The Promise and Risks of Medicare Managed Care

Howard Gleckman, 12/26/2012 Forbes

In 2012, about 13 million seniors participated in Medicare Advantage (MA) managed care plans—about 27 percent of the Medicare population and twice as many as were enrolled just seven years ago.

This rapid shift to managed care by seniors may be just a first step
towards a fundamental change in the way Medicare is delivered and
financed. And it has the potential to transform the way long-term
supports and services are provided as well.

Medicare managed care comes in many forms. Almost two-thirds of MA
enrollees participate in HMO-type plans, such as Kaiser Permanente,
where treatment is delivered by employed staff. A rapidly growing
alternative is offered by preferred provider organizations (PPOs) where
community physicians and nurses are under contract with insurers. Among
other versions are Special Needs Plans (SNPs) that provide care for
people with complex medical requirements, including those who are very
poor and very ill and who are eligible for both Medicare and Medicaid
(dual eligibles).

Typically, Medicare pays these plans a fixed monthly fee per patient.
In return, managed care companies provide their patients with all
necessary care, including all-important care coordination. These firms
are at risk for costs, so if they can manage expenses, they may keep the
extra payment as profit but if their costs of care exceed the Medicare
payment, they will lose money.

Managed care is especially important for seniors with chronic
diseases. It holds the potential for far better care than traditional
fee-for-service Medicare, which is often chaotic, disorganized, and
duplicative. Yet, MA plans carry their own risks for patients. Unless
financial incentives are correctly designed, the firms that operate
these plans can be rewarded for discriminating against the sickest
patients or denying care to high-cost participants.

Do MA patients use less health care than traditional Medicare enrollees? And is that a good thing, or a potential problem?

So far, the experience is mixed. A December, 2012 study for the journal Health Affairs
found that MA patients were one-quarter to one-third less likely to
visit hospital emergency departments, likely to spend less time in the
hospital, and less likely to receive outpatient surgery. On the other
hand, rates of doctor visits were about the same as in fee-for-service

MA patients were less likely to have elective knee and hip
replacements but more likely to have heart bypass surgery. A separate insurance industry study found MA patients were less likely to be readmitted to the hospital within 30 days of discharge.

Medicare also measures quality and safety for both MA plans and fee for service providers. By these standards, MA quality is improving.
For several key outcome measures, such as controlling high blood
pressure and managing diabetes, HMOs scored significantly higher than
PPOs. Starting in 2012, Medicare began paying high quality MA plans a

Medicare uses a star rating for MA plans (1 is the lowest, 5 is the highest). In October, it reported 127 plans had 4 or 5 star ratings.

For now, MA plans do not necessarily save Medicare money. In fact,
for several years MA plans have been getting higher Medicare subsidies
than fee for service providers. The 2010 health law will gradually
reduce the level of these subsidies and plans will have to find ways to
provide high quality care for less money—the challenge that fee for
service Medicare providers already face.

MA plan have enormous potential to better coordinate care for seniors
and others with chronic disease. Someday, they may also become the
basis for a system that integrates medical care with long-term supports
and services. For now, MA plans in all their forms remain a work in
process. They have some real benefits, including premiums that are
substantially lower than for fee-for-service. But consumers need to
consider these plans very carefully. And so do policymakers.