medicare private plans has fluctuated over time. As shown in Figure 2, in 1990
about 3% of Medicare beneficiaries were enrolled in the program, but by 1998 this figure had
increased to 15% of Medicare beneficiaries, covering just over 6 million enrollees. With the
implementation of the M+C program, enrollment increased through 1999, but declined steadily to
a low of 11% (4.7 million enrollees) in 2003 and 2004. Enrollment has since increased each year,
reaching a recent high of 23% in 2009. The 2008 Annual Report of the Board of Trustees projects
further enrollment increases reaching about 27% of all beneficiaries in 2017, covering about 15
million enrollees.
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Figure 2. Percentage
of Beneficiaries Enrolled in Medicare Private Plans, Actual
and Projected
(selected years, 1985 to 2017)
percent of beneficiaries
50%
Projected
Actual
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Year
Source: Prepared by CRS based on 2008 Annual Report of the Board of Trustees of the Federal Hospital
Insurance and Federal Supplementary Medical Insurance Trust Fund. Enrollment from 2008 to 2015 is estimated.
Notes: Medicare plans include risk plans through 1998, Medicare+Choice plans beginning in 1999, and Medicare
Advantage plans beginning in 2006.
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Though a variety of plan types are authorized under Medicare, national enrollment in MA is
concentrated in two types: health maintenance organizations (HMOs), with 67% of enrollment,
and private fee-for-service (PFFS) plans, with 21% of enrollment (Figure 3). All other remaining
plan types make up 13% of enrollment. Characteristics of the different plan types and enrollment
specifics follow.
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Coordinated Care Plans (CCPs) are those plans that have a network of medical providers under
contract to provide approved health care benefits to plan enrollees. CCPs may use mechanisms to
coordinate care or control health care utilization, such as primary care “gatekeepers,” and
financial incentives with plan providers to encourage cost-effective health care. CCPs include the
following specific types of plans: Health Maintenance Organizations (HMOs), Preferred Provider
Organizations (PPOs), and Provider Sponsored Organizations (PSOs). Three-quarters of all MA
enrollees are in a coordinated care plan.
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Figure 3. Percentage of MA Enrollment, by Plan Type, 2008
COST, 3%
HCPP, 1%
MSA, 0%
Demos, 0%
Regional PPO,
3%
PFFS, 21%
PSO, 1%
HMO, 67%
Local PPO, 5%
Source: Prepared by CRS based on CMS data.
Notes: HMOs: health maintenance organizations; Local PPO: local preferred provider organizations; PSO:
provider sponsored organizations; PFFS: private fee-for-service organizations; Regional PPOs: regional preferred
provider organizations; MSA: medical savings accounts; COST: reasonable cost organizations; HCPP: health care
pre-payment organizations; Demos: organizations that operate under CMS demonstration authority. May not
sum to 100% due to rounding.
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Health Maintenance Organizations (HMOs) offer services to plan members in designated areas.
Beneficiaries are generally required to obtain services from hospitals and doctors in the plan’s
network. Some plans offer a point-of-service option under which an individual may elect to
obtain services from a non-network provider; in such cases, the individual generally pays a
greater out of pocket cost for out-of-network care. In 2008, approximately 6 million Medicare
beneficiaries (67%) were enrolled in an MA HMO.
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A Preferred Provider Organization (PPO) is a plan that has a network of providers; however,
enrollees are not restricted to the providers in the PPO network. Generally, enrollees are required
to pay greater cost sharing when receiving care outside of the PPO network. Two types of PPO
plans are authorized under Medicare: local PPO plans and regional PPO plans. Local PPO plans
may choose their service area, while regional PPO plans must agree to serve one or more regions
designated by the Secretary. There are 26 PPO regions consisting of states or groups of states. In
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addition to the service area requirements, the benefit packages for regional PPO plans are
required to have a unified Part A and B deductible and a catastrophic out-of-pocket limit, which
are not required of local PPO plans. In 2008, 5% of all MA enrollees were in a local PPO plan
(approximately 470,000) and 3% of MA enrollees were in a regional PPO plan (approximately
230,000).
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A Provider Sponsored Organization (PSO) is a coordinated care plan established or organized by
a group of medical providers in which the providers furnish the majority of the health care and
share in the financial risk of providing the health care to plan enrollees. In 2008, 1% of MA
enrollees were in an MA PSO plan (approximately 54,000).
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A Specialized Plan for Special Needs Individuals (SNPs) is any MA coordinated care plan that
exclusively enrolls or enrolls a disproportionate percentage of special needs individuals. Special
needs individuals are any MA eligible individuals who are either institutionalized as defined by
the Secretary, eligible for both Medicare and Medicaid, or have a severe or disabling chronic
condition and would benefit from enrollment in a specialized MA plan. Since SNP plans may be
any type of CCP, SNP enrollees are included in the enrollment estimates above. In 2008, 1.1
million Medicare beneficiaries were enrolled in a SNP: 70% were enrolled in a SNP for
beneficiaries eligible for both Medicare and Medicaid, 17% were enrolled in a SNP for
beneficiaries with chronic conditions, and 13% were enrolled in a SNP for institutionalized
Medicare beneficiaries.
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Private Fee for Service plans (PFFS) are plans that (1) reimburse hospitals, physicians, and other
providers on a fee-for-service basis without placing providers at risk; (2) do not vary rates for a
provider based on the utilization relating to that provider; and (3) do not restrict the selection of
providers among those who are lawfully authorized to provide services and agree to accept the
terms and conditions of payment established by the plan. In 2008, 21% of MA participants were
enrolled in a PFFS plan (approximately 1.9 million).
PFFS contracts and enrollment have seen a steeper increase over recent years. First authorized in
the BBA, the first contract was offered in 2000, the second following in 2002. However, between
2004 and 2008, MA PFFS contracts grew from 4 contracts in 2004 to 77 contracts in 2008.
Enrollment in PFFS grew from 31,550 in 2004 to 1.9 million in 2008. Several factors may have
contributed to the recent growth. First, prior to 2011, PFFS contracts are not required to establish
provider networks and are therefore less expensive to establish in non-urban areas. Starting in
2011, PFFS plans sponsored by employers or unions will be required to have contracted provider
networks. All other PFFS plans will be required to establish provider networks in areas where at
least two other network-based plans operate. Second, enrollees can choose to see any provider
willing to accept the terms and conditions specified by the PFFS plan—an attractive feature for
beneficiaries. Third, PFFS plans tend to be paid more than coordinated care plans. Medicare pays
13% more per beneficiary in MA than in original Medicare. This varies by type of MA plan, with
a 12% increase for HMOs and 17% for PFFS. Fourth, PFFS contracts have fewer statutory
requirements, resulting in reduced operation costs. And fifth, employer and union groups have
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historically found MA PFFS plans an attractive option for providing retiree coverage, though this
may change with the new network requirements.
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Reasonable Cost Plans (COST) are private MA plans that are paid on the basis of the reasonable
costs actually incurred to provide Medicare covered benefits to enrollees. Unlike other types of
private plans that participate in Medicare, Cost plans are not “at risk” for the actual cost of
providing care to their enrollees. In 2008, 266,000 beneficiaries were enrolled in a cost plan,
representing 3% of total MA enrollment.
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A Medical Savings Account (MSA) under MA is a combination of a health insurance policy with
a high deductible and a savings account for health care expenses. CMS pays premiums for the
insurance policy and makes contributions to the savings account. Beneficiaries use money from
the savings account to pay for their health care before the high deductible of the insurance policy
is met. The maximum deductible is set by law. For 2008, the deductible may not exceed $10,050.
In 2008, slightly more than 1,000 people were enrolled in an MA MSA. They represented less
than 0.01% of MA enrollees.
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A Health Care Prepayment Plan (HCPP) is a private plan that covers only physician services. In
2008, 1% of MA enrollees were in an HCPP in 2008.
