Medicare Advantage: Relationship between Benefit Package Designs and Plans' Average Beneficiary Health Status
Published: 2010-04-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Nearly 11 million Medicare beneficiaries are enrolled in Medicare Advantage (MA), Medicare's private health insurance option. Benefits vary by MA plan and may include coverage for services not available in traditional Medicare. To ensure MA plan benefit package designs do not discriminate against beneficiaries in poor health with high expected health care costs, the Centers for Medicare & Medicaid Services (CMS) reviews and approves all benefit packages yearly. GAO examined (1) MA plan benefit packages by average health status of plans' enrolled beneficiaries, (2) distribution and characteristics of MA plans by average beneficiary health status, and (3) CMS's process for ensuring that benefit packages do not discriminate with respect to health status. Using 2008 data on beneficiaries' expected health care costs, the most recent data available, GAO sorted 2,899 plans enrolling 7.5 million beneficiaries into three groups: good health (below-average expected costs), average health, and poor health (above-average expected costs). GAO then analyzed MA plan benefit packages by health group and reviewed CMS documentation and interviewed agency officials on CMS's benefit package review process. GAO did not determine whether plans structured benefit packages in response to enrolled beneficiaries' health status or beneficiaries in particular health groups chose plans because of the benefits.
section_title: What GAO Found
paragraphs: In 2008, plans in the good health group generally had lower premiums, higher cost sharing for certain services, and fewer additional benefits than plans in the poor health group. Almost half of the plans in the good health group did not have an MA premium for medical or drug coverage, while about one-fifth of plans in the poor health group had no MA premium. Plans in the good health group had higher cost sharing, weighted by enrollment, for inpatient hospital care, skilled nursing facility stays, and renal dialysis than plans in the poor health group. Plans in the good health group were more likely to have an out-of-pocket (OOP) maximum, but the average OOP maximum for plans in that group, weighted by enrollment, was 55 percent higher than that for plans in the poor health group. Comprehensive dental and hearing aid benefits were more likely to be included in the benefit packages for beneficiaries in the poor health group of plans whereas fitness benefits were more likely to be included in the benefit packages for beneficiaries in the good health group of plans. Forty-three percent of plans were in the good health group, 37 percent in the average health group, and 20 percent in the poor health group. Twenty-nine percent of MA beneficiaries were in plans in the good health group, 55 percent in plans in the average health group, and 16 percent in plans in the poor health group. Among the five largest companies sponsoring MA plans, beneficiary health varied: one sponsor had 17 percent of its beneficiaries in plans in the good health group and 17 percent in plans in the poor health group; another sponsor had 49 percent of beneficiaries in plans in the good health group and less than 1 percent in plans in the poor health group. Average beneficiary health status also varied by other factors, such as plan type and plan size. CMS has revised its process for reviewing MA plans for the likelihood of discrimination. It developed a new methodology for setting cost-sharing thresholds--criteria used to identify benefit packages likely to discriminate against certain beneficiaries. For contract year 2010, CMS contacted all MA plans with benefit packages identified as likely to discriminate, and all plans subsequently met cost-sharing thresholds. The new methodology for setting cost-sharing thresholds allowed higher cost sharing for some services relative to 2009. For example, among plans without an OOP maximum or one above $3,400 for 2010, allowed cost sharing for a typical inpatient mental health stay doubled, from $61 per day to $130 per day, and allowed cost sharing for a typical skilled nursing facility stay increased from $53 to $70 per day, compared to 2009. In comments on a draft of this report, CMS noted that GAO's findings are consistent with the agency's experience. CMS also stated that, prior to contract year 2010, it targeted for cost-sharing reductions plans with the most egregious cost sharing and often reduced cost-sharing amounts, but to amounts that were still above the thresholds.

section_title: Letter
paragraphs: Nearly one out of every four Medicare beneficiaries is enrolled in a  Medicare Advantage (MA) plan—an alternative to original Medicare fee- for-service (FFS)—in which private insurance plans offer health care  coverage to Medicare beneficiaries. As of December 2009, nearly   11 million Medicare beneficiaries were enrolled in approximately 4,700  plans offered by 188 MA organizations (MAO). Medicare payments to MA  plans were approximately $109.7 billion in fiscal year 2009. In addition to  covering services paid for under Medicare FFS, many MA plans offer  additional benefits, such as vision, hearing, or dental care and MA plans  typically have premiums lower than those of Medicare supplemental  policies purchased by FFS beneficiaries (known as Medigap). MA  beneficiaries generally have an array of plans to choose from, each with  different coverage, premiums, and cost sharing—the portion of medical  expenses that the beneficiary is responsible for paying out-of-pocket  (OOP).
