Medicare Advantage: Relationship between Benefit Package Designs and Plans' Average Beneficiary Health Status
Released: 2010-06-01T00:00:00

Letter

Background

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.

Medicare Advantage Coverage and Payment

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.

MA Plan Benefit Package Designs

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.

The Good Health Group of Plans Generally Charged Lower Premiums and Higher Cost Sharing for Certain Benefits, and Offered Fewer Additional Benefits

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.

The Good Health Group of Plans Generally Charged Lower Premiums or None at All

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.

The Good Health Group of Plans Generally Had Higher Cost Sharing for Certain Services

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.

The Good Health Group of Plans Generally Had Fewer Additional Benefits

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.

More MA Plans and Beneficiaries Were in the Good Health Group than in the Poor Health Group of Plans

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.

CMS Recently Revised Its Process for Ensuring That MA Plan Benefit Packages Do Not Discriminate against Beneficiaries in Poor Health

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.

CMS Revised the Way It Identifies Benefit Packages Likely to be Discriminatory, and Some New Review Thresholds Allowed Higher Cost Sharing

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.

CMS Revised How It Selects Plans to Contact for Benefit Package Modifications; All Plans Met New Cost-Sharing Thresholds

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.

Agency and Other External Comments and Our Evaluation

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.

CMS Comments

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.

AHIP Comments

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.

Appendix I: Medicare Advantage Plans and Beneficiaries by Average Indexed Risk Score and Health Group, 2008

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)

Appendix II: Comments from the Centers for Medicare & Medicaid Services

Appendix III: GAO Contact and Staff Acknowledgments

Contact

Acknowledgments

Other contributors to this report include Rosamond Katz, Assistant Director; Elizabeth Conklin; Ba Lin; Hillary Loeffler; Kevin Milne; Elizabeth Morrison; and Kristal Vardaman.