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Enrollment in a plan is open only to eligible beneficiaries living in the plan’s service area. Plans
define a service area as a set of counties and county parts, identified at the zip code level. In 2009,
an MA plan is available to every beneficiary in the United States. However, this widespread
availability is a recent event. In the early part of the M+C program, a Medicare private plan was
not available in the majority of counties (Table 1). In 1997, approximately a quarter of counties
had an M+C plan available, increasing to 29% by 1999. (In 1997, 76% of counties were without a
plan, decreasing to 71% in 1999.) In 2000, the first PFFS plan focused primarily on rural and
suburban areas that were less often served by managed care; this greatly increased the proportion
of counties with access to a private plan. Between 2001 and 2003, approximately half of counties
had access to a PFFS plan, but for over 40% of counties, PFFS was the only private option
available. The proportion of counties served by managed care decreased over this period, from
20% of counties in 2001 to 17% of counties in 2003. (In 2001, 10% of all counties were served
by only a coordinated care plan, while 10% of all counties were served by both a managed care
and a PFFS plan, summing to 20%. In 2003, 9% of all counties were served by only a coordinated
care plan, while an additional 8% of counties were served by both a CCP and a PFFS plan,
summing to 17%.) Access to private plans through Medicare has increased substantially since
2004, and now nearly all counties are served by at least one type of private plan, though for half
of all counties, PFFS is the only plan type available as of 2008.
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Medicare beneficiaries, however, are not equally distributed by counties. This occurs because the
population and plans are not distributed equally across counties, but rather they are concentrated
in the more urban counties. In 2007, while half of all counties were served by only PFFS plan
options, the beneficiaries in those counties represented only 17% of all Medicare beneficiaries
(Table 1). The proportion of beneficiaries with access limited to PFFS plan options has remained
stable since 2001 (prior to the MMA) at between 17% and 20%.
Availability can further be examined taking into account the MA plans set up by employers for
their retirees. Though only the retirees of the sponsoring company are eligible to join the plan,
their increased popularity in recent years has provided additional options for this subset of
Medicare beneficiaries. In 2007, taking into account employer sponsored plans, 96% of all
beneficiaries had access to both a coordinated care plan and a private fee for service plan, and 4%
of all beneficiaries had access to only a PFFS plan, though again, not all beneficiaries would be
eligible to enroll in an employer sponsored plan.
Table 1. Changes in Access to Coordinated Care Plans, Private Fee-for-Service Plans,
and Both, by Proportion of Counties and Beneficiaries
(selected years 1997 to 2007)
Both Managed Care
No Existing Plans in
Private Fee-for-Service and Private Fee-forCounty
Only
Service
Managed Care Only
% of
% of
% of
% of
% of
% of
% of
% of
Year counties beneficiaries counties beneficiaries counties beneficiaries counties beneficiaries
1997
1999
2001
2002
2003
2004
2005
2006
2007
76%
71%
37%
38%
37%
31%
4%
1%
0%
NA
NA
18%
21%
21%
16%
2%
1%
0%
24%
29%
10%
10%
9%
13%
4%
3%
0%
NA
NA
43%
43%
42%
42%
21%
18%
0%
0%
0%
43%
44%
46%
44%
53%
54%
50%
NA
NA
18%
18%
20%
19%
18%
19%
17%
0%
0%
10%
8%
8%
12%
39%
42%
50%
NA
NA
21%
18%
17%
23%
58%
62%
82%
Source: MedPAC Computations based on CMS public data for 1997 and 1999; CRS analysis of CMS data for
2003-2003; CMS analysis for 2004-2007.
Notes: NA = not available. The table does not include demonstration plans, cost plans, employer-sponsored
plans, regional MA plans, or plans serving Puerto Rico. Medicare managed care includes risk plans through 1998,
Medicare+Choice plans through 2003, and Medicare Advantage plans starting in 2004. Managed Care includes
the PPO demonstration for 2004 and 2005. Regional MA plans cover 38 or 39 states in 2007, but accounted for
less than 2% of enrollment. To determine access to managed care plans regardless of access to PFFS plans, add
the percentages for “Managed Care Only” and “Both Managed Care and Private Fee-for-Service.” Because of
rounding and data technicalities, 100% access or 0 plans are not absolute numbers and should be taken as
accurate approximations.
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Patterns of Medicare Part C enrollment are not uniform across urban and rural locales, and have
varied over time as shown in Figure 4. The geographic areas are defined as follows:
•
Central urban—central counties of metropolitan areas of at least
1 million population.
•
Other urban—either fringe counties of metropolitan areas of at least
1 million population or counties of metropolitan areas up to 1 million population.
•
Urban/rural fringe—urban population of at least 2,500 adjacent to a metropolitan
area.
•
Other rural—includes urban population of at least 2,500, not adjacent to a
metropolitan area, and rural areas (defined as places with a population of less
than 2,500).
Figure 4. Concentration of Medicare Beneficiaries (2007), Medicare Advantage
Enrollees (2007), and Medicare+Choice Enrollees (2003) in Urban and
Rural Locations
80%
Medicare+Choice enrollees in 2003
Medicare Advantage enrollees in 2007
Medicare beneficiaries 2007
Urban/Rural Fringe
Other Rural
70%
60%
50%
40%
30%
20%
10%
0%
Central Urban
Other Urban
Source: Prepared by CRS based on CMS data.
In 2003, most M+C enrollees resided in central urban areas; about 69% of the M+C population
lived in a central urban area in 2003. This percentage decreased to 51% in 2007. However, a
smaller proportion, only 39% of all Medicare beneficiaries reside in the central urban areas. (The
urban and rural pattern of beneficiary residence as defined above remained the same from 2003 to
2007.) In all geographic areas, except central urban areas, the percentages enrolled in private
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plans are less than the percentage of Medicare beneficiaries overall. (For example, 13% of
Medicare beneficiaries live in the urban/rural fringe areas, but MA enrollees in those areas made
up only 8% of total private plan enrollment in 2007, up from 2% of private plan enrollment in
2003.) This means that a larger proportion of the Medicare population in the central urban areas
choose to enroll in Medicare private plans relative to other geographic areas; conversely, a lower
proportion of beneficiaries choose to enroll in private plans in non-central urban areas, though
that trend is decreasing.
Historically, the high enrollment trend in central urban areas occurred because of a combination
of interrelated factors, such as historic patterns of managed care enrollment in the non-Medicare
market, availability of different plans, and plan benefits. More recently, with greater availability
of private plans in suburban and rural areas, more beneficiaries living in those areas are enrolling
in MA plans; the urban concentration of MA enrollment is decreasing.
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In addition to rural and urban variations, enrollment patterns also vary on a regional basis, though
not by as much as in previous years. MA enrollment is slightly higher in western and
southwestern states, as shown in Figure 5. Approximately 36% of the beneficiaries in Arizona,
34% of the beneficiaries in California, and 38% of the beneficiaries in Oregon are in MA plans.
The highest levels of enrollment in the eastern states are in Rhode Island (35%), Florida (26%),
Pennsylvania (33%), and New York (25%). Only one state, Alaska, has less than 1% of
beneficiaries enrolled in MA. Seventeen states have enrollment of 10% or less. A total of 34 states
have enrollment of less than the national average of 21%.
MA enrollees are more concentrated geographically than Medicare beneficiaries as a whole,
though this trend has decreased from 2003 to 2008. In 2003, the four states with the highest
percentage of beneficiaries enrolled in Medicare Part C accounted for over half of all enrollment:
California, Florida, Pennsylvania, and New York. These four states accounted for 59% of all
enrollees in 2003, but they are home to only 30 % of all Medicare beneficiaries. In 2007,
enrollment has become slightly less concentrated, with enrollment in those four states accounting
for 41% of all MA enrollment. Table 2 compares the percent of Medicare Part C enrollment to
the percent of the total Medicare population for each of these four states.
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Figure 5. Percentage of Medicare Beneficiaries Enrolled in Medicare Advantage, by
State, January 2008
Source: Prepared by CRS based on data from the Centers for Medicare and Medicaid Services.
Notes: State numbers represent percentages.
Table 2. Shares of Medicare+Choice and Medicare Advantage Enrollment and
Medicare Population Residing in Four States
(January 2003 and 2008)
State
% of Total Medicare
Population
% of Total M+C
Population in 2003
% of Total MA
Enrollment in 2008
10
7
5
7
30
28
12
10
9
59
16
9
8
8
41
California
Florida
Pennsylvania
New York
Total
Source: Prepared by CRS based on data from CMS.
Notes: Numbers may not add due to rounding. Proportion of total Medicare population in each state remained
the same from 2003 to 2008.
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The MA program includes specific rules regarding eligibility to enroll in a private plan, and when
enrollment can take place. The following is a description of those requirements.