The Centers for Medicare & Medicaid Services (CMS)—the agency that  administers the Medicare program—pays MA plans a fixed amount to  cover each beneficiary and oversees plan benefit designs. CMS adjusts  payments to plans using risk scores, which estimate the expected health  care costs of the beneficiaries enrolled in a plan. Risk scores are  developed from data on individuals’ demographics and diagnoses. As a  result, MA plans receive relatively lower payments for beneficiaries who  are healthier than average, and relatively higher payments for beneficiaries  who are sicker than average.
The Medicare Payment Advisory Commission (MedPAC) reported that  Medicare’s risk-adjustment methodology may tend to set payments too  low for beneficiaries in poor health, who tend to have high expected  health care costs, and set payments too high for the healthiest  beneficiaries who tend to have low expected health care costs. As a  result, MAOs may have a financial incentive to discourage new or  continued enrollment of beneficiaries in poor health. It is possible that  some MAOs could do this through the design of their plan benefit  packages. For example, a plan that charges relatively high cost-sharing  amounts for certain services commonly used by beneficiaries in poor  health may prove particularly undesirable to them. MA plans have  flexibility in designing their benefit packages, but (1) they must provide all  Medicare-covered services except hospice care, (2) their overall cost- sharing requirements must be actuarially equivalent or lower than those  under Medicare FFS, and (3) they cannot discriminate on the basis of  health status. By law, CMS may not approve MA plan benefit packages if  their designs are likely to substantially discourage enrollment of certain  beneficiaries. To determine whether an MA plan benefit package is likely  to substantially discourage enrollment of certain beneficiaries, CMS  reviews cost sharing for certain services for which excessively high cost  sharing could be considered discriminatory.
We reported in 2008 that 2007 cost sharing for certain services, such as  home health and inpatient hospital stays, was higher in some MA plans  than in Medicare FFS. However, we have not previously examined how  plan benefit design varied among MA plans by average beneficiary health  status. Therefore, you asked that we review MA plan benefit designs,  enrollment patterns, and related CMS oversight. This report examines   (1) benefit packages of MA plans by average health status of plans’  enrolled beneficiaries, (2) the distribution and characteristics of MA plans  by average beneficiary health status, and (3) CMS’s process for ensuring  that MA plan benefit packages are not discriminatory with respect to  health status.
To address these issues, we focused on four types of MA plans that  together accounted for nearly all of MA enrollment in 2009—health  maintenance organizations (HMO), private fee-for-service (PFFS) plans,  local preferred provider organizations (PPO), and regional PPOs. We  included special needs plans (SNP), which are allowed to limit enrollment  to a targeted beneficiary population; SNPs can be HMOs, local PPOs, or  regional PPOs. After certain exclusions, we analyzed data for 2,899 plans  (including 621 SNPs), offered by 192 MAOs that enrolled 74 percent of all  MA beneficiaries—7.5 million—as of July 2008. Of the 973,923  beneficiaries enrolled in SNPs, over two-thirds were in plans that targeted  enrollment to dual-eligible beneficiaries—those entitled to both Medicare  and Medicaid. In some of our analyses, we reported our results for SNPs  separately in order to highlight the distinct characteristics of such plans.
Using CMS’s 2008 plan-level risk score data by county, the most recent  data available, we categorized the average health status of MA plans as  good, average, or poor in the areas that they served. Risk scores are based  on beneficiaries’ projected health care costs, which CMS develops using  demographic information and diagnosis codes. At the plan level, risk  scores indicate the average health status of the plans’ beneficiaries.  Because the overall Medicare population may be healthier in some  geographic areas than in others, we calculated an indexed (relative) health  risk score for each plan as the ratio of an MA plan’s risk score to the  overall Medicare average risk score in each county. We then averaged  each plan’s indexed risk score across the counties that comprised the  plan’s service area, weighted by July 2008 enrollment. With 1.00 as the  average risk score for all Medicare beneficiaries—in FFS and MA—we  placed the MA plans in one of three groups.
Good health group: MA plans with an average indexed risk score less  than 0.90, meaning the projected health care costs for the average  beneficiary in the plan were at least 10 percent lower than those for an  average Medicare beneficiary living in the plan’s service area.
Average health group: MA plans with an average indexed risk score  between 0.90 and 1.10, meaning the projected health care costs for the  average beneficiary in the plan were within 10 percent of those for an  average Medicare beneficiary living in the plan’s service area.
Poor health group: MA plans with an average indexed risk score greater  than 1.10, meaning the projected health care costs for the average  beneficiary in the plan were at least 10 percent higher than those for an  average Medicare beneficiary living in the plan’s service area.
