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GAO: Medicare Advantage May Not Always Save Seniors Money

By John Reichard, CQ HealthBeat Editor

February 28, 2008 -- With the veto pen of President Bush a potent weapon this year against any payment cuts to Medicare's private health plans, it may have come as a surprise Thursday when Michigan Republican House member Dave Camp got hot over a new Government Accountability Office report questioning payments to the plans.

GAO criticism of the payments is nothing new, and Bush still appears to have the votes to block any significant payment cuts to the plans, which are strongly defended by Republicans as the key to saving Medicare. But hot is what the usually low-key Camp got when GAO released the report at a House Ways and Means Health Subcommittee hearing, calling it fake, fake, fake and accusing GAO of preparing an unfair analysis.

Why the strong reaction? Before long, 2008 will turn into 2009 and the White House may no longer be a bulwark against payment cuts to the plans, no matter who lives there. And the report called into question one of the key arguments made by defenders of the relatively high payments that plans get: that they lower out-of-pocket costs for seniors, particularly those with low incomes. On average, enrollees do save seniors money, testified GAO's James C. Cosgrove, but seniors in some health plans could see higher out-of-pocket costs, he said.

"If the policy objective is to subsidize health care costs of low-income Medicare beneficiaries," Cosgrove added, "It may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost sharing for all Medicare Advantage beneficiaries, including those who are well off."

But Camp said "Clearly it's a fake report with fake conclusions and we're having a fake hearing on it so we can all run to the media and make certain pronouncements."

GAO specifically analyzed what happens to "rebate" payments to the plans, known as Medicare Advantage (MA) plans. Under the MA program, plans bid to offer Medicare benefits against payment benchmarks set for each county. The benchmark is how much the government will pay them; if plans bid below the benchmark, Medicare sends them a rebate equal to 75 percent of the amount below the benchmark. The plans are supposed to use the rebates to lower premiums, provide added benefits, reduce cost-sharing, or any combination of the three. "Cost-sharing" refers to the money a patient must pay out-of-pocket for a specific type of service such as home, hospital, or physician care.

GAO said that rebates to MA plans totaled $8.3 billion in 2007. While plans used money from rebates—and in some cases from additional premiums—to pay for extra benefits such as dental, hearing, and vision benefits, they said most of the money would go to reduce the out-of-pocket costs of beneficiaries. Specifically, plans projected that they would 11 percent of their rebate money on added benefits, 69 percent on reduced cost-sharing, and 20 percent to lower premiums, GAO found.

On average, plans projected that cost sharing by MA enrollees would be less than half—42 percent—of that paid by enrollees in traditional Medicare. But some plans projected higher cost-sharing for certain services. "For example, 19 percent of MA beneficiaries were in plans that projected higher cost sharing for home health services and 16 percent of beneficiaries were in plans that projected higher cost sharing for inpatient services," the report said. Because cost sharing was projected to be higher for some services, "beneficiaries who frequently used these services could have had overall cost sharing that would be higher" than in traditional Medicare, the report added.

It also found that 87 cents of every dollar paid to MA plans went for medical care, 9 cents for administrative costs, and 4 cents for profits. By contrast, 98 cents of every dollar that goes into traditional Medicare is spent on medical care, Cosgrove said.

Camp pounced on the methodology of the report. It "does not reflect the reality of a single beneficiary in a Medicare Advantage plan," he said. "The report only looks at hypothetical beneficiaries, who use only certain types of services and enroll in a narrow selection of plans." Critics using the report to attack Medicare Advantage payments "will ignore the reality that the vast majority of plans actually provide much better cost-sharing benefits."

Democrats said however that GAO was forced to rely on projections rather than actual data on the beneficiary use of services because plans aren't required to turn over any data on services to the government or to beneficiaries. Cosgrove confirmed that data on actual use of services was not available to the GAO.

But Republicans said GAO could have used a different methodology.

Camp also released the text of a letter to GAO that requests a new study. The study released Thursday "fails to take into account that most Medicare beneficiaries use many types of services and as a result may actually achieve greater savings than the hypothetical scenario laid out in the GAO report," the letter said.

"I would ask that you review the actual historical spending patterns of a statistically valid sample of Medicare beneficiaries, and then compare that utilization data against the full cost-sharing benefits package offered by the top three Medicare Advantage plans, ranked by total national enrollment data. This type of analysis could then determine how much these beneficiaries could receive in total savings from reduced cost sharing across all types of Medicare spending," he said in the letter.

One thing Republicans and Democrats did appear to agree on at the hearing, however, was that policy makers need more information to better assess the value Medicare and taxpayers get for the higher payments made to Medicare Advantage plans. On average, those plans receive payments 12 percent higher than providers get in traditional Medicare, according to the Medicare Payment Advisory Commission. Acting CMS Administrator Kerry Weems said that plans will be expected to provide his agency with data on the actual use levels of the added benefits provided by the plans. Stark said legislation should be passed requiring such disclosure. While Camp and Weems agreed that such data should be disclosed, they stopped short of calling for legislation.

Meanwhile, there were other signs Thursday that Republicans are gearing up to take a strong stance against renewed Democratic efforts to cut Medicare Advantage payments. Former Centers for Medicare and Medicaid Services Administrator Mark McClellan briefed Senate Finance Committee Republicans in an afternoon meeting on the potential impact of such reductions. Utah Senator Orrin G. Hatch said on leaving the meeting that such cuts would be "cruel." He added that "it's not well thought out. It's a voracious demand for money at all costs.

"The Democrats want to take Medicare Advantage and use it to pay for a lot of their spending programs, which is stupid because [MA] works," Hatch said.

Republican Sen. John E. Sununu of New Hampshire said when he left the meeting that "if we start cutting the program, [seniors] are going to lose their benefits. Pushing seniors off the Medicare Advantage plans means their costs are going to go up. We should be very careful before we start engaging in policy that raises the cost of health care for seniors."

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