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Medicare beneficiaries are eligible to enroll in any MA plan that serves their area, with the
following restrictions: (1) beneficiaries must be entitled to benefits under Part A of Medicare and
enrolled in Part B of Medicare and (2) beneficiaries who qualify for Medicare solely on the basis
of end-stage renal disease (ESRD) may not enroll in an MA plan. Three exceptions apply to
individuals with ESRD: (1) a beneficiary enrolled in an MA plan who later develops ESRD may
continue to remain enrolled in that plan; (2) if a plan terminates its contract or reduces its service
area (for an enrollee this is referred to as an involuntary termination), ESRD enrollees may enroll
in another MA plan; and (3) an individual with ESRD may elect to enroll in an MA SNP as long
as the plan has opted to enroll ESRD individuals. Members of an Employer Group Health Plan
(EGHP) may also elect their employer’s MA plan even if the individual resides outside the MA
plan service area provided the plan meets certain access requirements.
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An MA eligible individual may only enroll in an MA plan that serves the geographic area in
which the individual resides, with two exceptions: (1) a plan may allow an individual to remain in
a local plan, even if he or she no longer resides in the service area, so long as the plan provides
reasonable access within that geographic area to the full range of basic benefits, with reasonable
cost sharing, and (2) a local MA organization that eliminates a payment area previously within its
service area may choose to offer enrollees in all or part of the affected area continued enrollment
in the plan, under certain conditions. Local HMOs may determine their own service area,
consisting of counties or equivalent areas. Nothing prevents a local plan from being offered in
more than one MA area.
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In general, MA organizations can enroll Medicare eligible individuals during four enrollment
periods: (1) initial coverage election period, (2) annual election period, (3) open enrollment
period, and (4) special election periods. The initial coverage election period applies to newly
eligible Medicare beneficiaries, who are allowed to enroll in an MA plan up to three months prior
to their Medicare entitlement date. During the annual coordinated election period (November 15December 31), all MA eligible beneficiaries can enroll or disenroll from any MA plan, or switch
from original Medicare to MA, or MA to original Medicare. Changes in elections are made
during the open enrollment period. The open enrollment period allows individuals to make one
change during the first three months of the year. Beneficiaries in original Medicare can enroll in
an MA plan, and individuals enrolled in an MA plan can either switch to a different MA plan or
return to original Medicare. However, during the three-month open enrollment period,
beneficiaries cannot change their drug coverage. For example, an individual enrolled in a MA-PD
plan can elect only to enroll in another MA-PD plan. Similarly, an individual enrolled in original
Medicare and a stand-alone PDP can change only to an MA-PD plan. The reverse is true as well.
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Individuals enrolled in original Medicare without drug coverage can enroll only in MA plans that
do not offer drug coverage. Eligible beneficiaries who are institutionalized may change their
election any time during the year.
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Outside the annual coordinated election period and open election period, beneficiaries can change
their enrollment status only under special circumstances, called Special Election Periods (SEPs).
The Secretary has created SEPs for the following instances: (1) when the organization has
terminated its contract or discontinued offering its plan in the resident’s service area, (2) the
resident moves to a new service area, (3) the beneficiary can demonstrate that the plan has
violated the terms of its contract (i.e., fails to provide medically necessary care or misrepresents
the plan in its marketing materials), or (4) the individual meets other exceptional circumstances
provided by CMS.
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Nearly all plans offer some benefits to enrollees beyond those in original Medicare. All
supplemental benefits are paid for either with (1) a rebate earned by the plan through the bidding
process, (2) directly by the enrollee through a supplemental premium, or (3) some combination of
a plan rebate and supplemental premium. A Government Accountability Office (GAO) analysis of
MA plan supplemental benefits (as projected by the plans in their 2007 bid documents) indicated
that, overall, rebates paid for 77% of supplemental benefits, and additional premiums paid for the
remaining 23%. However, the proportions varied by plan. Other analyses have examined
supplemental benefits offered to enrollees in the lowest premium package offered by each
participating organization; benefits in these packages would be more likely to be paid for through
savings rather than a supplemental premium. These analyses found that in 2005, most MA
enrollees were offered vision care (92%) and hearing coverage (99%), while all were offered
routine physicals (100%) (Figure 6). Prescription drug coverage was a popular supplemental
benefit prior to the start of the new Medicare Part D prescription drug program; with the Part D
program, some type of prescription drug coverage is available to all enrollees who choose to join
an MA plan that covers drugs. Figure 6 shows that the percentage of enrollees offered these
benefits has fluctuated for all services between 1999 and 2005. However, the figure does not
show how the extent of benefits or the level of cost sharing may have changed over the time
period.
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Figure 6. Percentage of M+C and MA Enrollees Offered Benefits Beyond Traditional
Medicare Covered Services, in the Lowest Premium Package Available, 1999, 2002,
and 2005.
Vision care
Physical exams
Prescription drugs
Hearing care
Preventive dental
Podiatry
Chiropractor
0%
10%
20%
30%
40%
2005
50%
60%
2002
1999
70%
80%
90%
100%
Source: Chart prepared by CRS based on Mathematica Policy Research analysis of CMS data.
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All MA enrollees are required to pay the Part B premium, although plans may pay this for their
enrollees as a supplemental benefit. Plans are permitted to charge enrollees additional out-ofpocket fees, such as premiums and coinsurance, depending on which plan the individual elects.
Any supplemental premium charged to plan enrollees is a consolidation of any of the following
three charges: (1) a premium to cover basic Part A and B benefits if a plan bid was above the
benchmark, (2) a premium to cover supplemental benefits not paid for through a plan rebate, and
(3) a premium for Part D prescription drug coverage. However, plans have an incentive to
minimize supplemental premiums in order to remain competitive in local markets.
Between 1999 and 2003, the percentage of beneficiaries nationally with access to a zero premium
coordinated care plan declined. As shown in Table 3, the availability of these plans dropped by
half, from over 60% to just under 30%. Between 2003 and 2006, access to a zero premium plan
doubled, again achieving the previous high of 61%. The percentage of beneficiaries enrolled in a
zero premium coordinated care plan has fluctuated as well, but changes in the methodology make
a comparison of this measure over time difficult. In 2006, just over half of MA coordinated care
plan enrollees were in a plan with a zero combined premium for Part C and Part D benefits.
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Table 3. Changes in Access to or Coverage Under a Medicare+Choice or Medicare
Advantage Coordinated Care Plan with a Zero Premium, 1999 to 2006.
Year
1999
2000
2001
2002
2003
2004
2005
2006
Overall Medicare Population
with Access to Zero Premium
Coordinated Care Plan
61
53
39
34
29
40
42
61
Enrollees with Zero Premium
Coordinated Care Plan
68
61
45
39
38
48a
58a
52b
Source: Centers for Medicare and Medicaid Services. Analysis of submitted bids from Health Plan Management
System (HPMS) data; data development by the Office of Research, Development and Information.
Notes: This table does not include Private Fee-or-Service or employer sponsored plans. It includes Special
Needs Plans, Health maintenance Organizations, Preferred Provider Organizations, and Provider Sponsored
Organizations.
a. Enrollment in zero premium plan reflects actual enrollment as reported by the plan. In prior years, enrollees
were assigned to the zero premium plan if one was available.
b. For 2006, zero premium refers to the combined part C and part D premium.
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Prior to 2006, one of the advantages of Medicare private plans over original Medicare was that
most plans included some outpatient prescription drug coverage. The MMA added the Medicare
Part D prescription drug program, making some type of drug coverage available to all
beneficiaries. With one exception, every MA organization in an area is required to offer at least
one Medicare Advantage-Prescription Drug (MA-PD) plan, one that offers qualified Part D
prescription drug coverage. PFFS plans are not required to offer a plan with qualified prescription
drug benefits. If a beneficiary enrolls in a PFFS plan that does not provide prescription drug
coverage, he or she can enroll in a stand-alone Part D prescription drug plan in addition to the
PFFS plan. Beneficiaries who choose any other MA plan without drug coverage can not enroll in
a stand alone Part D plan.
MA organizations offering prescription drug coverage receive a direct subsidy for each enrollee in
an MA-PD plan equal to the plan’s adjusted standardized bid amount for its prescription drug
benefit (reduced by the base beneficiary Part D premium). The plan also receives the reinsurance
payment amount of 80% of the costs for drugs exceeding the annual out-of-pocket threshold for
an enrollee ($4,050 in 2008). Finally, MA-PD plans receive reimbursement for premium costsharing reductions for their qualifying low-income enrollees.
Beneficiaries who enroll in an MA plan offering Part D must pay the plan the standard Part D
premium. However, MA-PD plans that receive a rebate in the bidding process may use all or part
of that rebate as a credit toward the MA monthly prescription drug premium.
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The MA program includes requirements designed to limit beneficiaries’ financial liability and to
assure beneficiaries of certain rights. Among these beneficiary protections are standards to ensure
access to Medicare benefits and providers, beneficiary liability standards, health care quality
standards, consumer disclosure and plan marketing requirements, and a grievance and appeals
process.
