Friday, November 28, 2014

According to a recent survey,

...employers plan the following changes to their health benefit plan design in 2015:

  • Eliminate health benefits: 1%
  • Add wellness rewards or penalties: 26.3%
  • Tiered networks: 3.8%
  • Move to private exchange: 3.2%
  • Adopt a value-based insurance design: 2.6%
  • Adopt reference pricing: 2.8%

Source: "Employers Increasingly Adopting Wellness Incentives During Open Enrollment for 2015," Employee Benefit Research Institute (EBRI), November 19, 2014,

Wednesday, November 26, 2014

According to a recent physician survey,

...when asked how much of their compensation is tied specifically to productivity, 30.2% said "all", while 36% said "none".

Source: "2014 Physicians Compensation Survey," Physicians Practice, November 13, 2014,


New York Sen. Chuck Schumer -- the Senate's number three Democrat -- said yesterday that his party "blew the opportunity the American people gave them" after the 2008 elections by focusing on overhaul of the U.S. health care system, instead of on the economy. Schumer was careful to emphasize his support for Obamacare's policies, during a speech at the National Press Club, but said health reform should have come later -- after economic legislation helping the average middle class out of the recession. Noting that only about 5 percent of registered U.S. voters were uninsured before implementation of the Affordable Care Act, he said that focusing on an issue affecting that small a percentage of the electoral "made no political sense." Supporters of the ACA called hypocrisy on Schumer's remarks, noting his long involvement and support for the health care law.

Today's Datapoint

9.1 million people are projected to enroll through a public insurance exchange for 2015, according to HHS Sec. Sylvia Burwell, down from 13 million formerly projected by the Congressional Budget Office.

Quote of the Day

“Lung cancer kills more people than the next three cancers combined (breast, colon, prostate), yet is the only one of these cancers without Medicare coverage for screening to detect early stage disease.”

— According to the American College of Radiology

Monday, November 24, 2014

How to Find and Use Health Insurance Coverage

The Texas Department of Insurance has updated to provide new information for Texas consumers. Information is available in both English and Spanish to help consumers find and use health insurance coverage. Consumers can learn about the rights they have when purchasing health insurance, how to read their insurance documents, and how cost sharing works. TDI has also developed resources to explain how to avoid surprise bills and the new protections consumers have if they do receive an unexpected bill.

Consumers can call TDI’s consumer helpline at 1-800-252-3439 with any questions or complaints regarding insurance.

According to a recent report, 21% of adults with health insurance

...spent 5% or more of their income on out-of-pocket health care costs (excluding premiums) over the past year.

Source: "New Commonwealth Fund Report: 21 Percent of Adults with Health Insurance Spent 5 Percent or More of Their Income on Out-of-Pocket Health Care Costs," The Commonwealth Fund, November 13, 2014,

78% of consumers would consider a virtual healthcare visit

  • 47% would consider a virtual visit to discuss the effectiveness of regularly used prescriptions.
  • 43% would do so in order to diagnose cold or flu-like symptoms.
  • 39% would do so for a consultation regarding allergies.
  • 36% would consider a virtual wellness visit, regular checkup or preventative services.
  • 35% would opt to have a regular virtual checkup regarding regularly monitored biometrics.
  • 32% would consider a virtual visit to diagnose a rash.
  • 30% would consider a virtual visit for one-time screening or lab services, such as blood sugar testing.

Note: Results are from The Harris Poll of 2,537 U.S. adults surveyed online between August 13-18, 2014.

Source: The Harris Poll

Today's Datapoint

75% is Kaiser Permanente Southern California’s five-year survival rate among people with colon cancer, which is 10% higher than the national average, and the insurer aims to reduce colorectal cancer deaths by 50% by 2023.

Supreme Court, New Congress May Spark Political Clashes, New Exchange Model

Reprinted from INSIDE HEALTH INSURANCE EXCHANGES, a hard-hitting newsletter with news and strategic insights on the development and operation of public and private exchanges.

