Medicare Compliance & Reimbursement

Higher premiums could give seniors more incentive to enter private plans.

Is now the time for health insurers to forget those hard lessons of the past few years and give Medicare Advantage a second chance?

Insurers appear to be newly optimistic about the Medicare Advantage program, based on the number of plans that are signing on. At least 40 applications for new contracts or service area expansions are sitting on CMS' doorstep, says consultant John Gorman of Gorman Health Group in Washington. And he expects that number "to at least double by February."

Unlike last year, when wary plans held back after the initial and somewhat surprising passage of the Medicare Modernization Act, plans aren't standing on the sidelines. "There's a lot of people jumping in now," Gorman says. Part of this is optimism that the program finally presents an opportunity to offer a profitable product, and part of it is competitive pressure, Gorman says. When a plan sees that its competitors are expanding into MA, it often decides to follow suit.

Warning: Despite the enthusiasm, many questions about the program's future remain, notes Gary Donner with MMC 20/20 in Atlanta. Donner is counseling health plans to wait a bit first and see how the Part D drug benefit looks when the government issues its final regulations. "Part D could make or break the program - it's a big change," he says.

But the numbers indicate that many plans are rushing forward nonetheless. "Medicare Advantage plans are expanding their offerings to hundreds of new counties in 2005," Karen Ignagni, president of America's Health Insurance Plans, said in a statement. AHIP is anticipating continued Medicare Advantage growth. "For the first time since 1998, we are seeing strong projections of increased participation" in Medicare Advantage," Ignagni said.

"I've never seen anything like this," Gorman says. He expects the applications to slow down after February, the filing deadline for next year. Once plans have filed, they will shift gears from performing market analysis and product design to figuring out how they're going to handle the Part D drug benefit, which begins in 2006.

Raised Premiums Could Steer Seniors Into MA

Medicare recently announced a 17-percent hike in Medicare premiums - the steepest dollar increase in the program's history. As a result, some experts think beneficiaries may have an extra incentive to switch out of fee-for-service and into an MA plan. Even though the premiums are the same either way, MA plans often offer extra perks that FFS doesn't.

"It's certainly an opportunity for private plans," says Bob Hayes of the consumer advocacy group Medicare Rights Center. Hayes believes that the MMA is currently overpaying health plans, and that the reimbursement rates will eventually level off. But that doesn't mean plans should stray from the program, he says.

"If I ran a managed care plan, I would seize this moment to try to create true management of care that will continue to be a successful model even when the overpayments stop," Hayes explains. "It's a fascinating moment for the industry."

Also, many MA plans have been offering premium rebates to members as they try to build up membership. "Part B premium rebate has become more popular over the last couple years," Gorman points out. "It would certainly make the plans that do premium rebate more attractive to a beneficiary in fee-for-service."

Of course, plans offering such rebates will have to understand that the rebates will cost them 17 percent more next year than they do now. But Donner notes that plans don't need to offer to rebate the entire premium - they can always offer to reimburse only part of it, and that still could be enough to woo seniors. And Gorman reminds plans that Medicare considers rebates to be supplemental benefits, something the plans need to factor in during competitive bidding.

Hayes, however, thinks seniors still have enough distrust about managed care to keep MA plans' enrollment from growing too quickly.

"I don't anticipate an immediate rush to managed care plans despite the lures," Hayes says. "This will be a passing moment but a valuable moment" for health plans to establish themselves as important contributors to a stronger Medicare.