Buyers Beware: Medicare Advantage Helps Some, Not All

September 4, 2007
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GRAND RAPIDS — Medicare Advantage, health coverage plans from private companies for Medicare-qualified people, have seen dramatic growth in Michigan since they were allowed by the Medicare Modernization Act of 2003.

Now, faced with a report that says the federal government is overpaying some insurers for care provided under private-fee-for-service Medicare Advantage plans — and thousands of complaints from consumers, the U.S. House has attached modifications to payment schedules and marketing tactics as part of the children’s health care package now sitting in committee.

Medicare Advantage plans replace traditional, government-run Medicare coverage for those over age 65 and the disabled with health coverage from private insurers, who make bids to the federal government for the business.

According to the Michigan Office of Financial and Insurance Services, in Kent County, Medicare Advantage is provided by Blue Care Network, Blue Cross Blue Shield of Michigan and Priority Health — all nonprofits based in Michigan; and by for-profit companies Humana Inc., Molina Healthcare of Michigan, SecureHorizons Direct, which is connected to insurance industry giant United Healthcare, and Unicare Life & Health Insurance Co., which is connected to multi-state coverage provider Wellpoint.

Like regular health coverage, the plans, which enroll 8.1 million people nationwide and 221,331 in Michigan according to the Kaiser Family Foundation, may be sold as health maintenance organizations, preferred provider organizations or private free-for-service. They may require consumers to use certain doctors or hospitals and may include premiums, co-payments and deductibles that differ from traditional Medicare. 

“Almost all the time, it provides additional benefits that Medicare does not provide,” said Edward Ries, executive director of government programs for Priority Health.

“Usually it takes the form of lower out-of-pocket costs over a year, or coverages that Medicare might not provide, which could be enhanced dental or prescriptions under Part D, in addition to the advantage of having the care coordination of a managed care plan.”

According to the Kaiser Family Foundation’s Web site, statehealthfacts.org, Michigan has a total 1.5 million Medicare beneficiaries, 84 percent of them age 65 or older and 16 percent disabled. About 14 percent use a Medicare Advantage plan, compared to 19 percent nationwide.

The Detroit-Warren-Livonia Metropolitan Statistical Area has nearly three times as many Medicare Advantage enrollees as the Grand Rapids-Wyoming MSA.

“It does introduce the notion of choice,” said Steve Gools, state director for the American Association of Retired Persons. “Folks are able to elect a more complete portfolio of services. In turn, Medicare pays a portion of the premiums, and the Medicare Advantage customers would pay the differential between the enhanced coverage and the baseline coverage that Medicare would provide.

“Typically, the Medicare Advantage plans are more expensive than traditional Medicare,” Gools said, attracting retirees who are “better off financially and who tend to be in better health.”

The 2003 act prompted health coverage providers to create private fee-for-service plans, especially to improve access to Medicare Advantage for people in rural areas. Since then, Medicare Advantage has become a growth industry for some companies.

For example, in its latest HMO financial statement filed with OFIS, Priority Health reported 6,566 Medicare Advantage customers, up from 5,486 at the end of 2006, a nearly 20-percent increase. BCBSM reported 52,074 Medicare Advantage members, up from 30,427 at the end of 2006, a 71-percent increase.

Ries explained the Medicare Advantage business at Priority Health. “We get paid a monthly amount for each Medicare beneficiary, based on our bid,” he said. The plan makes money “through arrangements with providers who participate with us to moderate their fees, and through being able to manage the care that members receive in many instances, plus through the basic mechanisms of insurance: some use more services, some fewer. In the end, the plan is able to make enough to cover administration of the program and make a reasonable margin.”

In its second quarter public report, UnitedHealth Group recorded 1.3 million Medicare Advantage members nationally, noting membership had dipped slightly, particularly in PFFS. Management also reported it had signed a deal to market Medicare Advantage programs under the AARP umbrella through 2014. Wellpoint reported 1.2 million Medicare Advantage members nationwide and attributed at least part of a 20-percent gain in operating revenue over second quarter 2006 to growth in Medicare Advantage. Humana counted 1.1 million nationwide in that category as of June 30, up 18.1 percent from June 30, 2006, “primarily due to sales of Private Fee-For-Service products,” according to the Kentucky-based company’s second-quarter report.

However, in June, Abby L. Block, director of the Center for Beneficiary Choice at the federal Centers for Medicare & Medicaid Services, reported to Congress that seven companies had agreed to suspend marketing their PFFS Medicare Advantage products to combat marketing schemes designed to confuse or mislead consumers. Those companies include United Healthcare and Humana.

In addition, CMS is allowing Medicare recipients who feel they were enrolled in Medicare Advantage “without consent or through misinformation” to re-enroll in traditional Medicare. Call 1-800-MEDICARE for more information.

CMS, as well as the nonprofit consumer organization Michigan Medicare/Medicaid Assistance Program, has fielded many complaints about marketing tactics and confusion about product features, particularly for the PFFS version of Medicare Advantage, according to Block’s testimony.

“The seniors’ perception was that sales people were telling them it was more like supplemental insurance that went with Medicare,” said Jo Murphy, executive director of MMAP.

“Where it was cheaper than what they had, they were signing up. They got into an Advantage plan, their doctors would try to bill regular Medicare with supplemental, and then it would come back (because the doctor was not part of that Medicare Advantage network).

“People would panic and think they somehow had totally fallen off the Medicare tree. They had signed up to get Medicare services from a private company.”

Murphy said her organization also has fielded reports of agents gaining access to subsidized housing apartment buildings, knocking on doors to try to sell policies to people who likely have both Medicare and Medicaid, and don’t need Medicare Advantage and can’t afford it.

The dramatic growth in PFFS drew ire from the Democratic-controlled House. A report revealed that, on average, insurers were receiving 12 percent more than the cost of reimbursement under traditional Medicare.

“The overpayment is unfair to the majority of beneficiaries who are in the traditional program,” Gools said.

The House proposal, attached as an amendment to the State Children’s Health Insurance Plan bill, would phase out that overpayment between 2009 and 2012. The Senate version has no provisions relating to Medicare Advantage.

“While the overpayment represents benefits to many eligible consumers, it becomes a winning proposition for only the 20 percent of those eligible, and a losing proposition for the 80 percent who remain enrolled in traditional Medicare,” Gools added.

“The overpayment hastens the insolvency date of that (Medicare) trust fund. One of the indicators that something needs to be done is the emergence of these overpayments. It was never expected or planned that it should result in the diversion of scarce public resources to private insurance companies.”

Gools said legislation should incorporate performance standards and expectations for Medicare Advantage programs. Still, he said, the concept is worth keeping.

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