By Steve Davis, Managing Editor

November 13, 2014 Volume 4 Issue 22

A Congress soon to be led by a party opposed to the Affordable Care Act (ACA) — combined with the Supreme Court’s recent decision to take on a controversial provision of the law — could give federally facilitated exchange (FFE) states a strong financial incentive to transition to a “supported state-based marketplace” model (HEX 9/4/14, p. 1). It also could lead to some political battles and bargaining with the White House.

In its July 22 ruling on Halbig v. Burwell, a Republican-majority panel of the U.S. Court of Appeals for the D.C. Circuit ruled 2-1 that the premium subsidies awarded to 4.7 million enrollees on were illegal because the wording of the ACA indicates that only exchanges set up by states can issue subsidies (HEX 7/31/14, p. 1). On the same day, a Democrat-majority panel of the U.S. Court of Appeals for the 4th Circuit in Richmond, Va., determined in King v. Burwell that the subsidies were legal. The Supreme Court said on Nov. 7 that it would take up King v. Burwell (14-114) during its current session.

Regardless of the ACA’s intent, it’s likely the high court will rely on a literal reading of the statute, which says federal subsidies are available only through state-run exchanges, industry observers tell HEX. The 34 FFE states would then be ineligible to distribute federal subsidies to enrollees, disrupting insurance markets and making coverage unaffordable for many low-income people. Such a decision would bounce the ball back in Congress’ court to rework the language. But a congressional fix is highly unlikely in a Republican-majority Congress with an election year on the horizon.

Politics Could Rattle Exchanges

Barring FFEs from distributing subsidies would dramatically disrupt the exchanges, create a very contentious 2016 election period, and raise the specter of a possible “do over” on health reform, suggests William Pewen, Ph.D., who served as senior health policy advisor to former Sen. Olympia Snowe (R-Maine). He is now an assistant professor of public health and family medicine at Marshall University in West Virginia.

“The Court may decide that bad drafting trumps intent, and given a new majority in Congress with a history of disengagement on meaningful health reform, the prospect of a legislative remedy seems dismal,” he tells HEX. “In that case, more governors and state legislators would face a critical decision: Does one sacrifice constituents’ access to health care in the pursuit of a partisan conflict?”

FFEs Could Sidestep Problem

In response, CMS might issue guidance clarifying that a state can designate as its IT platform, says Christopher Condeluci, a principal at CC Law & Policy in Washington, D.C., who was on the Senate Finance Committee when the health reform legislation was being drafted. “This will then allow governors to sign an executive order establishing a state-based exchange,” he predicts. “I think this happens in most states. There will be some outliers, but not many.”

For the 2015 plan year, Oregon will rely on a Supported State-Based Marketplace (HEX 9/4/14, p. 1). Last year, Idaho and New Mexico operated their marketplaces while relying on the federal technology platform. Both states are considered SBEs. The model allows states to tap existing federal IT systems while maintaining policymaking authority over other issues such as plan certification, insurer participation and fees, marketing, and consumer engagement, according to a recent Commonwealth Fund issue brief co-authored by Kevin Lucia, a research professor and project director at Georgetown University’s Health Policy Institute (HEX 9/4/14, p. 1).

Mark Hall, a professor of law and public health at Wake Forest University, agrees that many FFE states probably would be willing to endorse the federal website as their exchange to ensure that their constituents don’t lose the main benefits of the ACA, and to avoid hurting their existing individual health insurance markets, he adds. Without such a model change, carriers in FFE states would face “a major threat to the sustainability of the individual markets,” Hall says. And that would likely hit local and regional carriers, such as Blue Cross and Blue Shield plans, the hardest. National carriers would have the flexibility to leave nonviable markets, he adds.

Although politics kept many Republican governors from accepting federal money to expand Medicaid, Hall says “the politics of private insurance subsidies for the middle class are distinctly different.” However, the possibility that millions of Americans could lose federal subsidies and health coverage would give Republicans some bargaining power with the White House to accept a congressional fix that includes major revisions to the ACA.