To compare the benefit packages of MA plans by the average health status  of plans’ enrolled beneficiaries, we analyzed CMS plan benefit package  (PBP) data for contract year 2008 (as the risk score data used in our  analysis is based on MA plan enrollment as of July 2008). CMS’s PBP data  contain each MA plan’s premiums, cost-sharing requirements, and  additional benefits. We analyzed cost sharing for eight services for which  CMS considers high cost sharing to be potentially discriminatory because  these services typically are used by Medicare beneficiaries in poor health  and are usually associated with acute and chronic conditions, high  utilization, and high cost. For several services, we simulated beneficiary  OOP costs using average beneficiary utilization profiles developed by CMS  and accounted for plans that charged service-specific deductibles or had  service-specific OOP maximums—dollar limits on the amount a  beneficiary must pay in cost sharing in a period of coverage (typically   1 year). We also determined whether MA plans provided additional  coverage for dental, vision, or hearing services; and fitness benefits. We  did not determine whether MAOs structured their plan benefit packages in  response to enrolled beneficiaries’ health status or whether beneficiaries  of a given health status chose certain MA plans specifically because of  their benefit package designs.
To examine the distribution and characteristics of MA plans by beneficiary  health status, we analyzed 2008 MA plan-level risk score data, the most  recent data available, and calculated the number of MA plans and the  percentage of plan beneficiaries in each health group. We further  examined the differences across the health groups (1) among the five  largest MAOs, (2) by plan type, (3) by plan size, (4) and by the percentage  difference between the MA payment benchmarks and estimated FFS  spending across a plan’s service area.
To describe CMS’s process for ensuring that MA plan benefit packages are  not discriminatory with respect to health status, we interviewed CMS  officials, including staff responsible for reviewing and approving plan  benefit packages; and reviewed relevant laws and regulations, CMS  standard operating procedures, and other agency documentation on the  review process. We determined the outcome of CMS’s review process by  analyzing data for contract years 2008 and 2009 on MA plans that CMS  initially identified as having potentially discriminatory cost sharing and  data on MA plans’ final cost-sharing requirements for contract years 2008  through 2010.
We interviewed CMS officials about reliability of the CMS data used in our  analysis. We also reviewed data documentation and performed certain  data checks to ensure the data were reasonable and consistent. For  example, we compared the results of our cost sharing analysis using PBP  data with information from the Medicare Options Compare Web site. We  determined that the data were sufficiently reliable for our purposes. We  conducted our work from April 2009 through April 2010 in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings.
subsections: section_title: Background
paragraphs: Most Medicare beneficiaries can choose to receive covered services  through Medicare FFS or through an MA plan—which operates under  Medicare Part C—if one is offered where they live. MAOs are allowed  flexibility in designing their plan benefit packages and cost sharing for  certain services can vary widely by MA plan.
subsections: section_title: Medicare Advantage Coverage and Payment
paragraphs: MA plans operate under annual contracts between MAOs and CMS and  must offer benefits that are covered under Medicare FFS. These benefits  consist of Part A hospital insurance, which covers inpatient stays, care in  skilled nursing facilities, and some home health care; and Part B medical  insurance, which covers certain physician, outpatient hospital, and  laboratory services, among other services. All beneficiaries enrolled in  Part B are charged a Part B premium. In general, in order to enroll in a MA  plan, beneficiaries must be entitled to benefits under Part A and enrolled  in Part B.
Regardless of their source of coverage, all Medicare beneficiaries have the  option of receiving prescription drug coverage through Medicare Part D.  Medicare FFS beneficiaries can enroll in stand-alone prescription drug  plans, which are operated by private plan sponsors, and they generally  must pay an additional premium to receive Part D coverage. MA  beneficiaries who also want prescription drug coverage generally receive  that coverage through their MA plans, which may or may not charge an  additional premium for Part D coverage.
In addition to monthly premiums, beneficiaries in Medicare FFS or in MA  plans typically are responsible for cost sharing, which can be in the form  of a deductible, coinsurance, or a copayment. To help provide financial  protection to beneficiaries who might otherwise have high cost-sharing  expenses for Part A and Part B services, MAOs may voluntarily establish  OOP maximums, or dollar limits on the amount a beneficiary must pay in  cost sharing in a period of coverage (typically 1 year). For contract year  2010, CMS sought to allow MA plans with an OOP maximum at or below  $3,400 greater flexibility in establishing cost-sharing amounts.
