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Press Release


Jul 10, 2001

Interim Report Card Gives Medicare+Choice A Barely Passing Grade: Fewer Options And Operational Constraints Are Noted

A newly released analysis of experience to date under Medicare+Choice (M+C), published in the latest issue of Health Affairs, highlights considerable challenges for new leadership at the Centers for Medicare and Medicaid Services (CMS) in meeting its aggressive goals to substantially expand M+C enrollment. Marsha Gold, Sc.D., a senior fellow at Mathematica Policy Research, Inc., takes a critical look at the M+C program, noting disparities between what Congress intended under M+C and what was achieved. She suggests that while operational constraints help explain experience to date, fundamental disagreements in Congress over Medicare's future mean that dramatic growth in M+C was then, and remains now, highly unlikely.

Medicare+Choice, created by the Balanced Budget Act (BBA) of 1997, aimed to expand the health plan options available to Medicare beneficiaries and to encourage them to more actively consider their choices. Supporters of expanded choice hoped it would also lead to a more privatized and market-based Medicare program. Instead, as the analysis shows, choices are dwindling instead of growing. Participating plans rushed to withdraw between 1999 and 2001, despite a last-minute effort by Congress in late 2000 to increase their payments. Furthermore, few new kinds of plans have entered the program, greater choice hasn't materialized in areas that lacked choice, and inequities in benefits and offerings between higher- and lower-paid areas of the country have widened. Gold awards M+C a "D, if not an F" on its interim report card as of mid 2001.

Gold theorizes that the experience under M+C was inevitable for a number of reasons:

  • M+C had the misfortune of starting up after a period of rapid growth in Medicare managed care enrollment. After rapid growth, natural market shakeout usually occurs.
  • Operations began at the same time that Congress was reacting to a perceived explosion in Medicare costs, which translated into lower premiums for M+C plans.
  • The market environment in which the M+C program was born reflected bad timing. Both provider consolidation and the backlash against managed care strengthened providers' clout in negotiating with plans, making it hard for plans to negotiate favorable terms. As a result, plans were more likely to reduce benefits or withdraw entirely.
  • The Health Care Financing Administration senior officials were distracted by demands placed on the agency by many new requirements of the BBA. Furthermore, an agencywide reorganization provided no central focus for decisions on Medicare+Choice. Both of these impeded efforts to promote and maintain M+C plan participation.
  • Payment changes under M+C were required to be budget neutral, that is, cost no more than what Medicare would have otherwise paid. As such, the BBA undercut opportunities to create more geographic equity. Specifically, the provision prevented rates from rising more in lower-paid urban counties, where managed care might be feasible.

The article points out that negative incentives restricting the growth of M+C remain in place today, despite congressional efforts late in 2000 to increase payments to plans under the Benefits Improvement and Performance Act (BIPA). While BIPA may stabilize M+C in some lower-paid urban counties, it is unlikely to provide enough incentives to encourage managed care in rural areas.

Gold concludes, "In terms of the future, Congress is unlikely to succeed in addressing issues plaguing the program until it comes to terms with fundamental differences among policymakers in ideology, values, and the vision for Medicare's future. The expanded choices envisioned under the BBA and the major shift in enrollment away from traditional Medicare are not likely to become feasible without more support than currently exists for fundamental Medicare reform."

Health Affairs, published bi-monthly by Project HOPE, is a multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Copies of the July/August 2001 issue will be provided free to interested members of the press. To obtain a copy, contact Jackie Graves at 301-656-7401, ext. 255, or via e-mail, [email protected]. This article and selected others are available free on the Health Affairs Web site,

Mathematica®, a nonpartisan research firm, conducts policy research and surveys for federal and state governments, foundations, and private-sector clients. The employee-owned company, with offices in Princeton, N.J., Washington, D.C., and Cambridge, Mass., has conducted some of the most important studies of health care, welfare, education, employment, nutrition, and early childhood policies and programs in the U.S. Mathematica strives to improve public well-being by bringing the highest standards of quality, objectivity, and excellence to bear on the provision of information collection and analysis to its clients.

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Jul 10, 2001