Friday, November 21, 2014

CMS releases new data demonstrating increased choice, competition in the Health Insurance Marketplace in 2015



FOR IMMEDIATE RELEASE                                             Contact: CMS Media Relations

November 14, 2014                                                                            (202) 690-6145 or

CMS releases new data demonstrating increased choice, competition in the Health Insurance Marketplace in 2015

 Open enrollment begins November 15; Consumers should visit to preview their plan choices today

 Continuing its commitment to transparency, today the Centers for Medicare & Medicaid Services (CMS) released new data giving consumers and researchers the tools and information they need to review 2015 health insurance plan information. Because of new choices and more competition in the Health Insurance Marketplace, consumers will have even more affordable options during Open Enrollment this year.  With 25 percent more issuers participating in the Marketplace in 2015, more than 90 percent of consumers will be able to choose from 3 or more issuers – up from 74 percent in 2014. Consumers can choose from an average of 40 health plans for 2015 coverage—up from 31 in 2014, based on data at the county level.    

“When open enrollment begins tomorrow, November 15, many consumers will have even more affordable choices for renewing their coverage and signing up for the first time through the Health Insurance Marketplace,” said CMS Administrator Marilyn Tavenner.  “We are committed to transparency and providing consumers with the information they need to choose the right health plan for them. Today’s data provide further evidence that the Affordable Care Act is working to improve competition and choice among Marketplace plans in 2015. Consumers should shop around, with new options available this year they’re likely to find a better deal.”


The data released today include:


  • Health Insurance Marketplace Landscape Files. CMS is committed to increasing transparency in the Marketplace. While health plan information including benefits, copayments, premiums, and geographic coverage is publically available on through the new window shopping tool, CMS has also released downloadable public use files (PUFs) so that researchers and other public stakeholders can access Marketplace data. These files include available plans by county along with premium and cost-sharing data for selected scenarios and services for the 2015 plan year.  The files provide consumers with a snapshot of the plans available to them as well as basic information associated with each plan.  The premiums shown in the files do not include tax credits and represent selected rating scenarios based on age and household composition – actual premiums may change. The Landscape files include data on certified qualified health plans (QHPs) and Stand-alone Dental Plans (SADPs) for all states that use the eligibility and enrollment system, and for the Federally Facilitated Small Business Health Options Program (SHOP).  There are four types of QHP Landscape files: (1) individual medical marketplace; (2) SHOP medical marketplace; (3) individual dental marketplace; and (4) SHOP dental marketplace.   The files are available here:
  • Health Insurance Marketplace Public Use Files.  These files for the 2015 plan year include detailed information for researchers.  They include data on certified QHP and SADPs for all states that use the eligibility and enrollment system.  The seven files that make up the Marketplace PUF are: (1) Benefits and Cost Sharing, (2) Plan Attributes, (3) Rates, (4) Business Rules, (5) Service Areas, (6) Networks, and (7) the Plan ID Crosswalk. The files are available here:
  • Rate Review. Today, CMS released information on final 2015 rates in the individual and small group markets for plans inside and outside of the Marketplace for all states and the District of Columbia. The information released today does not take into account tax credits that will make premiums more affordable for the majority of consumers. We encourage consumers to visit to browse their coverage options and to see if they are getting the lowest cost possible this open enrollment season. The file is available here: 


Before the Affordable Care Act, people who purchased health insurance plans in the individual health insurance market often saw double-digit rate hikes in their premiums every year. Today’s data show that new, lower-cost plans are available this year and premiums are remaining stable. Many consumers will be eligible for tax credits to help pay monthly premiums and make coverage more affordable. Nearly 85 percent of consumers who selected a Marketplace plan in 2014 did so with financial assistance. Nearly 7 in 10 consumers who selected plans with tax credits through the Federal Marketplace during the 2014 Open Enrollment Period got covered for $100 a month or less. Nearly half – 46 percent - were able to get covered for $50 a month or less.


Open Enrollment in the Marketplace begins November 15, 2014 and runs through February 15, 2015. Consumers should visit to review and compare health plan options. Every year insurance companies make changes to premiums, cost-sharing and benefits, and with more choices available, the vast majority of consumers will be able to find a more affordable option. They could also find a plan that offers more services, or includes more doctors. All consumers shopping for health insurance coverage for 2015— even those who currently have coverage through the Marketplace — should enroll or re-enroll between November 15 and December 15 in order to have coverage effective on January 1, 2015.