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In general, MA organizations cannot deny enrollment on the basis of health status-related factors.
These factors include health status, medical condition (including both physical and mental
illnesses), claims experience, receipt of health care, medical history, genetic information,
evidence of insurability (including conditions arising out of acts of domestic violence), and
disability. However, an organization may deny enrollment if it has reached the limits of its
capacity. Organizations may terminate an enrollee’s election only for failure to pay premiums on
a timely basis, disruptive behavior, or because the plan ends for all MA enrollees.
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Coordinated care plans such as HMOs and PPOs are required to form provider networks to meet
Medicare access requirements. In accordance with network requirements, each provider has a
written contract or agreement to furnish services to plan enrollees. Care is generally not covered
or is partially covered if received from a provider who is not in the plan’s network. Regional
PPOs, despite being coordinated care plans, can use methods other than written agreements to
meet access requirements with the Secretary’s approval.
Prior to 2011, however, PFFS plans are not required to establish networks of providers. PFFS
plans must permit enrollees to obtain services from any Medicare participating provider that
agrees to the plans’ terms and conditions. PFFS plans meet access requirements by (1)
establishing payment rates that are not less than those under original FFS Medicare or (2) having
signed (direct) contracts with a sufficient number and range of providers in a particular category.
Most PFFS plans are meeting access requirements by paying providers the same rates as original
Medicare. Starting in 2011, PFFS plans sponsored by employers or unions are required to
establish contracted networks of providers to meet access requirements. Non-employer-sponsored
MA PFFS plans are required to establish contracted networks of providers in network areas
defined as areas having at least two plans with networks (such as HMOs, PSOs, or local PPOs).
In areas without at least two network based plans, the non-employer PFFS plans retain the ability
to establish access requirements through establishing payment rates that are not less than those
under original Medicare.
Enrollees in PFFS plans may obtain covered services from any Medicare eligible provider who is
willing to furnish services and accepts the plan’s terms and conditions of participation. However,
the lack of a written agreement between the plan and provider (in areas where PFFS plans do not
have a contracted network of providers) means that the providers are not required to treat plan
enrollees. Providers may determine on a case-by-case or visit-by-visit basis whether to serve a
plan’s enrollees.
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Other access requirements include developing written standards to ensure that access to care is
timely; developing policies and procedures in the areas of coverage, payment, and utilization; and
establishing written requirements for ensuring beneficiary input in a treatment plan. Plans must
also ensure that services are available 24 hours a day 7 days a week and provide access to
ambulance and emergency services.
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CMS reviews and approves MA plan benefit offerings, including mandatory and optional
supplemental benefits, to ensure that plans are providing all Part A and B covered services (except
hospice), do not discriminate against beneficiaries, do not discourage enrollment or encourage
disenrollment, do not steer subsets of Medicare beneficiaries to certain MA plans, or inhibit
access to services. CMS also reviews mandatory supplemental benefits (i.e., benefits not covered
under original Medicare, reduced Medicare premiums, or cost-sharing amounts) to ensure that
they are designed in accordance with CMS’s guidelines and requirements.
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Enrollees in MA-coordinated care plans (i.e., HMOs and PPOs) are likely to experience the least
amount of out-of-pocket costs (compared to other MA plans). Cost sharing per enrollee
(excluding premiums) for covered services cannot be more than the actuarial value of the
deductibles, coinsurance, and co-payments under traditional Medicare. However, while the
aggregate amount of cost sharing in an MA plan must be equal to the aggregate amount of cost
sharing in original Medicare, the plan may set different amounts for specific services, such as a
lower (or higher) deductible for hospital inpatient services or skilled nursing facility services.
Balance billing under Medicare generally refers to an amount billed by a provider in excess of
Medicare’s recognized payment amount (which includes beneficiary cost sharing). Original
Medicare prohibits balance billing by Medicare-“participating physicians” but allows nonparticipating physicians to balance bill up to 115% of the non-participating Medicare feeschedule amount, which is 9.25% above the recognized amount for participating providers.
Providers participating in coordinated care MA plans, such as HMOs, are prohibited from balance
billing. However, providers participating in PFFS plans are allowed to balance bill enrollees up to
115% of the plan’s fee schedule, subject to the terms and conditions of the plan. This means that
if a PFFS plan allows providers to balance bill, the beneficiary would be responsible for any
balance billing charges in addition to any cost-sharing required by the plan. If the PFFS plan does
not allow balance billing, the beneficiary is not responsible for balance billing charges, but would
be responsible for any cost-sharing requirements under the plan. Balance billing rules under PFFS
plans may apply to all types of Medicare providers. PFFS plans are obliged to inform
beneficiaries of these balance billing amounts, and hospitals are required to provide PFFS
enrollees advanced notice of balance billing charges.
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All MA organizations are required to have a quality improvement program. As part of the quality
improvement program, plans must collect, analyze, and report data to measure health outcomes
and other indices. Specific requirements include designing a chronic care improvement program,
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conducting quality improvement projects, and encouraging providers to participate in CMS and
HHS quality initiatives. Plans are required to annually assess the impact and effectiveness of their
quality improvement programs and take timely action to correct any systemic problems that come
to their attention.
CMS requires that MA plans collect and report on a subset of performance measures from the
National Committee for Quality Assurance’s (NCQA’s) Health Plan Employer Data and
Information Set (HEDIS), the Consumer Assessment of Health Plans Study (CAHPS), and the
Medicare Health Outcomes Survey (HOS).
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MA organizations must disclose to each enrollee (at the time of enrollment and at least annually)
information on their service area, benefits, the number, mix, and distribution of providers, out-ofarea coverage, emergency coverage, supplemental benefits, prior authorization rules, plan
grievance and appeals procedures, the quality improvement program, disenrollment rights and
responsibilities, and cost-sharing obligations. MA organizations must make a good faith effort to
provide enrollees with written notice of a provider’s termination from the plan’s network at least
30 days prior to the termination date. Medicare-eligible enrollees are also allowed to request from
the plan information on procedures used by the organization to control utilization, the number of
grievances and appeals, a description of physician compensation practices, and descriptions of the
plan’s financial performance. When an MA organization terminates its contract with CMS, it must
provide and pay for advance written notice to each of its enrollees, along with a description of
alternatives for obtaining benefits.
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MA organizations are required to submit marketing brochures and enrollment forms to CMS for
review and approval at least 45 days before distribution. If using CMS model materials, the
approval time is reduced from 45 to 10 days. As part of the review process, CMS must ensure that
the information provided to beneficiaries is not inaccurate or misleading. MA organizations are
also required to develop marketing materials that provide an adequate description of plan
benefits, providers, and fees; an explanation of the grievance and appeals process; notification of
the open enrollment period; and a statement indicating that either the plan or CMS can terminate
the contract, thereby resulting in the beneficiary’s disenrollment from the plan.
CMS has also developed standards for regulating the marketing conduct of MA organizations.
These standards include prohibitions against door-to-door soliciting, providing cash or other
monetary rebates to induce enrollment, and conducting misleading or confusing activities, such as
claiming that the MA organization has been endorsed by CMS or Medicare. Further, providers
cannot distribute information to beneficiaries comparing benefits across plans or allow
beneficiaries to complete enrollment applications in provider offices.
CMS issued a proposed rule in May 2008 changing some marketing standards into regulations.
Prior to the issuance of a final rule, MIPPA established the following new prohibitions on the
marketing activities of MA plans. Except in instances where the beneficiary initiates contact,
plans will be prohibited from soliciting beneficiaries door-to-door or on the phone. Cross-selling
of non-health products, providing meals to prospective enrollees, marketing or selling plans at
educational events or in areas where health care is delivered (i.e., physician offices or
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pharmacies), and using sales agents that are not state licensed are also prohibited. MIPPA
required that by November 15, 2008, the Secretary establish limitations on other plan marketing
activities such as co-branding, the scope of marketing appointments with prospective enrollees,
and agent compensation and training. MA plans will be required to provide states with
information on (1) agent and broker terminations and (2) at state request, performance and
licensing of agents, brokers, and any third party representing the plan. After January 1, 2010, MA
plans will be required to include the plan type in all plan names. Some provisions included in the
CMS proposed rule were not included in MIPPA but may be addressed in the final rule, including
(1) a requirement that, upon CMS’s request, MA plans would be required to provide any
information necessary to conduct oversight of marketing activities, and (2) development of a
memorandum of understanding between states and CMS to share compliance and oversight
information.