For each MA beneficiary, CMS pays MA plans a monthly amount  determined by the plan bid—the plan’s estimated cost of providing  Medicare Part A and Part B benefits—in relation to a benchmark, which is  the maximum amount the Medicare program will pay MA plans in a given  locality. If a plan’s bid is less than the benchmark, the difference is  partially rebated to the MA plan and must be used to reduce premiums,  reduce cost sharing, or provide additional benefits for plan beneficiaries. If  a plan’s bid exceeds the benchmark, the plan will charge each of its  beneficiaries an additional premium to make up the difference. MA plans  offering prescription drug coverage have a separate payment benchmark  for Part D prescription drug benefits. CMS risk-adjusts the monthly  payments to MA plans to take into account the health status of the plan’s  beneficiaries.
section_title: MA Plan Benefit Package Designs
paragraphs: As previously reported, cost sharing can vary widely among MA plans for  particular categories of services as a result of the flexibility given MAOs in  designing their plan benefit packages. For example, in 2007, 9 percent of  beneficiaries were enrolled in MA plans that had no cost sharing for  inpatient services, whereas 16 percent of beneficiaries were enrolled in  MA plans with cost sharing for inpatient services that was higher than that  of Medicare FFS. Similarly, an AARP study reported that in 2008 the  average MA beneficiary with a 10-day inpatient hospital stay would incur  $823 in cost sharing, less than the $1,068 incurred for beneficiaries in  Medicare FFS, but 12 percent of beneficiaries would incur cost sharing of  $2,000 or more.
The Secretary of Health and Human Services is obliged by statute to not  contract with a MAO if its plan benefit design is likely to substantially  discourage enrollment in the MA plan by certain individuals. To  implement this provision of the statute, CMS identified in the Medicare  Managed Care Manual certain services for which high cost sharing could  be considered potentially discriminatory and provides further guidance in  its annual MA Call Letter to MA plans on how it will review benefit  packages for the likelihood of discrimination. CMS has never barred a plan  from participation in the MA program because of cost sharing that was  likely to substantially discourage enrollment.
Certain aspects of MA cost-sharing requirements and payment will change  as a result of the Patient Protection and Affordable Care Act. Beginning  with bids submitted for contract year 2011, the Secretary of Health and  Human Services has the authority to not contract with an MAO if it  proposes significant increases in cost sharing or decreases benefits  offered by a plan. In addition, for plan years beginning January 1, 2011,  the cost sharing required for chemotherapy services, renal dialysis, skilled  nursing care, and any other service that the Secretary determines  appropriate can be no more than the cost sharing required in Medicare  FFS.
section_title: The Good Health Group of Plans Generally Charged Lower Premiums and Higher Cost Sharing for Certain Benefits, and Offered Fewer Additional Benefits
paragraphs: The good health group of plans—MA plans in which the average  beneficiary had projected health care costs at least 10 percent below those  for an average Medicare beneficiary within the plan’s service area— generally charged lower premiums and had higher cost sharing for certain  services compared with the poor health group of plans. Plans in the good  health group also were less likely to include additional benefits, such as  vision and dental care coverage.
subsections: section_title: The Good Health Group of Plans Generally Charged Lower Premiums or None at All
paragraphs: The good health group of plans generally charged lower premiums relative  to the poor health group of plans. (See fig. 1.) For example, in 2008,    almost half of the good health group of plans—46 percent—did not have a  premium for Part C (medical) or Part D (prescription drug) coverage,  while about one-fifth of the poor health group of plans had no premium.  for MA plans that included prescription drug coverage as part of their  benefit package, the combined (Part C and Part D) monthly premium for  the good health group of plans—$24—was lower than that for the poor  health group, which was $31. taken separately, Part C and Part D premiums for the good health group of  plans also were lower than the corresponding premiums for the poor  health group.
In 2008, 12 percent of plans in the good health group reduced  beneficiaries’ Part B premium, while 4 percent of plans in the poor health  group did so. Among plans that reduced the Part B premium, plans in the  good health group reduced it by a larger amount than plans in the poor  health group—averaging $48 and $36, respectively.
section_title: The Good Health Group of Plans Generally Had Higher Cost Sharing for Certain Services
paragraphs: The good health group of plans tended to have higher cost sharing for the  services we reviewed—which included inpatient hospital acute stays,  inpatient mental health stays, skilled nursing facility (SNF) stays, and renal  dialysis—than the poor health group of plans. (See fig. 2.) For example,  in 2008,  the average plan in the good health group charged about $100 more in cost  sharing for a typical inpatient hospital stay (6 days) and about $150 more  for a typical inpatient mental health stay (21 days) than the average plan  in the poor health group. the average plan in the good health group charged about $500 more in cost  sharing for a typical SNF stay (35 days) than the average plan in the poor  health group. the average plan in the good health group charged over $300 more in cost  sharing for a year of renal dialysis (156 sessions) than the average plan in  the poor health group.