It is important to note that the QHP Landscape will be updated regularly to reflect the plan data that consumers will see when shopping for a Marketplace QHP during the annual open enrollment period. Data are presented at the county, rather than rating area-level to better reflect plan service areas and the consumer experience.


To compare plans, prices, covered benefits and physician and hospital networks in your area before open enrollment begins visit:


Consumers can find local help at:

Or call the Federal Marketplace Call Center at 1-800-318-2596. TTY users should call 1-855- 889-4325. Translation services are available. The call is free.


Small businesses and their employees can get help from the toll-free SHOP Marketplace call center at 1-800-706-7893 or for TTY, call 711. The hours are Monday through Friday, 9 a.m. to 7 p.m. EST.

CMS Issues the HHS Notice of Benefit and Payment Parameters for 2016 Proposed Rule



FOR IMMEDIATE RELEASE                                     Contact: CMS Media Relations

November 21, 2014                                                                (202) 690-6145 |


CMS Issues the HHS Notice of Benefit and Payment Parameters for 2016 Proposed Rule 

Stronger payment standards for issuers and Marketplaces proposed


The Centers for Medicare & Medicaid Services (CMS) today issued a notice of proposed rulemaking to improve consumers’ experience in the Health Insurance Marketplace and to ensure their coverage options are affordable and accessible. To establish the new consumer standards for 2016, the proposed rule seeks to implement several Affordable Care Act provisions on payment parameters for issuers and Marketplaces. Today’s proposed rule would build on previously issued standards and provisions, which are making high-quality health insurance available to millions of Americans. The proposed rules for 2016 would further strengthen transparency, accountability, and the availability of information for consumers about their health plans.


“It is one of our many goals to strengthen the integrity of programs that fall under the Affordable Care Act to ensure the delivery of quality care with affordable options,” said CMS Administrator Marilyn Tavenner. “CMS is working to improve the consumer experience and promote accountability, uniformity and transparency in private health insurance.”

Beginning in 2014, premium stabilization programs were established under the Affordable Care Act to ensure price stability for health insurance in the individual and small group markets. Today’s proposed rule clarifies provisions related to the premium stabilization programs and the payment parameters applicable to the 2016 benefit year for these programs, and includes a number of additional consumer protections. Taken together, we believe these policies will ensure that consumers have access to high-quality, affordable health insurance.

The rule takes steps to help consumers keep their premiums low.  Under current rules, consumers who do not take action during the open enrollment window are generally re-enrolled in the same or similar plan they were in the previous year, even if that plan experienced significant premium increases.  Under the proposed rules, we are considering giving consumers the option of being defaulted into a lower cost plan rather than their current plan.

To enhance the transparency of the rate-setting process, the proposed rule includes additional provisions to facilitate public access to information about rate increases in the individual and small group markets for both Qualified Health Plans (QHPs) and non-QHPs using a uniform timeline. It also proposes provisions to further protect against unreasonable rate increases in the individual and small group markets.


The rulemaking also proposes to improve meaningful access standards by requiring that all Marketplaces, QHP issuers, and web-based health insurance brokers provide telephonic interpreter services in at least 150 languages in addition to the existing requirement of providing language services.


To further aid consumers in finding a health plan that best suits their needs, the rule clarifies standards for QHP issuers to publish an up-to-date, accurate, and complete provider directory, including information on which providers are accepting new patients, in a manner that is easily accessible to the general public, including new enrollees, re-enrollees, the state, and the Marketplace. Under these standards, the general public would be able to view all of the current providers for a plan in a provider directory on the plan’s public website through a clearly identifiable link or tab without creating or accessing an account or entering a policy number. This rule proposes that the provider directory be updated at least monthly, and CMS is considering steps to make provider directories available in standard, machine-readable formats.


Additionally, the rule proposes to improve the ability of an enrollee to request access to medications not included on the plan’s formulary by proposing more detailed procedures for the standard exception process, and to add a requirement for an external review of an exception request if the health plan denies the initial request. It also clarifies that cost-sharing for drugs obtained through the exceptions process must count towards the plan’s annual limitation on cost-sharing.


