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Exploding Enrollment in Fee-For-Service Plans Causes Concerns

By John Reichard, CQ HealthBeat Editor

June 6, 2008 -- The escalating enrollment in private Medicare fee-for-service plans reflects their popularity, but their cost is becoming a concern for Democratic lawmakers.

An aide to Rep. Pete Stark, D-Calif., chairman of the House Ways and Means Health Subcommittee, said Friday that the plans are "certainly threatening the long-term health of the program." Stark says Congress should intervene this year.

The plans offer Medicare beneficiaries extra benefits, but are relatively costly to the government and lack networks of providers who coordinate to make care more efficient. A new analysis shows private fee-for-service plan enrollment is up by more than 400,000 people so far this year.

Total enrollment now tops 2 million, up from 610,000 in October 2006. Rapid continued enrollment growth would complicate efforts to alter the plans to make them less costly, as beneficiaries exert political pressure to hold onto the extra benefits they offer.

The aide noted that any legislative action would not affect enrollment until 2009, and that delaying action until then would not affect enrollment until 2010. Meanwhile, private fee-for-service plans are fueling much of the enrollment growth in the Medicare Advantage (MA) program, the private health plan side of Medicare.

Private fee-for-service (PFFS) plans accounted for more than half of the enrollment growth of 800,000 in the Medicare Advantage program in the first four months of this year, according to the new analysis, which was released June 5 by the Kaiser Family Foundation.

The Kaiser analysis found that, because of the pace of enrollment in Medicare Advantage, which include a variety of options in addition to PFFS plans, "policy makers may soon have limited ability to alter course since continued growth in Medicare Advantage plan enrollment will generate entrenched interest and shifts in money flow that could be hard to reverse."

"While PFFS plans account for only 19 percent of MA plan enrollment, they accounted for about 60 percent of total enrollment growth from 2006 to 2007," the Medicare Payment Advisory Commission (MedPAC) noted in a March report to Congress, The panel advises Congress and the Medicare program on payment and quality issues.

Almost 10 million of Medicare's 44 million beneficiaries are now enrolled in Medicare Advantage plans, which Republicans tout as a way to apply market forces to Medicare to control costs and increase quality. But projected payments for Medicare Advantage plans in 2008 will be 13 percent higher than those for providers in traditional Medicare, the MedPAC report said. Those for PFFS plans will be 17 percent higher.

"This added cost contributes to the worsening long-range financial sustainability of the Medicare program," said the MedPAC report. The panel called for payment equality between the private health plan side of Medicare and its traditional plan.

Private Fee For Service Plans 'Here to Stay?'
Analysts following the Medicare Advantage program expect PFFS plans to continue to be a powerful market force, although they may evolve over time with eventual regulatory changes.

"When you have more than 2 million members in a government program, that program is here to stay," said Dan Mendelson, president of Avalere Health, a Washington, D.C.–based consulting firm. "It's a law of physics."

Like the Kaiser analysis, Avalere Health data shows strong PFFS growth. Mendelson says his firm's analysis shows that enrollment in the plans grew from 1.6 million in June 2007 to 2.3 million by the end of April 2008, a 42 percent increase.

PFFS enrollment gains for the rest of 2008 will tail off because the enrollment period has ended in which most Medicare beneficiaries can sign up for a plan, analysts say. "Obviously the numbers are going to plummet now that the open enrollment period is over," said John Gorman, CEO of the Washington, D.C. .–based Gorman Health Group.

But Gorman says that without legislative intervention, enrollment gains will be strong again next year. "I think the numbers are certainly going to be consistent with the trends we've seen in the past couple of years unless Congress does something," he said. One factor fueling growth is the big commissions paid to sales agents for signing up new enrollees in the plans, he said. "There are some companies out there offering more than $900 per sale."

Mendelson notes there are two parts of the PFFS plan market: in one, plans are marketed to individuals; in the other, they are marketed to companies for their retirees. Individual sales growth slowed markedly last year because Congress got "nervous" about strong-arm sales tactics that led companies to rein in their marketing practices, he said. But overall, "private fee-for-service is a very attractive option for some beneficiaries, and that will continue to be true," he said.

Administration Defends Plans
The Bush administration and its congressional allies argue that the higher payments to Medicare Advantage plans are an investment in systems of coordinated care and a competitive structure that eventually will bring costs down more effectively than traditional Medicare.

While PFFS plans do not offer coordinate care, rural lawmakers say the plans give their constituents alternatives to traditional Medicare, including extra benefits, that beneficiaries elsewhere have.

Senate Finance Committee Democrats favor lower payments to PFFS plans including a requirement that they form provider networks to make care more efficient. But Republicans on the panel are largely resisting cuts to MA plans, including PFFS plans, and the Bush administration has threatened to veto any legislation passed by Congress this month that pays for blocking payment cuts to physicians through payment cuts or regulatory changes to Medicare Advantage.

"It's evident that more and more seniors are opting for a private Medicare plan that best suits their individual health needs rather than the one-size-fits-all government-run program. This proves what Republicans have been saying all along, that seniors deserve and prefer to have a choice on how and where to receive their Medicare benefit," a House GOP aide said.

The Stark aide said the PFFS plans "are by far the worst" of the MA plans. "Even congressional Republicans will acknowledge behind closed doors that the plans are not doing anything to control costs," the aide said. PFFS critics voice particular concern about growing employer interest in putting former workers in PFFS plans to cover their retiree health benefits. That will accelerate PFFS growth and its associated costs, they say. Ninety-nine percent of Medicare beneficiaries have Medicare Advantage alternatives to traditional Medicare other than PFFS plans, the Stark aide said.

The aide declined to speculate on what Stark might specifically seek to include in the Medicare physician payment bill addressing PFFS plans. "We will see what the Senate produces," the aide said.

Transition to PPOs?
But given the veto threat, Congress is more likely to act in 2009, Gorman said. He predicts that as a result of action next year by Congress, PFFS plans in many markets may face a requirement that they actually form provider networks. That would make the plans a lightly managed form of preferred provider organizations (PPO), he said. PPOs are plans that make it less costly to go to network providers but maintain access to outside providers.

Medicare PPOs are becoming more attractive to beneficiaries because of the fast-rising costs of traditional "Medigap" plans used by seniors to pay many costs not covered by Medicare, Gorman noted. Medicare PPO premiums are lower than in the most popular Medigap plans, PPO enrollees still have access to a wide range of providers, and they get more benefits than they would get in Medigap plans, he said.

Mendelson too notes that PPOs are an up-and-coming part of the Medicare Advantage market. Regional Medicare PPOs grew 80 percent in enrollment between June 2007 and April 2008 and local Medicare PPOs saw enrollment climb 64 percent, he said.

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