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Managing Medicare's Costs

Medicare Advantage plans reach for the stars – quality stars, that is (2 of 2)

Managed-care plans have always had an image problem. That’s especially true of HMO’s, whose restrictions and coverage denials have made them easy to caricature. There’s even a book of HMO humor. A sample joke: “It’s the 98% of HMO’s that give the rest of them a bad name.”

But that may no longer be the case for Medicare Advantage plans, 66% of which are HMO’s and another 26% PPO’s. Since 2012, these plans have been able to earn generous bonuses if they provide their plan members with high quality medical care. Plans are judged on 47 weighted measures to determine their overall quality — 32 of the measures are for medical care and 15 for prescription drug coverage.

An example of a quality measure is the frequency with which a plan monitors blood sugar levels for people who have diabetes. If a plan fails to monitor a high percentage of its diabetic patients, it receives a low score on that measure.

After it has assessed an Advantage plan’s quality on all of the measures, Medicare rates the plan on a five-star scale. If a plan gets a rating of four stars or higher, the following year it is awarded a bonus of about $500 for each enrollee. Thus a highly rated Advantage plan that has 10,000 enrollees will receive approximately $5 million a year in bonus money. But if that plan’s quality rating dips below four stars – perhaps because it has skimped on medical care – it will no longer receive bonuses.

For large plans, the bonuses can be substantial. Kaiser Permanente has more than one million members in its five-star rated Senior Advantage plans in California, and that translates to roughly $500 million in bonuses. With so much at stake, insurance companies are focused on getting ratings of four stars of higher. And their increased attention to quality is showing results.

This year 179 Advantage plan contracts are receiving bonuses – a noticeable improvement over the 127 contracts that received bonuses in 2013 (one contract typically includes several Advantage plans). And this year’s average quality rating for all Advantage plans is 4.04 stars, compared to an average of 3.71 stars in 2013.

In some cases plans are able to improve their quality without making significant expenditures. Earlier this year a Kaiser Health News article described how Vantage Health Plan, a 16,000-member Advantage plan in Louisiana, purchase a $10,000 mobile ultrasound unit so that it could provide bone density screenings for elderly women in their homes.

With its new mobile unit, Vantage was able to improve its screening rate to 71% of its eligible women members in 2015, which was more than a five-fold improvement compared to its 13% rate the previous year. Moreover, the higher screening score enabled Vantage to raise its overall rating from 3.5 stars to 4 stars, making it eligible to receive $8 million in bonuses.

The widespread improvement in ratings is good news for retirees. It means that they are likely getting better medical care than they did just a few years ago. Another plus for people who are enrolled in Advantage plans is that the plans are required to spend their bonuses on extra benefits, giving retirees better coverage that they would otherwise have.

Plans do not mind re-investing their bonuses in additional benefits, which will attract new enrollees and increase profits. One reason that many Advantage plans have been able to continue offering zero-premium plans with no deductibles – during the same period that Medicare’s subsidies to the plans have been reduced – is that the re-invested bonus money makes it possible for the plans to keep their costs low.

Instead of paying bonuses, why doesn’t Medicare simply require plans to meet certain quality standards? That’s the approach that was used, more or less, during the 25 years before the bonuses began. Although it was effective to a certain extent, it meant that insurers were more intent on meeting minimum standards than they were on aggressively improving quality.

Here it’s interesting to note the contrast between Advantage plans and stand-alone prescription drug plans (PDP’s). Both types of coverage are rated for their quality by Medicare, but PDP’s do not receive bonuses. And possibly because they do not have a financial incentive to get high ratings, PDP’s have shown less improvement than have Advantage plans.

Even so, the Advantage plan quality rating system is not without its flaws. In January Medicare sanctioned health insurer Cigna for multiple problems in its Advantage and PDP plans, even though six of Cigna’s 14 Advantage plan contracts were rated four stars or higher. As a consequence, Cigna cannot enroll new members until the problems have been resolved to Medicare’s satisfaction, which will probably be sometime next year. And in March, Humana was assessed a $3.1 million penalty for its “systemic failure” to adhere to Advantage plan and PDP requirements.

The only positive takeaway from these penalties is that Medicare is forcing plans to comply with the rules. But the penalties are also reminders that some plans will skirt the rules to improve their profits. Three of the five insurance companies that have the largest numbers of Advantage plan enrollees are publicly traded companies whose stock price performance is closely linked to their income statements.

That is the reason that not-for-profit insurers fare much better than for-profit plans in the star rankings. This year there are 15 Advantage plan contracts that have five-star ratings, and 11 of them are nonprofits, including five Kaiser Permanente contracts. And the majority of the five-star plans are HMO’s.

As for the larger picture, Advantage plan enrollment continues to climb and is expected to reach 18 million by year end. The Congressional Budget Office projects that in ten years there will be 30 million people enrolled in Advantage plans, which will represent more than 40% of the Medicare population (currently, 31% of Medicare beneficiaries are in Advantage plans). Another indication that the future of Advantage plans is promising is that additional insurers are entering the market and new plans are being introduced. This year there are 56 more Advantage plans than there were last year, according to data from the Kaiser Family Foundation.

With so many plans and such a large population of patients, Advantage plans will continue to present auditing challenges for Medicare. But if the quality bonuses are fairly administered, plans will focus more on improving the care they provide and less on trying to manipulate the results.

If you’re a senior, a plan’s quality rating is one factor to consider before enrolling. But you should also look at a plan’s costs for the prescription drugs that you take, its health plan premiums and deductible, its out-of-pocket limit and whether all of your physicians are in the plan’s provider network. ◊◊

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