The good health group of plans had similar cost sharing for Part B  chemotherapy drugs, other Part B drugs, DME, and home health compared  with the poor health group of plans. For example, in 2008,    an average plan in both the good health group and the poor health group  charged 20 percent coinsurance for Part B chemotherapy drugs and  charged 20 and 19 percent coinsurance, respectively, for other Part B  drugs.    an average plan in the good health group charged 23 percent coinsurance  for DME, compared with 21 percent for the average plan in the poor health  group. for the relatively small share of plans that charged cost sharing for home  health care, an average plan in the good health group charged $568 for 27  home health visits compared to $597 for the average plan in the poor  health group.
In 2008, a greater share of plans in the good health group had an OOP  maximum that limited their beneficiaries’ overall financial risk compared  to plans in the poor health group—63 percent compared with 40 percent,  respectively. However, the OOP maximum for the good health group of  plans averaged 55 percent higher than the OOP maximum for the poor  health group ($3,515 compared with $2,262). In designing their benefit  packages, some plans excluded cost sharing incurred for certain services  from expenses that counted toward the OOP maximum. Approximately  14 percent of plans in the good health group had an OOP maximum and  excluded one or more services for which they required cost sharing,  compared with 13 percent of plans in the average health and poor health  groups. Plans were most likely to exclude Part B drugs (15 percent of  plans), renal dialysis (6 percent of plans), and DME (6 percent of plans)  from their OOP maximum.
section_title: The Good Health Group of Plans Generally Had Fewer Additional Benefits
paragraphs: Plans in the good health group were less likely to include certain  additional benefits in their benefit packages, such as vision and dental  care coverage, but were more likely to include a fitness benefit than plans  in the poor health group. (See fig. 3.) For example, in 2008,    seventy-three percent of plans in the good health group included coverage  for eye exams and 60 percent included coverage for eyewear compared  with 78 percent and 74 percent, respectively, of plans that covered these  benefits in the poor health group.  twenty-three percent of plans in the good health group included coverage  for comprehensive dental benefits compared with 33 percent of plans in  the poor health group.   while plans in the good health group were more likely to cover hearing  tests, they were less likely than plans in the poor health group to cover  hearing aids—36 percent versus 48 percent. the percentage of plans in the good health group that included fitness  benefits was approximately twice that of plans in the poor health group— 55 percent compared with 28 percent.
section_title: More MA Plans and Beneficiaries Were in the Good Health Group than in the Poor Health Group of Plans
paragraphs: In 2008, the plans in the good health group differed with those in the poor  health group by plan type, plan size, and, for HMOs, by the difference  between MA payment benchmarks and estimated FFS spending. Our  analysis of MA plans’ average indexed risk scores, including SNPs, by  health group showed that 1,254 plans (43 percent) were in the good health  group, 1,068 plans (37 percent) were in the average health group, and 577  plans (20 percent) were in the poor health group. (See fig. 4.) Across all  2,899 MA plans in our review, the average indexed risk scores—adjusted  for geographic variations in the average health of all Medicare  beneficiaries—ranged from 0.38 to 2.65.
Our analysis of the percentage of beneficiaries, including those enrolled in  SNPs, by health group showed that 29 percent were in the good health  group of plans, 55 percent in the average health group of plans, and   16 percent in the poor health group of plans. (See fig. 5.)
Average indexed risk scores ranged from 0.90 to 1.03 for the five largest  organizations in the MA program, which together accounted for nearly   50 percent of MA enrollment in 2008. The five MAOs varied in the extent to  which their plans fell into the good, average, and poor beneficiary health  status groups. (See fig. 6.) For example, one MAO had 17 percent of its  beneficiaries in plans in the good health group and 17 percent in plans in  the poor health group, while another had 49 percent of its beneficiaries in  plans in the good health group and less than 1 percent in plans in the poor  health group.
The four types of plans we reviewed differed as to the average health  status of their beneficiaries. Excluding SNPs, regional PPOs and local  PPOs had the largest percentage of beneficiaries in plans in the good  health group—95 percent and 66 percent, respectively. Regional PPOs did  not have any beneficiaries in the poor health group of plans and local  PPOs had 1 percent of their beneficiaries in the poor health group of plans.  HMOs and PFFS plans had the largest share of beneficiaries in the average  health group of plans—68 percent and 48 percent of beneficiaries,  respectively—and each had less than 10 percent of their beneficiaries in  the poor health group of plans. (See fig. 7.) SNPs, by definition, had the  largest percentage of beneficiaries (71 percent) in the poor health group of  plans and had nearly all of their remaining beneficiaries in the average  erage  health group of plans.  health group of plans.