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An MA organization must have procedures for hearing and resolving grievances between the
organization and enrollees. It also must maintain a process for making timely organization
determinations, which are plan decisions related to enrollees’ benefits and payment. Beneficiaries
have 60 days from the date of service to file a grievance with their MA plan. Beneficiaries have
the right to a timely resolution to their grievance (no later than 30 days) as well as the right to
request an appeal or reconsideration of an organization determination. In certain circumstances,
beneficiaries may also request an expedited determination, which requires a decision be rendered
in 72 hours. All MA organizations are required to provide written information to enrollees about
these processes. They are also required to inform beneficiaries about how to initiate quality of
care complaints to their local Quality Improvement Organization (QIO). The QIO complaint
process is distinct from the MA organization’s grievance procedure, and beneficiaries have the
right to file a complaint with the MA organization and QIO simultaneously. All quality-of-care
complaints and adverse organization determinations must be responded to in writing.
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The MA program requires the private health plans that participate to meet minimum program
standards and contracting requirements. These requirements include minimum enrollment
standards, organizational and financial requirements as specified by states, provider protections,
and prompt payment requirements. The Secretary is required to conduct audits of at least onethird of MA participating organizations each year. In the event that organizations violate the
standards and requirements, the Secretary had the authority to terminate the contract or impose
sanctions.
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Contracts between MA organizations and CMS are made for at least one year and are
automatically renewable, unless either party gives notice to terminate the contract. MA
organizations must enroll at least 5,000 individuals (1,500 in the case of a PSO) or at least 1,500
individuals (500 in the case of a PSO) if the organization serves individuals residing outside of
urbanized areas. These minimum requirements may be waived during the first three years of the
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contract, if the organization can demonstrate to CMS that it can administer and manage an MA
contract and also manage the level of risk required under the contract.
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In general, an MA organization must be licensed under state law as a risk-bearing entity eligible
to offer health insurance or health benefits coverage in each state in which it offers an MA plan.
An MA organization must assume full risk for Medicare benefits on a prospective basis.
However, this does not preclude an organization from obtaining insurance or making other
arrangements to cover certain costs, such as medically necessary services provided by nonnetwork providers and part of the costs exceeding its income. The organization also may make
arrangements with providers to assume some or all of the financial risk for covered benefits they
provide; however, PFFS organizations cannot put providers at risk.
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Each MA organization (other than a PFFS) must establish physician participation procedures that
provide (1) notice of the participation rules, (2) written notice of adverse participation decisions,
and (3) a process for appealing adverse decisions. The organization must consult with contracting
physicians regarding the organization’s medical policy, quality, and medical management
procedures.
Although plans may include providers only to the extent necessary to meet the needs of their
enrollees, they cannot discriminate with respect to providers who are acting within the scope of
their license or certification under applicable state law, solely on the basis of such license or
certification. Restricting communications between providers and their patients (a gag clause) is
prohibited. The use of physician financial incentive plans, (compensation arrangements between
organizations and individual or groups of physicians that may reduce or limit services) is also
limited.
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The Secretary is required to conduct annual audits of the financial records of at least one-third of
the MA participating organizations (including data relating to utilization, costs, and computation
of the plan’s bid). The Secretary also has the right to inspect and audit the quality,
appropriateness, and timeliness of the services provided to enrollees, as well as any records
pertaining to the organization’s ability to bear risk. In addition, HHS, GAO, or their designee has
the right to audit and evaluate an MA organization’s records and those of its subcontractors that
pertain to the services provided under the contract. This right extends for 10 years from the
termination date of the final contract. If CMS suspects potential fraud, the agency may conduct an
inspection or audit of the MA organization at any time.
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MA PFFS plans are required to pay 95% of “clean claims” within 30 days of receipt. This 30-day
rule also applies to claims submitted to any MA organization by a provider who does not have a
written contact with the plan. MA organizations are required to pay interest on “clean claims” that
are not paid within 30 days. All other claims from non-contracted providers must be paid within
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60 days. MA organizations that do contract with providers (i.e., HMOs and PPOs) must include a
prompt payment provision in their contracts. CMS defines a clean claim as a claim that has no
defect or impropriety, and is submitted with all the required documentation.
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The Secretary has the authority to terminate an annual contract with an MA plan if the MA
organization fails substantially to carry out the terms of its contract. Reasons for termination can
be severe financial difficulties, failing to comply with required grievance and appeals procedures,
failing to implement an acceptable quality assessment and performance improvement program,
failing to comply with CMS marketing requirements, and committing fraud. Except in instances
where the MA organization is experiencing severe financial hardship, CMS is required to provide
the organization with an opportunity to develop a corrective action plan (CAP) to correct any
deficiencies before terminating the contract. MA organizations have the right to appeal a
termination. MA organizations also have the right to terminate their contract with CMS if CMS
fails to substantially carry out the terms of its contract.
The Secretary has the authority to impose sanctions, including civil monetary penalties, on MA
organizations in the following eight instances: (1) failing to provide medically necessary services,
which result in an adverse outcome for the patient; (2) charging excess beneficiary premiums; (3)
expelling or refusing to reenroll individuals in violation of stated requirements; (4) denying or
discouraging enrollment of individuals whose medical condition requires future services; (5)
misrepresenting or falsifying information to the Secretary or others; (6) interfering with
practitioners advice to enrollees; (7) failing to comply with rules regarding physician participation
and balance billing; and (8) contracting with excluded providers. In addition to civil monetary
penalties, the Secretary can temporarily suspend enrollment in the plan, stop payment, and restrict
the MA organization’s marketing activities. The civil monetary penalties may range from $10,000
to $100,000, depending on the nature of the violation.
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The 111th Congress may examine several aspects of the Medicare Advantage program, including
the difference in expenditures per beneficiary between MA and original Medicare, profits
reported by MA plans, the Comparative Cost Adjustment Program mandated under the MMA,
and marketing issues.
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Medicare-managed care plans may have the potential to provide better quality care at less cost
than original Medicare.5 In fact, prior to the BBA, private plans were paid 95% of the cost of
5
For the House Budget Committee, CMS Administrator Mark McClellan testified that MA plans brought “greater
value to our overall health care system, in terms of enabling beneficiaries to get more up-to-date, higher-quality care at
a lower cost.” However, his argument defined costs more broadly than program by including beneficiary out-of-pocket
costs as well. http://budget.house.gov/hearings/2007/06.28mcclellan_testimony.pdf.
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Medicare, in part because of this presumed greater efficiency. However, the current payment
mechanism does not encourage plans to be more efficient than original Medicare, because it pays
plans at least as much as the cost of Medicare, and on average, more. According to the Medicare
Payment Advisory Commission (MedPac), Medicare is expected to pay private plans an average
of 14% more per beneficiary in 2009 than it does for beneficiaries enrolled in the original
Medicare program. In 2008, the maximum amount Medicare was willing to pay MA plans to
provide Medicare covered benefits was, on average, 18% higher than the estimated cost of
providing those same benefits under original Medicare. 6 MA health maintenance organizations
were the only plan type that, on average, estimated their cost of providing Medicare-covered
benefits at below the cost of original Medicare; this suggests MA health maintenance
organizations can be more cost effective than original Medicare.
MA plans use at least part of the payments (above the cost of original Medicare) to provide extra
benefits and reduced cost sharing to enrollees. In addition, these higher payments have attracted
private plans to areas previously underserved by Medicare private plans, and beneficiaries today
have more private plans to choose from than they did 10 years ago. However, the higher
payments (1) allow inefficient plans to continue participating in Medicare, (2) contribute to the
financial instability of the program in the long-run, and (3) increase Part B premium costs for all
beneficiaries in the Medicare program. Moreover, the reported quality data for MA plans are
limited and variable.7 Both MA payments and quality measures are to be addressed in upcoming
MedPac reports to Congress.8 Specifically, MedPac is to study how comparable measures of
performance and patient experience can be collected and reported by 2011 for MA and original
Medicare. The second study requires MedPac to study the relationship between plan bids and per
capita spending in original Medicare, alternatives to county level payments, and the accuracy and
completeness of county-level spending estimates.
Congress may choose to reexamine MA payments and whether the amount paid to MA plans
above the cost of original Medicare should remain part of the MA payment, or whether that
money should be used for other priorities. If Congress chooses to reduce spending in the MA
program, there are many different ways of achieving these savings. Reducing payments,
regardless of the method, may result in reduced supplemental benefits or reduced access to plans.
