Medicare Compliance & Reimbursement

New reform makes Medicare a much more attractive market for private plans.

With new payments for Medicare health maintenance organizations enacted in the 2003 Medicare Modernization Act, Medicare Advantage looks like a great bet to many companies.

That was one of the main themes offered by a panel of financial and policy analysts who assembled in Washington June 24 for an annual forum on health-care markets sponsored by the nonpartisan research and policy group Center for Studying Health System Change.

For an HMO that does county-by-county analysis and chooses the right markets, the profit-making potential of MA is "extraordinary," despite the fact that many markets remain no-go zones, said Robert Laszewski, president of the Health Policy and Strategy Associates, Inc., consultancy. It's possible to find a market that's "a real gem" even in some surprising states, such as Iowa.

A Medicare HMO is "the product the industry really wants," said Laszweski. But we won't see the PPOs that the White House, among others, has touted as a way to expand private plans nationwide, he predicted. They are a complete non-starter for the industry. "Why would you want a PPO, with all the regional issues?"

Insurers are "talking much more aggressively" than in the recent past about entering MA, agreed Roberta Goodman, a long-time market analyst who is a principal with Nashville-based consultancy Health Care Analytics.

But she and others recommended caution about jumping on the bandwagon.

"The history is a period of boom followed by a period of bust" in federal payments, she said. "My personal bet is that a lot of what was given in the MMA" to MA plans and others "will ultimately be taken away."

The possibility of a Democrat winning the White House in November should give companies pause, said Alliance Capital Senior Vice President Norm Fidel. "Stability in Medicare policy lasts one congressional session," said Fidel, who noted that Senate Minority Leader Tom Daschle (SD) and other Democrats already speak of legislating big changes to the MMA.

But Urban Institute President Robert Reischauer said that insurers should be nervous no matter who gets elected. "We have a very large deficit, and sooner or later we're going to address it." Medicare, as always, will be looked to for solutions. When the day of budget reckoning comes, it will be more politically acceptable to cut back MA -- which affects only 11 to 13 percent of the Medicare population -- than the fee-for-service program, which serves over 80 percent of beneficiaries, Reischauer said.

"The most vulnerable chunk of money" in the entire law is the $12 billion fund to encourage sign-up of regional PPOs in MA beginning in 2006, said Reischauer.