Excluding SNPs, MA plans with lower enrollment were more likely to be in  the good health group than plans with higher enrollment. (See fig. 8.)  About two-thirds of MA plans with 10 to 75 beneficiaries were in the good  health group of plans, while roughly one-third of MA plans with the largest  enrollment (2,863 to 92,950 beneficiaries) were in the good health group.
While SNPs of any plan size were most likely to have beneficiaries in the  poor health group, 58 percent of the smallest SNPs were in the poor health  group and 73 percent of the largest SNPs were in the poor health group.  (See fig. 9.)
HMOs, including SNPs, in the good health group of plans tended to be  located in areas where the percentage difference between the 2008 MA  payment benchmarks and estimated 2008 FFS spending was smaller. MA  payment benchmarks averaged 13 percent higher than estimated FFS  spending in areas where HMOs in the good health group of plans were  located, but benchmarks were 16 percent higher where HMOs in the poor  health group were located.
section_title: CMS Recently Revised Its Process for Ensuring That MA Plan Benefit Packages Do Not Discriminate against Beneficiaries in Poor Health
paragraphs: For contract year 2010, CMS modified the process it used to ensure MA  plan benefit packages do not discriminate against beneficiaries in poor  health. The agency revised the way it determines cost-sharing thresholds  used to identify benefit packages that are likely discriminatory, and as a  result, some of the thresholds used in contract year 2010 reviews allowed  higher cost-sharing amounts than in previous years. CMS also revised its  process for contacting plans for benefit package modifications by  contacting all, instead of a selection of, MA plans found to have cost  sharing that exceeded CMS thresholds. For contract year 2010, all plans  met cost-sharing thresholds after discussions with CMS, but if contract  year 2009 thresholds were applied to the approved contract year 2010  plans, approximately 38 percent of the plans we examined would have  exceeded cost-sharing thresholds.
subsections: section_title: CMS Revised the Way It Identifies Benefit Packages Likely to be Discriminatory, and Some New Review Thresholds Allowed Higher Cost Sharing
paragraphs: For contract year 2010, CMS modified the benefit package review process  used in previous years. CMS developed a new methodology to determine  cost-sharing thresholds and included actuarial equivalence tests as part of  the review process. Under the new process for reviewing MA plans for the  likelihood of discrimination, CMS examined plans’ 2010 OOP maximums  and identified MA plans with comparatively high cost-sharing amounts.  Plans’ OOP maximums determined the level of scrutiny the benefit  packages received, with greater scrutiny given to plans with no OOP  maximum or with an OOP maximum above CMS’s OOP maximum  threshold. For selected services—those typically used by sicker  beneficiaries—CMS compared plans’ cost-sharing amounts with threshold  amounts set relative to cost sharing for all MA plans. Benefit packages  were considered likely to be discriminatory if the cost sharing for one or  more of the selected services exceeded the threshold and was higher than  cost sharing for Medicare FFS. For contract year 2010, the process was  as follows.
If a plan had an OOP maximum at or below the amount specified in the  annual Call Letter ($3,400 for 2010), CMS limited its benefit package  review to cost sharing for five selected services: renal dialysis (156  sessions), Part B drugs, home health (37 visits), inpatient mental health  stays (15 days), and SNF stays (42 days). MA plans were considered likely  to discriminate if their cost sharing for any of these services was at or  above the 95th percentile relative to the other MA plans and was greater  than the cost sharing under Medicare FFS.
If a plan did not have an OOP maximum or if the OOP maximum exceeded  the amount specified in the Call Letter, CMS reviewed cost sharing for 14  selected services: the 5 listed above plus inpatient hospital stays (10 days),  inpatient hospital catastrophic stays (90 days), physician mental health  visits, Part B chemotherapy drugs, Part B radiology, and 4 DME services— equipment, prosthetics, supplies, and diabetes tests. MA plans were  considered likely to discriminate if cost sharing for any of the 14 services  was at or above the 75th percentile relative to other MA plans and was  greater than the cost sharing under Medicare FFS.
As part of the revised review process, in addition to determining whether  MA plans’ benefit packages were actuarially equivalent to Medicare FFS,  CMS began reviewing MA plans’ pricing data for the likelihood of  discriminatory cost sharing. CMS reviewed MA plans’ cost sharing for five  selected services. For inpatient hospital care (including mental health),  SNF stays, home health visits, DME, and Part B drugs, CMS calculated the  difference between the plans’ cost sharing and an amount that was  actuarially equivalent to cost sharing under Medicare FFS. If the difference  was higher than a tolerance amount—the greater of 50 cents or 5 percent  of FFS cost sharing—the benefit package was identified as likely to be  discriminatory and plans were instructed to modify the cost sharing in the  bid pricing tool submitted to CMS.
