Medicare Compliance & Reimbursement

Warning: Last-minute tax law could spell doom for PDPs.

For insurers offering a Medicare Advantage (MA) plan that comes with a prescription drug plan (PDP), the government had a nasty New Year's surprise last month.

A last-minute addition to the new tax and health law will exempt MA plans without PDPs from the program's limited enrollment periods.

Then-House Speaker Dennis Hastert (R-IL) inserted the amendment in question, Section 206, into the Tax Relief and Health Care Act of 2006 (H.R. 6111). The provision allows beneficiaries in 2007 and 2008 to enroll throughout the year -- but only in MA plans that do not offer Part D prescription drug coverage. President Bush signed the bill into law on Dec. 20. So far, the provision extends only to these two years.

The biggest change the amendment brings is the partial demolition of "lock-in," in which seniors could enroll in MA plans only between Nov. 15 and Dec. 31. In 2007, the terms of the lock-in were to allow current benes who found their plans unsatisfactory to change plans once between Jan.1 and Mar. 31.

The recent provision, which would sunset after two years, would allow benes who are enrolled in fee-for-service (FFS) Medicare but not enrolled in a PDP to enroll in a MA plan that does not offer drug coverage. These benes would be allowed to make this one-time change "on any date during the year," according to a floor explanation.

"MA plans that integrate prescription drug coverage into their benefit packages [known as MA-PDs] would be kept under the current law provision, that is, they would not be allowed to enroll individuals throughout the year," according to the floor language.

MA Market Could Undergo An Earthquake

A number of prominent industry insiders are concerned that this "drop-in" legislation essentially unbalances the MA marketplace. The amendment could hurt MA-PDs, including special needs plans that must offer drug coverage, contends John Gorman, president of the Gorman Health Group, a Washington, DC-based consulting firm. Unlike exempted MA plans, MA-PDs "will still have to contend with the lock-in enrollment period," he points out.

Most likely, "plan sponsors will be looking to move their PDP-only enrollees into MA-only plans during this two-year period and eventually transition them into MA-PD plans," according to a policy brief from Mark Farrah Associates, a health care analyst in Kennebunk, ME.

Regarding the provision, the big winners are companies with heavy MA-only enrollment, such as The Regence Group and Sterling Insurance Group, Mark Farrah predicts. Sterling has offered private FFS plans, which have no networks and function more like indemnity insurance, since 2000.

But leaders on the Senate Finance Committee weren't pleased with the last-minute insertion. The amendment runs the risk of undermining the "time and effort" that went into designing enrollment policies in the run-up to the Medicare Modernization Act of 2003, scolded Sen. Charles Grassley (R-IA) on the Senate floor.

And Sen. Max Baucus (D-MT), after noting the "unlevel playing field" that he believes the amendment creates, promised that he would work on revising the provision in the next Congress, when he'll be committee chair.

For now, most insurers seem undecided about the amendment's long-term effects. "We think that any policy that drives more beneficiaries into Medicare Advantage is a positive policy change," acknowledges Jane Galvin, director of regulatory affairs for the Blue Cross and Blue Shield Association. "However, some of our [MA] plans that only offer PD options are disadvantaged in their marketplaces compared with some of their competitors."

To read more about the new laws, go to http://waysandmeans.house.gov/ResourceKits.asp?section=2544.