MA plans hope for survival after major rate cuts

NATIONAL REPORTS-Medicare Advantage (MA) plans promised all-in-one coverage with added advantages not found in traditional Medicare. But have they maintained their value in the eyes of the marketplace?

Insurers cite the 11 million seniors who selected MA plans as a positive endorsement.

"The greatest testament is to look at who is buying the product," says Krista Bowers, president of the senior business division and consumer marketing for WellPoint.

MA ENROLLMENT TRENDS

According to the Kaiser Family Foundation, 2,314 Medicare Advantage plans were offered this year. Overall, the total number of plans available declined from 2009 to 2010, which the Foundation attributes to efforts by Centers for Medicare and Medicaid Services (CMS) to eliminate low-enrollment and duplicate plans. Some private fee-for-service plans also stopped offering Medicare Advantage in anticipation of new requirements to establish provider networks by 2011.

The survival of Medicare Advantage plans will be challenged by revised payment rates over the next decade. The Obama administration will trim the higher reimbursement rates the government pays for beneficiaries in Medicare Advantage (prevailing at 14% more than for traditional Medicare fee-for-service plans) to help finance coverage expansion under the Patient Protection and Affordable Care Act.

But starting in 2012, reimbursement rates will be tied to plans' star ratings. The star rating system was established by CMS to inform consumers about quality. Plans can receive a maximum of five stars based on their grades for preventive services; chronic care management; responsiveness; customer service; complaints, appeals, and voluntary disenrollment. The current average is 3.2 stars, according to Deloitte.

In 2012, plans receiving four or more stars will be eligible for quality bonuses of up to 5% of local fee-for-service costs. Higher-rated plans will also be able to keep a larger percentage of the rebate dollars to reduce beneficiaries' cost sharing and enhance benefits.

LuAnne Farrah, president of Mark Farrah Associates, a Maine-based provider of market data, says the initial objective of Medicare Advantage was to enroll enough seniors to have a fairly large risk pool.

"I believe they have succeeded in doing that," Farrah says. "I think from an enrollment perspective, it's impressive to note Medicare Advantage plans achieved the highest enrollment in private plans."

She says Medicare Advantage plans aren't a silver bullet but she believes when considering the package of benefits, MA plans add value.

Data from Mark Farrah Associates indicates a 37% growth in Medicare Advantage enrollment since May 2007, indicating about one of every four Medicare beneficiaries (26%) is covered by Medicare Advantage plans. According to data from the National Association of Insurance Commissioners, in 2009 Medicare Advantage plans spent 85 cents on the dollar for hospital and medical claims. That compares to Medicare supplemental plans, which spent 80% of premiums on claims.

"When you look at the medical expense ratio, it's impressive. You're seeing a positive margin," Farrah says. "That 85% is respectable in the industry."

Bowers says the three core values of Medicare Advantage plans-coordinated care, preventive services and wellness-provide a value proposition that will appeal to the next generation.

"There will be a rise of access-based products," Bowers says. "There will be more technology with virtual consultations and more capabilities on the Web. The baby boomers are a more savvy group of consumers than we've seen with the silent generation. This group is going to want to remain independent. They're not interested in getting older."

Farrah says health plans have diversified and tried to appeal to consumer needs and wants, and Medicare Advantage plans satisfy that need.

As members age into Medicare, their expectations are higher, she says, adding that chiropractic services and massage therapy are becoming available, for example.

"I think it's going to be a matter of how the policies emerge," she says. "Will aging baby boomers be willing to pay incrementally for more coverage? I think the answer is yes."

Farrah says it's unfair to compare Medicare Advantage costs and pricing to traditional Medicare since MA plans include extra benefits and services, such as Part D and coordination of the two benefit plans.

"We must consider what beneficiaries are getting in return for dollars spent," Farrah says.