However, each individual option would have different pros and cons.
One provision included in the House-passed H.R. 3162, the Children’s Health and Medicare
Protection (CHAMP) Act of 2007, would have phased in MA benchmarks equal to per capita feefor-service (FFS) spending in each county, effectively decreasing MA benchmarks in all areas
where it exceeded average Medicare spending. MA plans would need to be as efficient as original
Medicare in order to continue serving Medicare beneficiaries. This provision was not taken up by
the Senate. The Congressional Budget Office (CBO) estimated that setting benchmarks equal to
spending in original Medicare could save $55 billion over 5 years and $157 billion over 10
years.9 Though this method would eliminate the unequal expenditures between MA and original
6
Medicare Payment Advisory Commission, Report to Congress, March 2008, pp. 249-251,
http://www.medpac.gov/chapters/Mar08_Ch03.pdf.
7
Medicare Payment Advisory Commission, Report to Congress, March 2008, pp. 249-251,
http://www.medpac.gov/chapters/Mar08_Ch03.pdf.
8
CRS Report RL34592, P.L. 110-275: The Medicare Improvements for Patients and Providers Act of 2008
9
Congressional Budget Office, Budget Options, December 2008, pp. 119-123,
http://www.cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf.
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Medicare—sometimes referred to as “creating a level playing field”—it could result in decreased
access to MA plans in rural and some urban areas, thus increasing a geographic difference that
was prevalent through all but the most recent years of the program.
Other options would reduce payments while allowing for some differences between MA and
original Medicare. Some argue that certain costs faced by private plans, such as administrative
costs and payments to health care providers, are not the same as those of original Medicare, and
therefore, the maximum amount Medicare pays private plans should not be as low as original
Medicare in some areas.10 In such case, benchmarks could take into account the estimated costs of
MA plans, much like the Regional MA plans. The CBO estimated that basing benchmarks on plan
bids could save $35 billion over 5 years and $158 billion over 10 years.11 This option would not
create a level playing field between MA and original Medicare. However, it would still achieve
some savings and might not have as severe an effect on access to plans, as the cost to plans of
serving a particular area would be used to calculate the benchmark for the area.
Another option would be an across-the-board percentage cut in benchmarks. In higher benchmark
areas where the benchmark is more likely based on per capita FFS spending, the reduction may
resemble the payment policy prior to the BBA when plans were paid a percentage of spending in
original Medicare. Depending on the size of the reduction, it is possible that benchmarks for
many rural and some urban areas would remain above spending in original Medicare. Again, this
option would not create a level playing field between MA and original Medicare. Another
disadvantage is that it does not incorporate information from the plans to gauge the cost of doing
business in a particular market. However, the largest reductions would occur in high payment rate
areas where some of the tools of managed care, such as establishing provider networks and
coordinating patient care, may be easier to employ.
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Other issues have arisen with respect to MA plan payments. Recent congressional attention has
focused on the profits earned by MA plans. Two analyses by the Government Accountability
Office found that MA organizations generally spent less on providing medical services than the
plans had estimated they would.12 As a result, the profit margins for these plans was higher, on
average, than plans had predicted. These findings held for 2005 and 2006, resulting in over $1
billion in additional profits to MA plans each year. The 111th Congress may opt to consider
whether to limit MA plan profits in an effort to either reduce overall Medicare spending, or to
increase the extra benefits and reduced cost sharing these plans offer to enrollees.
The House-passed CHAMP Act of 2007 included a provision that would have required the
Secretary to publish the percentage of plan revenues that were spent on clinical services, as
distinct from administration and profit. This amount is often referred to as the Medical Loss Ratio
10
Robert A. Berenson, "From Politics to Policy: A New Payment Approach to Medicare Advantage," March 2008, pp.
w156-w163.
11
Congressional Budget Office, Budget Options, December 2008, pp. 119-123,
http://www.cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf.
12
Government Accountability Office, Medicare Advantage Organizations: Actual Expenses and Profits Compared to
Projections for 2005, GAO-08-827R, June 24, 2008, http://www.gao.gov/new.items/d08827r.pdf, and Government
Accountability Office, Medicare Advantage organizations: Actual Expenses and Profits Compared to Projections for
2006, GAO-09-132, December 8, 2008, http://www.gao.gov/new.items/d09132r.pdf.
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(MLR).13 The bill also required plans with MLRs below a specified level to face reduced
benchmarks, limited enrollment, and possible termination. These provisions in CHAMP were not
taken up in the Senate.
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Beginning in 2010, the Secretary will establish a program for the application of comparative cost
adjustment (CCA) in CCA areas. The six-year program will begin January 1, 2010, and end
December 31, 2015. The program is designed to test direct competition among local MA plans, as
well as competition between local MA plans and fee-for-service Medicare. This program will
occur only in a limited number of statutorily qualifying areas in the country.
The benchmark for MA local plans in a CCA area will be calculated using a formula that weights
(1) the projected FFS spending in an area (with certain adjustments for demographics and health
status) and (2) a weighted average of plan bids.
For Medicare beneficiaries in traditional Medicare, Part B premiums in CCA areas will be
adjusted either up or down, depending on whether the FFS amount is more or less than the CCA
area benchmark. If the FFS amount is greater than the benchmark, beneficiaries in traditional
Medicare FFS will pay a higher Part B premium than other FFS beneficiaries in non-CCA areas.
If the FFS amount is less than the benchmark, the Part B premium for FFS beneficiaries will be
reduced by 75% of the difference. These increases and decreases are subject to a 5% limit; that is,
adjustments to Part B premiums in CCA areas cannot exceed 5% of the national part B premium.
Beneficiaries in traditional Medicare FFS with incomes below 150% of poverty, who qualify for
low-income subsidies under the Medicare prescription drug program, will not have their Part B
premium increased.
In the 110th Congress, the House passed legislation to repeal the CCA demonstration, but that
provision was not taken up by the Senate. Historically, potential cost saving programs have
generated opposition resulting in delays or cancellations.14 Generally, Members have not
supported demonstrations or programs that have the potential to adversely affect companies or
beneficiaries in their districts. The Secretary has not announced the locations of the CCA
demonstrations.
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Questionable marketing practices by MA plans, their agents, or brokers has attracted
congressional attention. During the 110th Congress, several committees held hearings identifying
the allegedly deceptive and aggressive sales practices of some MA plans, such as door-to-door
solicitations, misleading beneficiaries about plan coverage, and signing beneficiaries up for a plan
without their knowledge. Hearings also investigated factors that may have encouraged aggressive
13
For a discussion on the interpretation of medical loss rations, please see, James C. Robinson, “Use and Abuse of the
Medical Loss Ratio to Measure Health Plan Performance: This accounting tool was never intended to measure quality
or efficiency,” Health Affairs, July/August 1997, pp. 176-187.
14
For a brief discussion of the Medicare Competitive Pricing Demonstrations during the 1990s, see, Robert A
Berenson, "From Politics to Policy: A New Payment Approach to Medicare Advantage," Health Affairs, March 2008,
pp. w160-w161.
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marketing practices, such as the structure of agent and broker compensation. Though many of the
behaviors identified in the hearings were prohibited by CMS guidance, they were not explicitly
prohibited by statutes or regulations. On May 16, 2008, CMS issued a proposed rule to codify
into regulations some of the marketing policies already in the marketing guidance. Following the
proposed rule, Congress passed the Medicare Improvements for Patients and Providers Act of
2008 (MIPPA, P.L. 110-275), which codified into statutes some of the provisions in the proposed
rule, including (1) prohibiting door-to-door solicitations and other agent-initiated contact; (2)
clarifying that sales activities are only permitted in common areas of health care settings and
prohibited in areas primarily used for patient care; (3) prohibiting sales activities (such as
distribution of applications) at educational events; and (4) requiring that MA and Part D plans
only use state-licensed, certified, or registered marketing representatives in states that require
using such agents. MIPPA also directed the Secretary to establish guidelines on agent
commissions to ensure that commissions encouraged agents to enroll beneficiaries in plans that
best met their health care needs. A revised interim final rule established compensation levels for
agents and brokers based on historical compensation levels in the same market, adjusted for
whether or not this was the first year the beneficiary had enrolled in a particular plan type.
Compensation would be decreased if the beneficiary disenrolled from the plan within the first
year. It is unclear whether marketing issues for Medicare private plans will garner congressional
attention going in the 111th congress. While it appears that the legislation resolved many of the
issues, Congress will have to wait and see whether or not those conducting the abusive practices
are able to circumvent the changes to the law.