The 2010 contract year process differs from the process for previous years  in key ways. For contract years 2008 and 2009, a plan with cost sharing  that exceeded CMS thresholds for one or more selected services but with  an OOP maximum at or below the amount specified in CMS’s Call Letter  was not considered likely to be discriminatory because the OOP maximum  would limit beneficiaries’ OOP costs. If a plan had cost sharing for one or  more selected services that exceeded the CMS thresholds and did not have  an OOP maximum or if the OOP maximum was above the amount  specified in the Call Letter, CMS considered the plan likely to be  discriminatory. In contract years 2008 and 2009, CMS generally set  thresholds based on cost sharing under Medicare FFS, not at amounts that  were relative to all MA plans’ cost-sharing amounts. For example, for  contract year 2008 CMS set the MA cost-sharing threshold for Part B drugs  at 20 percent coinsurance, equivalent to that under Medicare FFS.
The methodology CMS used in contract year 2010 resulted in thresholds  that allowed higher cost-sharing amounts for some services than those  applicable in contract year 2009. For example, among plans without an  OOP maximum or one above the amount specified in the 2010 Call Letter,  the copayment allowed for a typical inpatient mental health stay doubled  from $61 to $130 per day and the copayment allowed for a typical SNF stay  increased from $53 to $70 per day. For other services that CMS reviewed  for discriminatory cost sharing, new thresholds allowed cost-sharing  amounts in contract year 2010 that were comparable or lower than those  in contract year 2009. For example, the copayment allowed for a typical  inpatient hospital stay was reduced from $213 to $175 per day and the cost  sharing allowed for home health visits was reduced to zero.
section_title: CMS Revised How It Selects Plans to Contact for Benefit Package Modifications; All Plans Met New Cost-Sharing Thresholds
paragraphs: Under the revised process, for contract year 2010 CMS contacted all MA  plans identified as having benefit packages likely to be discriminatory— those that exceeded agency thresholds. In addition, all plans contacted  subsequently reduced cost-sharing amounts to at or below agency  thresholds. In contrast, in previous years, CMS did not contact all plans  exceeding the thresholds and not all plans contacted reduced their cost- sharing amounts to equal to or below agency thresholds. In previous years,  CMS’s policy did not require disapproval of a plan benefit package if cost  sharing was above CMS’s cost-sharing thresholds.
CMS’s new selection process is intended to ensure that all MA plans  identified as likely to be discriminatory are contacted regarding lowering  their cost sharing to meet the new thresholds. According to agency  officials, of the 2,930 MA plan benefit packages submitted for contract  year 2010, about 40 percent were identified as likely to be discriminatory.  CMS staff contacted all of those plans about complying with cost-sharing  thresholds, and all plans subsequently reduced cost-sharing amounts to at  or below the new thresholds. However, if CMS had applied the contract  year 2009 review methodology—with its lower thresholds for certain  services—to the plans submitted for contract year 2010, approximately   38 percent of the plans in our analysis would have exceeded cost-sharing  thresholds.
In previous years, CMS approved some MA plans that did not meet its cost- sharing thresholds. For contract years 2008 and 2009, over one in four and  nearly one in three plans, respectively, had cost sharing that exceeded one  or more CMS thresholds. (See table 1.) Our analysis indicated that the  percentage of plans initially exceeding and remaining above one or more  cost-sharing thresholds in those 2 years varied by plans’ average  beneficiary health status, as follows:    Among the good health group of plans reviewed for contract year 2008,   39 percent were initially identified as having cost sharing that exceeded  CMS’s cost-sharing thresholds and 33 percent were approved with cost  sharing that exceeded CMS’s cost-sharing thresholds, a decrease of   6 percentage points. The percentage of plans in the poor health group that  exceeded CMS’s thresholds prior to and after plans were approved also  decreased by 6 percentage points, from 20 percent to 14 percent.
Among the good health group of plans reviewed for contract year 2009,   35 percent were initially identified as having cost sharing that exceeded  CMS’s cost-sharing thresholds and 29 percent were approved with cost  sharing that exceeded CMS’s cost-sharing thresholds, a decrease of   6 percentage points. The percentage of plans in the poor health group that  exceeded CMS’s thresholds prior to and after plans were approved  decreased by 1 percentage point, from 38 percent to 37 percent.