To enhance the consumer experience for the Small Business Health Options Program (SHOP), the rule proposes to streamline the administration of group coverage provided through SHOP and to align SHOP regulations with existing market practices.


Qualified individuals and employers are now able to purchase private health insurance coverage for 2015 through the Health Insurance Marketplaces. Open enrollment for the individual market coverage in 2015 is currently underway, until February 15, 2015, through

The rule also proposes the annual Open Enrollment Period for 2016 and beyond to begin on October 1 and run through December 15 of the year prior to the benefit year.

The proposed rule was placed on display at the Federal Register today, and can be found at:

For more information on today’s proposed rule, please visit,

Today's Datapoint

$400 million is the price Aetna is planning to pay to purchase bswift, an exchange technology platform company.

Quote of the Day

“The U.S. Supreme Court may decide [in King v. Burwell, on the issue of the legality of premium subsidies awarded on the federal exchange,] that bad drafting trumps intent, and given a new majority in Congress with a history of disengagement on meaningful health reform, the prospect of a legislative remedy seems dismal. In that case, more governors and state legislators would face a critical decision: Does one sacrifice constituents’ access to health care in the pursuit of a partisan conflict?”

— William Pewen, Ph.D., who served as senior health policy advisor to former Sen. Olympia Snowe (R-Maine), now an assistant professor of public health and family medicine at Marshall University, told AIS’s Inside Health Insurance Exchanges

3/4 of Nurses Very Positive About Workplace Smartphone Messaging

According to a recent study in the Journal of Hospital Medicine, a communication system based on smartphone messaging assisted with increase efficiency and accountability among nurses and physicians. Below are the findings:

  • 82.8% of medical trainees and 78.3% of the nursing staff said the communication system helped them work through their daily tasks quicker.
  • 67.1% of medical trainees and 73.2% of nurses either agreed or strongly agreed that the communication system made them more accountable in their clinical roles.
  • 35.8% of physicians and 26.3% of nurses said the system was useful for communicating complex issues.
Source: Becker's Health IT & CIO

Thursday, November 20, 2014

Today's Datapoint

11% is the annual rate of growth projected through 2020 for the sale of orphan drugs in the U.S., compared to approximately 4% for drugs that treat larger populations, according to the EvaluatePharma Orphan Drug Report 2014, from Evaluate Ltd.

Quote of the Day

“With WellPoint’s acquisition of Bloom Health a while ago and Cigna’s announcement of their benefits marketplace earlier this year, Aetna was feeling like the odd player out and had a compulsion to quickly get into the private exchange market with a bona fide offering, which is what [Aetna’s purchase of the exchange technology platform bswift] brings them. I do think the jury’s out as to the viability of single-carrier proprietary private exchanges, but these are organizations that have demonstrated the ability to capitalize on other market mega trends and that’s what we’re starting to see relative to private exchanges.”

— Jay Savan, a partner at Mercer LLC, told AIS’s Health Plan Week

Monday, November 17, 2014

8 Considerable Alternatives To Costly ERs

1.    Free or low-cost clinics - Waits can be long but prices make them worth a look

2.    Retail health clinics - Staffed with nurse practitioners licensed to prescribe medications and perform simple medical procedures

3.    Urgent care centers - Staffed by doctors, these facilities treat less severe emergencies that require immediate attention

4.    Nurse helpline - free service from insurance provider can save you the cost of a doctor’s visit

5.    Labs - Many common tests can be obtained without a prescription, or at a lower cash cost than in the office

6.    Chiropractors - Consulting a chiropractor is less costly than seeing an orthopedic doctor

7.    Pharmacists - Ask a pharmacist for a recommendation on what over-the-counter remedy is best for minor ailments

8.    Online physicians - Sites such as MeMD, InteractiveMD and the Online Doctor offer virtual encounters for set prices and at convenient times for patients

Source: Nerdwallet

The average deductible among workers enrolled in a single coverage health plan with a deductible has risen:

  • For all firms, from $584 in 2006 to $1217 in 2014
  • For small firms (between 3 and 199 workers), from $496 in 2006 to $971 in 2014
  • For large firms (at least 200 workers), from $775 in 2006 to $1797 in 2014

Source: "Recent Trends in Employer-Sponsored Insurance," figures, The Journal of the American Medical Association (JAMA), November 12, 2014,

Today's Datapoint

$1.7 trillion could be saved over 10 years by placing states in charge of their own accountable care programs, the progressive policy group Center for American Progress said in a new report “Accountable Care States: The Future of health Care Cost Control.”