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This section summarizes major legislation enacted into law that modifies Medicare Part C,
beginning in 1997. The summary highlights major provisions; it is not a comprehensive list of all
Medicare amendments. Included are provisions that had a significant budget impact, changed
program benefits, modified beneficiary cost sharing, or involved major program reforms.
Provisions involving policy changes are mentioned the first time they are incorporated in
legislation, but not necessarily every time a modification is made. The descriptions include either
the initial effective date of the provision or, in the case of budget savings provisions, the fiscal
years for which cuts were specified.
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The BBA established a new part C of Medicare called Medicare+Choice (M+C). It was built on
the existing Medicare Risk Contract Program, which enabled beneficiaries to enroll, where
available, in health maintenance organizations (HMOs) that contracted with the Medicare
Program. It expanded, beginning in 1999, the private plan options that could contract with
Medicare to other types of private health care organizations (e.g., PPOs and PSOs), PFFS, and, on
a limited demonstration basis, high deductible plans (called MSA plans) offered in conjunction
with savings accounts.
Prior to BBA, the payment for private plans was based on 95% of the average adjusted per capita
cost (AAPCC) of beneficiaries in original Medicare in each county. BBA replaced that payment
methodology with a formula that calculated the highest of three amounts calculated for each
county: (1) a blended rate, which was blend of an area-specific (local) rate and a national rate; (2)
a minimum payment (or floor) rate; or (3) a rate reflecting a minimum increase from the previous
year’s rate. Payment rates under this formula were subject to a budget neutrality provision such
that the total amount of payments under the formula methodology could not be greater or less
than the payments in the absence of the formula. The blended per capita rate was intended to shift
payment amounts away from local (generally county) rates, which reflected the wide variations in
fee-for-service costs, toward a national average rate. The floor rate was designed to raise
payments in certain counties more quickly than would occur through the blend alone, and the
minimum increase percentage was to protect counties that would otherwise receive only a small
(if any) increase.
BBA established an M+C Competitive Pricing Demonstration Project in seven payment areas.
Under the demonstration, payments to M+C organizations would be determined competitively, as
determined by the Secretary in consultation with an advisory committee.
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BBRA contained several provisions designed to facilitate the implementation of M+C. It changed
the phase-in of the new risk adjustment payment methodology based on health status to a blend of
10% new health status method/90% old demographic method in 2000 and 2001, and not more
than 20% health status in 2002. It provided for payment of a new entry bonus of 5% of the
monthly M+C payment rate in the first 12 months and 3% in the subsequent 12 months to
organizations that offer a plan in a payment area without an M+C plan since 1997, or in an area
where all organizations announced withdrawal as of January 1, 2000. The BBRA reduced the
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exclusion period from five years to two years for organizations seeking to reenter the M+C
Program after withdrawing. It allowed organizations to vary premiums, benefits, and cost sharing
across individuals enrolled in the plan so long as these are uniform within segments comprising
one or more M+C payment areas. BBRA provided for submission of adjusted community rates by
July 1 instead of May 1. It provided that the aggregate amount of user fees collected would be
based on the number of M+C beneficiaries in plans compared to the total number of beneficiaries.
It also delayed implementation of the Medicare+Choice Competitive Bidding Demonstration
Project, until 2002 at the earliest.
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BIPA established multiple floor rates, based on population and location. It applied a 3% minimum
update in 2001, which returned to the existing law minimum update of 2% thereafter. BIPA
increased the M+C payment rates for enrollees with ESRD to reflect the demonstration rate of
social health maintenance organizations’ ESRD capitation demonstrations. BIPA extended the
current risk adjustment methodology until 2003 and, starting in 2004, began to phase-in a new
risk adjustment methodology based on data from inpatient hospitals and ambulatory settings. It
permitted M+C plans to offer reduced Medicare Part B premiums to their enrollees as part of
providing any required additional benefits or reduced cost-sharing. It extended the application of
the new entry bonus for M+C plans to include areas for which notification had been provided, as
of October 3, 2000, that no plans would be available January 1, 2001. It required payment
adjustments to M+C plans if a legislative change resulted in significant increased costs. It
precluded the Secretary from implementing, other than at the beginning of a calendar year,
regulations that imposed new, significant regulatory requirements on M+C organizations. BIPA
required the Secretary to make decisions, within 10 days, approving or modifying marketing
material used by M+C organizations, provided that the organization used model language
specified by the Secretary. A provision allowed an M+C organization offering a plan in an area
with more than one local coverage policy to use the local coverage policy for the part of the area
that was most beneficial to M+C enrollees (as identified by the Secretary) for all M+C enrollees
enrolled in the plan. BIPA expanded the M+C quality assurance programs for M+C plans to
include a separate focus on racial and ethnic minorities. The Secretary was given authority to
waive or modify requirements that hindered the design of, offering of, or enrollment in certain
M+C plans, such as M+C plans under contract between M+C organizations and employers, labor
organizations, or trustees of a fund established by employers and/or labor organizations. BIPA
extended the period for Medigap enrollment for certain M+C enrollees affected by termination of
coverage. It allowed individuals who enrolled in an M+C plan after the 10th day of the month to
receive coverage beginning on the first day of the next calendar month. It permitted ESRD
beneficiaries to enroll in another M+C plan if they lost coverage when their plan terminated its
contract or reduced its service area. It required an M+C plan to cover post-hospitalization skilled
nursing care through an enrollee’s “home skilled nursing facility” in certain situations. BIPA
mandated review of ACR submissions by the HCFA (now CMS) Chief Actuary.
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P.L. 107-188 moved CMS’s annual announcement of M+C payment rates from no later than
March 1 to no later than the second Monday in May, effective only in 2003 and 2004. It
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temporarily moved the deadline for plans to submit information about ACRs, M+C premiums,
cost sharing, and additional benefits (if any) from no later than July 1 to no later than the second
Monday in September in 2002, 2003, and 2004. It changed the annual coordinated election period
from the month of November to November 15 through December 31 in 2002, 2003, and 2004. It
allowed Medicare beneficiaries to make and change elections to an M+C plan on an ongoing
basis through 2004. Then beginning in 2005, individuals would be able to make changes only on
the more limited basis, originally scheduled to be phased in beginning in 2002.
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In 2003, Congress passed the MMA, which made significant changes to Medicare’s private plan
option. For 2004, the MMA modified payment rates to plans. First, a fourth payment mechanism
was added so that plans were paid the highest of the floor, minimum percentage increase, the
blend or a new amount equal to 100% per capita fee-for-service for a beneficiary in original
Medicare (including the value of indirect medical education.) Second, the blend payment type
was not subject a budget neutrality provision. Third, beginning in 2004, the minimum percentage
increase is the greater of either 2% or the growth in overall Medicare for the previous year.
Beginning in 2005, the floor and blend payment types are eliminated; only the minimum percent
increase amount, and in certain years, 100% of per capita FFS would be used to update payments.
Beginning in 2006, the MMA established a new payment methodology to pay private plans.
Under the new payment system, Medicare continues to pay plans a fixed monthly amount per
enrollee, but these monthly payments are determined, at least in part, by competitive bidding. The
Secretary determines MA payments by comparing plan’s estimated cost of providing covered Part
A and B benefits (the bid) to the maximum amount Medicare is willing to pay a plan to provide
covered Part A and B benefits (the benchmark). The benchmark amounts are the former per capita
payment rates, and a revised update methodology applies. For plans that bid below the
benchmark, the payment equals the bid amount plus 75% of the difference between the bid and
the benchmark. The amount above the plan’s bid may be used to provide additional benefits,
reduce cost sharing, or may be applied towards the monthly Part B premium, or prescription drug
premium. The remaining 25% is retained by the government. For plans that bid above the
benchmark, the payment is the benchmark and enrollees must pay an additional premium equal to
the amount by which the bid exceeds the benchmark.
Also beginning in 2006, MA regional plans are allowed to participate in the program. MA
regional plans are coordinated care plans that cover both in- and out-of-network required services.
Unlike local MA plans, regional MA plans are required to serve at least one entire region
established by the Secretary. (The Secretary established 26 regions made up of states or multiple
states.) Each regional plan is required to offer a maximum limit on out-of-pocket expenses and a
unified Part A and B deductible. Payments for regional plans are also based on a competitive
system described above, but for the regional program, the benchmark for each region is calculated
using a statutory formula that includes a weighted average of plan bids for the region. The MMA
established several incentives for private plans to participate in the regional program. Initially,
$10 billion was provided in a stabilization fund, and additional amounts were to be added to the
fund when regional plans bid below the benchmark. (Half of the 25% retained by the government
when a regional plan bids below the benchmark is transferred to the MA regional plan
stabilization fund.) During 2006 and 2007, Medicare was to share risk with MA regional plans if
plan costs fall above or below a statutorily-specified risk corridor. Beginning in 2006, the
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Secretary was allowed to provide for an increased payment for certain hospitals that that contract
with MA regional plans.