In contract years 2008 and 2009, CMS did not contact all plans initially  found to have cost sharing that exceeded one or more thresholds. CMS  primarily selected plans to contact for cost-sharing reductions from among  those identified as likely to be discriminatory by considering (1) the  number of services for which cost sharing exceeded the CMS threshold   (2) how much the plan exceeded the cost-sharing threshold, and (3) how  the plan’s cost sharing compared with that of other MA plans within the  same service area. In addition, CMS officials told us the process used to  select plans for cost-sharing discussions in these years had the potential to  be subjective; decisions were based on individual reviewers’ evaluations of  cost sharing and judgments about how much the cost sharing exceeded  CMS’s thresholds. Among the plans contacted for cost-sharing reductions  in these years, CMS reported that some reduced their cost-sharing  amounts, but they remained above the thresholds. For example, for  contract year 2008, CMS reported that nearly half of the MA plans initially  identified as likely to be discriminatory reduced cost sharing as a result of  being contacted by CMS.
Figures 10 and 11 show the review process for contract year 2010 and for  contract years 2008 and 2009, respectively.
section_title: Agency and Other External Comments and Our Evaluation
paragraphs: We obtained comments on a draft of this report from CMS and America’s  Health Insurance Plans (AHIP), a national organization that represents  private health insurance companies, including those that participate in the  MA program. CMS provided written comments (see app. II) and technical  comments that we incorporated where appropriate. Representatives from  AHIP provided us with oral comments.
subsections: section_title: CMS Comments
paragraphs: CMS stated that the agency’s general experience with beneficiaries—that  beneficiaries select MA plans based on their individual health status—is  consistent with the report’s findings. CMS also noted that the report  showed that plans with, on average, beneficiaries in poor health did not  charge comparatively higher cost sharing. The agency believes that this is  a result, in part, of CMS’s efforts in ensuring that plan benefit packages are  not likely to discriminate on the basis of health status.
CMS commented that the report does not mention that the agency’s  benefit package review process prior to contract year 2010, by design,  encouraged plans to establish OOP maximums by affording them  flexibility in establishing cost-sharing amounts for individual services. We  believe that the third finding of the report adequately conveys that  information. Figure 11 shows that plans with an OOP maximum at or  below the amount specified in the Call Letter were not considered likely to  be discriminatory regardless of their cost-sharing amounts for particular  services. Further, CMS pointed out that its policy until 2009 did not require  disapproval of a plan benefit package if cost sharing was above CMS’s  cost-sharing thresholds. We added this information to the report. In  addition to these points, CMS described other aspects of its previous and  current benefit review process for context.
CMS suggested a number of presentation modifications to the report. For  example, because the agency’s reviews focus on protecting vulnerable  beneficiaries, CMS suggested that we present more information on the  benefit packages of plans in the average or poor health group. The section  of our report on benefit package designs contrasted the good health group  of plans with the poor health group and the figures present information on  plans in the average health group as well.
section_title: AHIP Comments
paragraphs: AHIP representatives stated that the report’s analysis demonstrates that  MAOs are offering beneficiaries the types of plans that best meet their  health care needs. The findings also show that special needs plans, which  target enrollment to certain vulnerable groups of Medicare beneficiaries  that typically have higher health care costs, are serving the types of  beneficiaries that the program intended.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the CMS Administrator  and interested congressional committees. The report will also be available  at no charge on the GAO Web site at http://www.gao.gov.
Should you or your staff have any questions on matters discussed in this  report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. GAO staff members who made  contributions to this report are listed in appendix III.
section_title: Appendix I: Medicare Advantage Plans and Beneficiaries by Average Indexed Risk Score and Health Group, 2008
paragraphs: Appendix I: Medicare Advantage Plans and  Beneficiaries by Average Indexed Risk Score  and Health Group, 2008 0.75- 0.
0.0- 0.
1.25- 1.
1.0- 1. than 1.
Good helth—MA (SNP)
Good helth—MA (non-SNP)
Averge helth—MA (SNP)
Averge helth—MA (non-SNP)
Poor helth—MA (SNP)
Poor helth—MA (non-SNP)
0.0- 0.
1.25- 1.
1.0- 1. than 1.
0.
1.
1.
1.
15.
2.
2.
0.
Good helth—MA (SNP)
Good helth—MA (non-SNP)
Averge helth—MA (SNP)
Averge helth—MA (non-SNP)
Poor helth—MA (SNP)
Poor helth—MA (non-SNP)
section_title: Appendix II: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: Contact
section_title: Acknowledgments
paragraphs: Other contributors to this report include Rosamond Katz, Assistant  Director; Elizabeth Conklin; Ba Lin; Hillary Loeffler; Kevin Milne;  Elizabeth Morrison; and Kristal Vardaman.