Hispanics Have Higher Tendency To Seek Lower Cost Vs. Quality

According to a recent report from the Health Research Institute:

  • 46% of hispanics value cost over quality when making decisions about care.
  • 35% of non-hispanics value cost over quality when making decisions about care.
  • 35% of hispanics value quality over cost when making decisions about care.
  • 52% of non-hispanics value quality over cost when making decisions about care.
  • 57% of hispanics often seek care in retail clinics. (at least once per year)
  • 45% of non-hispanics often seek care in retail clinics. (at least once per year)
  • 29% of hispanics often seek care in retail clinics. (2-5 times per year)
  • 18% of non-hispanics often seek care in retail clinics. (2-5 times per year)
Source: PwC Health

According to a recent analysis of Medicare data from between 2008 and 2011

researchers found that one extra day in the hospital:

  • Reduced mortality risk for patients treated for pneumonia by 22%
  • Reduced mortality risk for heart attack patients by 7%
  • Reduced readmissions for severe heart failure patients by 7%
  • Saved five-to-six times more lives compared with outpatient care

Source: "ONE EXTRA DAY IN THE HOSPITAL CUTS READMISSION RATES AND REDUCES PATIENT DEATHS," Columbia Business School Press Release, October 28, 2014,  

Friday, November 14, 2014

Quote of the Day

“While we support clinical integration arrangements that offer [hospitals a chance to share resources, facilities and knowledge], we do not support hospital affiliation arrangements that provide for joint fee negotiation. Joint negotiation of fees is not required for such collaboration, nor is it ultimately in the consumer’s best interest in terms of holding down the growth of health care costs.”

— Michael Deering, a spokesperson for Blue Cross and Blue Shield of Illinois, told AIS’s ACO Business News.

Thursday, November 13, 2014

Non-Profit Blues Plans Face Big Hurdles in Post-ACA World: Report

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.

By Steve Davis, Managing Editor

November 3, 2014 Volume 24 Issue 38

A new analysis by Deloitte LP warns that single-state, non-profit and mutual Blue Cross and Blue Shield plans may be missing out on vital business opportunities because of the expectations of state regulators and their decades-old status as legacy health insurance providers. Despite these Blues plans’ current strengths in garnering market share, building their brand and selling coverage to all levels of the marketplace, the future is less secure with the advent of Affordable Care Act (ACA) reforms, like guaranteed issue and creation of public exchanges, the report says.

Other market consultants agree with many of the report’s findings, but question whether single-state Blues plans are even competing in the same space as major carriers, and say the unique status Blues plans enjoy in their home states gives them ample opportunities even as non-profit or mutual entities.

Deloitte’s Bill Copeland, vice chairman and U.S. life sciences and health care leader, contends that the limitations on most single-state Blues plans are immense, given their inability to sell stock to raise the capital needed to make changes necessary to attract new members (see table, below). For instance, the report found that the “Big Five” publicly traded insurers (Aetna Inc., Cigna Corp., Humana Inc., UnitedHealth Group and WellPoint, Inc.) spend on average nearly six times more on capital expenditures than do single-state Blues plans.

To compete, Blues plans, like other carriers, need to make big investments in areas such as information systems and customer analytics to transform their organizations into more retail-like enterprises. The report also stresses that these Blues insurers are also typically more regulated by states on how they can spend funds, and their boards must have community representation, which could hurt in attempting major business-oriented overhauls.