Beginning in 2006, beneficiaries can enroll in a Medicare Part D prescription drug plan whether
they were in fee-for-service Medicare or enrolled in Medicare managed care. MA enrollees
(except those in PFFS and MSAs) are required to get Part D benefits through their MA plan, if
they want the Part D benefit.
MMA established the Medicare Special Needs Plan (SNP) option, which was intended to improve
care coordination and service delivery for certain groups of Medicare beneficiaries. Under the
SNP option, Medicare managed care plans are allowed to limit enrollment to certain types of
beneficiaries such as dual eligibles. SNP plans may choose to better coordinate the care of dual
eligibles by contracting with the state Medicaid agency to also provide Medicaid services, but
SNP plans are not required to do so.
Starting in 2010, the MMA requires the Secretary to establish a program for the application of
comparative cost adjustment (CCA) in CCA areas. The six-year program will begin January 1,
2010, and end December 31, 2015. The program is designed to test direct competition among
local MA plans, as well as competition between local MA plans and original Medicare. The
program will only occur in a limited number of statutorily qualifying areas.
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Starting in 2007, the DRA changed the way MA benchmarks are calculated to (1) exclude national
adjustments for coding intensity, (2) exclude the budget neutral implementation of risk adjustment,
(3) omit any adjustments accounting for errors in previous years’ projections of the national per
capita MA growth percentage, and (4) increase rates based on the MA growth percentage, as under
current law. In the report language to the BBRA, Congress urged the Secretary to implement a more
clinically based risk adjustment methodology (to supplement the demographic factors) without
reducing overall payments to plans. To keep payments from being reduced overall, the Secretary
applied a budget neutrality adjustment to risk adjusted rates. However, Administration studies show
a difference in the reported health status of MA enrollees compared to the reported health status of
beneficiaries in original Medicare. The exclusion of the budget neutral implementation of risk
adjustment is being phased-in over four years (2007-2010).
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TRHCA created a special continuous open enrollment period for beneficiaries in original
Medicare to join certain MA plans during 2007 and 2008 outside of the normal enrollment
periods. It delayed the initial availability of funds from the MA Regional Plan Stabilization Fund
until January 1, 2012, and reduced the amount of funds available to $3.5 billion.
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P.L. 110-48 eliminated the special continuous open enrollment period added by TRHCA. It
reduced the MA Regional Plan Stabilization Fund, to about $3.4 billion, and restricted the amount
that could be spent in 2012 to $1.6 billion.
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The MMSEA extended the authority of Specialized Medicare Advantage Plans for Special Needs
Individuals (SNPs) to restrict enrollment to special needs beneficiaries (defined as eligible
enrollees who are institutionalized, are entitled to Medicaid, or would benefit from enrollment in
a SNP) until January 1, 2010. Beginning January 1, 2008, it restricts the Secretary from
designating other MA plans as SNPs and imposes a moratorium on new SNP plans until January
1, 2010. It extends for one year (to January 1, 2009) the length of time cost-based plans can
continue to operate in an area with either two local or two regional MA plans in the same area.
MMSEA eliminated $1.6 billion from the MA Regional Plan Stabilization Fund for 2012. It
provided additional funding for State Health Insurance Assistance Programs, Area Agencies on
Aging, and Aging and Disabled Resource Centers to provide information and counseling, and
assistance to Medicare eligible individuals related to obtaining adequate and appropriate health
coverage.
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MIPPA requires the value of indirect medical education (IME) to be phased out of all benchmarks
starting in 2010. The amount phased-out each year will be based on a ratio of (1) a specified
percentage (0.60% in the first year), relative to (2) the proportion of per capita costs in original
Medicare in the county that IME costs represent. The effect of the ratio is to phase out a higher
proportion of IME costs in areas where IME makes up a smaller percentage of per capita
spending in original Medicare. After 2010, the numerator phase-out percentage will be increased
by 0.60 percentage points each year. This provision will not apply to PACE plans (Programs of
All-Inclusive Care for the Elderly).
Starting in 2011, PFFS plans sponsored by employers or unions are required to establish
contracted networks of providers to meet access requirements. Non-employer-sponsored MA
PFFS plans are required to establish contracted networks of providers in network areas defined as
areas having at least two plans with networks (such as health maintenance organizations
[HMOs]). In areas without at least two network-based plans, the non-employer PFFS plans retain
the ability to establish access requirements through establishing payment rates that are not less
than those under original Medicare.
Beginning in January 1, 2010, PFFS and Medical Savings Account (MSA) plans are required to
have a quality improvement program similar to other MA plans. Starting in 2011, data collection,
reporting, and analysis requirements for PFFS and MSA plans may not exceed the requirements
for local PPO plans, which are limited to those data from providers in the plan’s contracted
network, but not from out-of-network providers. In 2010, the data requirements for PFFS and
MSA plans are limited to administrative data, but must be collected from both in-network and
out-of-network providers.
MIPPA extends the time current Special Needs Plans (SNPs) may restrict enrollment to special
needs individuals and extends the moratorium on the Secretary’s authority to designate new SNPs
until January 1, 2011. Starting January 1, 2010, all new enrollees in a SNP will be required to
meet the definition of a special needs individual. For institutional SNPs, individuals living in the
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community who may need an institutional level of care are not eligible to enroll in the SNP unless
it is determined by an entity other than the SNP using a state assessment tool that the individual
needs an institutional level of care. Medicaid SNPs are required to have a contract with the state
to provide Medicaid benefits, or arrange for benefits to be provided; Medicaid SNPs that do not
comply with the contracting requirement will be permitted to participate in 2010, but will not be
allowed to expand their service area. Further, Medicaid SNPs are required to provide prospective
enrollees with descriptions of benefits and cost sharing under the Medicaid program and which
are to be covered by the SNP. Chronic Care SNPs are required to comply with a revised definition
of a Chronic Care SNP; the Secretary is also required to convene a panel of clinical advisors to
determine which conditions meet the definition of a severe and disabling chronic condition.
MIPPA requires all SNPs to comply with certain care management requirements, such as having
an appropriate network of providers, performing enrollee health assessments, and arranging for
interdisciplinary teams to manage care for enrollees. By no later than January 1, 2010, SNPs are
required to collect and report data related to the care management requirements; the Secretary is
required to conduct a review of SNPs in conjunction with its periodic financial audit of MA plans.
Effective January 1, 2010, Medicaid Special Needs Plans (SNPs) serving dual eligible
beneficiaries are prohibited from charging cost-sharing in excess of what would be permitted
under Medicaid.
The MA Regional Plan Stabilization Fund is reduced to $1.00. A portion of the savings from the
regional plan bidding process continues to flow into the Fund and is available for expenditures in
2014. MIPPA extends for one year—from January 1, 2009, to January 1, 2010—the length of
time reasonable cost plans may continue operating regardless of any other MA plans serving the
area. It specifies that to prohibit the cost plan from participating after January 1, 2010, the two
plans in the service area must be offered by different organizations. Finally, MIPPA modifies the
minimum enrollment requirements for local or regional plans operating within the cost plan’s
service area. GAO is required to submit a report to Congress on the reasons why cost-based plans
may be unable to become MA plans. MIPPA establishes new prohibitions on the marketing
activities of MA plans and PDPs and their agents, brokers, or any third-party representatives.
Except in instances when the beneficiary initiates contact, plans will be prohibited from soliciting
beneficiaries door-to-door or on the phone. Cross-selling of non-health-related products,
providing meals to prospective enrollees, marketing in areas where health care is delivered (i.e.,
physician offices or pharmacies), and using sales agents that are not state licensed are also
prohibited. The provision requires that by November 15, 2008, the Secretary establish limitations
on other plan marketing activities such as co-branding, marketing appointments with prospective
enrollees, and agent compensation.
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ARRA established bonus payments for selected Medicare Advantage HMO-affiliated eligible
professionals and hospitals that were meaningful users of electronic health records.
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(name redacted)
Specialist in Health Care Financing
[redacted]@crs.loc.gov, 7-....
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Holly S. Stockdale, Analyst in Health Care Financing, contributed to this report.
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