Medicare Payment Changes Encourage More Medicare Advantage Plans To Seek Beneficiaries With Chronic Illnesses

The Wall Street Journal on Saturday examined how changes in Medicare payment rules regarding private insurers that offer Medicare Advantage plans have encouraged insurance companies to market more plans to beneficiaries with chronic conditions. Medicare in 2004 began allowing private insurers to offer "special-needs plans" that target beneficiaries with chronic illnesses and dual eligibles -- beneficiaries enrolled in both Medicare and Medicaid. Previously, insurers offering MA plans were not permitted to target certain groups because of concerns that they would seek out healthier beneficiaries, who are generally less expensive to insure. Under the changes, MA plans receive higher payments from the government for enrolling sicker beneficiaries. If the insurers successfully reduce the beneficiaries' health care costs through improved preventive care, they are permitted to keep the savings. For example, Medicare previously would have paid an MA plan $8,145 annually to insure a 70-year-old female beneficiary with high blood pressure and osteoporosis. The payment level would have been based only on her age and gender, not on underlying conditions. Under the new policy, Medicare would pay the plan between $4,075 and $30,126, depending on the severity of the beneficiary's conditions and if she had other chronic conditions. The higher payments for more severe conditions are known as risk adjustments. According to the Journal, "it remains to be seen whether the government will save money in the long run if private insurers have a larger role." So far, CMS "probably isn't saving any money and actually appears to be paying private health insurance plans more for taking care of patients than it would if the same people were in the government program," the Journal reports.

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David Lewis, head of Medicare Advantage at CMS, said enrollment in special-needs plans is "growing at a very fast rate." The number of special-needs plans has increased from 11 in 2005 to 276 this year, and about 550,000 beneficiaries were enrolled in such plans as of Aug. 1. Lewis added, "This is an efficient way of managing [beneficiaries'] care. We hope to have better outcomes all around." John Gorman, president and CEO of consulting firm Gorman Health Group, said, "The people these plans were running from five years ago now become the desirables. It's totally standing the economics of this industry on their head." Gorman predicts that increasing enrollment in special-needs plans will be driven by plans that focus on beneficiaries with chronic illnesses, in part because higher payments for insuring sicker beneficiaries are being fully implemented next year (Lueck/Zhang, Wall Street Journal, 10/21).