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Seniors Opt Out of Full Coverage, Lower Medicare Plans' Profits

By Kerry Young, CQ Roll Call

November 4, 2016 -- Medicare may be shortchanging insurers because its calculations ignore the growing number of wealthy and working senior citizens who chose not to fully enroll in the giant health program, the staff of a federal advisory panel said Friday. They estimated that insurers would gain $20 billion over a decade if Medicare rules were to better reflect the number of people opting out.

"We think what's happening right now is not fair to the managed care plans," said Mark E. Miller, the executive director of the Medicare Payment Advisory Commission (MedPAC), at a Friday meeting. "There are some dollars that should go back into the baseline to benefit the plans."

MedPAC is working on its 2017 suggestions to Congress regarding the continual financial battles between the insurance industry and Medicare. MedPAC on Friday also revisited concerns that some insurers may be identifying customers in their Medicare Advantage plans as sicker than they are to secure extra pay.

Medicare sets payments for the Advantage plans by looking at how much the traditional fee-for-service program spends. These calculations factor in spending in both major components of Medicare: the Part A section that covers hospital care and Part B that covers more routine care such as visits to doctors.

A small but growing number of people opt out of Medicare Part B while remaining in Part A, MedPAC staff said Friday. This group grew to 12.4 percent of Medicare's population in 2015 from 10.2 percent in 2009. People who opt out of Part B also appear to be in better general health, reducing the hospital bills for Part A as well, said Scott Harrison, an analyst with MedPAC. This may cause further distortion in setting reimbursements for Advantage plans.

Sticker shock about Medicare Part B premiums appears to be driving the decision to opt out in many cases. Some people do decline Part B because they continue working and thus have health insurance provided by their insurers, Harrison said. More often, though, people might make this call because they can't afford Part B premiums or decide that that are a bad deal. Affluent couples with annual income topping $428,000, for example, face a premium of nearly $400 a month.

"They just decide that's it's not worth it," he told MedPAC members.

MedPAC members didn't cast formal votes or go through informal straw polling on Friday, saving these steps for later in its deliberations on 2017 recommendations.

Many members expressed support in informal discussions for addressing this disparity, such as by switching to use data from people enrolled in both Part A and Part B to set Advantage benchmarks. That would eliminate financial data regarding the people who only receive Part A coverage. There were not as many people opting out of Part B when Medicare designed Advantage plans, said Jack Hoadley, a member of MedPAC and a researcher at Georgetown University.

"There's a logic to fixing it," he said.

MedPAC member David Nerenz questioned whether it would be worth the hours needed to address the issue, given that the impact may be relatively small.

Payments to Advantage plans would rise by 1 percent, or $20 billion, over 10 years if the benchmark were limited to comparisons of people enrolled in Part A and Part B, according to MedPAC staff. In contrast, Medicare's board of trustees predicts total payments to private Medicare plans will rise to $386.2 billion by 2025 from $172 billion last year.

The increased privatization of Medicare may give extra weight to questions of Advantage payment policies. About 32 percent of people enrolled in Medicare last year opted for managed care plans over the traditional fee-for-service form of the program, up from 24 percent in 2009, MedPAC staff said.

MedPAC members also wrestled Friday with a question at the heart of efforts to expand insurers' participation in Medicare. Advocates for Advantage plans argue that insurers actively note their customers' illnesses in order to better coordinate their medical care. This approach is expected to reduce costs in the long run, as it can help people avoid some hospital stays and better preserve their health.

Still, there are questions about some insurers' intentions, as in some cases there is little follow-up for care for chronic conditions among Advantage customers. Recording these illnesses raises pay for Advantage plans through a step known as risk coding. Diagnosing congestive heart failure in an 84-year-old male customer, for example, would raised 2013 payments to an Advantage plan by $3,116 to a total of $7,924, MedPAC told Congress in a report last year.

MedPAC research suggests it may be very common for insurers to report chronic conditions such as heart failure in their Advantage plan customers and then provide little or no follow-up care. Looking at 2012 data, MedPAC found there was no documentation of care for chronic conditions noted on health risk assessments done for people in Advantage plans, the commission told Congress in a report this year.

There's open discussion among insurance officials about aggressive coding, Miller told MedPAC commissioners Friday. Industry officials talk about competitors who hire consultants to try to boost risk scores, he said.

"There are lots of managed care plans that are pointing fingers at each other," Miller said, without identifying any of the companies involved.

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