The Deloitte report, “Escaping Rapunzel’s Tower: How Single-State Blue Cross Blue Shield Health Plans Can Build Scale and Meet New Capability Demands,” also includes interviews with former state insurance commissioners who discuss alternatives for the carriers in seeking new pathways to capital flows, which include conversion to a for-profit enterprise, engaging in mergers and acquisitions, and forming a holding company. The models for some of these alternatives include Health Care Service Corp., the holding company for Blues plans in Illinois, Montana, New Mexico, Oklahoma and Texas, and WellPoint, which was born in 2004 through a merger with Anthem, Inc.

Copeland says commissioners think it is probably time “to rethink the right way to do this.” The mission of non-profit Blues remains important, but the need to evolve is also apparent. But shifts can be complicated. Suppose a non-profit Blues plan forms a holding company, divided into one part for the regulated, licensed insurance business and one part for the non-regulated, diversified services side. “Because insurance commissioners have no direct hand in it, they don’t like that much because they still want to have oversight over reserves,” he says.

Blues Plans Are Weighing Changes

Some single-state Blues plans have shifted with the market in recent years. Last year, for instance, Michigan Gov. Rick Snyder (R) signed legislation that changes the way Blue Cross Blue Shield of Michigan operates, including provisions to end the plan’s tax-exempt status and let it become a mutual entity to better function in the state’s health insurance market (HPW 3/25/13, p. 8).

But that step in Michigan did not go as far as some of the suggested options in the Deloitte report, and one consultant says such large-scale changes are troublesome. William DeMarco, principal at Rockford, Ill.-based Pendulum HealthCare Development Corp., tells HPW that a single-state Blues consolidation “gives them temporary cover, but builds a bigger problem in terms of vulnerability to losing larger regional and national accounts and flips the original not-for-profit mission on its head.”

And Rosemarie Day, president of Day Health Strategies, based in Massachusetts, tells HPW that in states like hers, with a dominant Blues plan, there is the question of why would they want to change their status. “I think about Medicaid managed care organizations that are often even smaller. They may serve a region and not even a whole state. And so if you compare to them, single-state Blues plans are so well off and well-resourced and can do investments that these other, smaller organization can barely dream of,” she says.

Joe Marinucci, a director with the Insurance Ratings group at Standard & Poor’s Financial Services LLC, a division of McGraw-Hill Financial, tells HPW the idea of insurers needing to change their business model to account for marketplace shifts “has been required for some time” and across the entire spectrum of the insurance sector. “You can kind of look back at what has been done in the past and you see various forms of affiliation. It is not a new argument,” he says, pointing as an example to Highmark Inc. and its acquisition of West Penn Allegheny Health System (now called Allegheny Health Network) in April 2013

An Emerging Consensus: Medicare Advantage Is Working And Can Deliver Meaningful Reform

November 6th, 2014

of the Affordable Care Act (ACA) in 2010, much of the attention in the policy community has been on modernizing Medicare’s traditional fee-for-service (FFS) program.  Through Accountable Care Organizations (ACOs), larger “bundles” of payments to fee-for-service providers for episodes of care, and tests of pay-for-performance models, the hope is that the traditional Medicare model can be remade through sheer force of bureaucratic will.  The stated intent is to find a way to pay for value, not volume.

These efforts may or may not bear much fruit, but, over the longer term, it’s not likely to matter much.  That’s because a more important transformation of Medicare is already well underway and is occurring despite more resistance than assistance from the program’s bureaucracy.  According to the 2014 Medicare Trustees’ report, enrollment in Medicare Advantage – the private plan option in Medicare — has been surging for a decade.  In 2005 there were 5.8 million Medicare beneficiaries enrolled in MA plans — 13.6 percent of total enrollment in the program.  Today, there are 16.2 million beneficiaries in MA plans, or 30 percent of program enrollment. (See Table IV.C1)  In addition, the Medicare drug benefit, which constitutes about 12 percent of total program spending, is delivered entirely through private plans. (See Table II.B1)

As MA enrollment has surged, so has recognition of its improved value.  A recent, comprehensive review of the evidence conducted by Joseph Newhouse and Thomas McGuire of Harvard University makes a compelling case that MA plans are providing higher value services at less societal cost than the traditional FFS program.  Based on their findings, Newhouse and McGuire argue for policies that would provide incentives for even more beneficiaries to enroll in MA plans in the future.

The Newhouse-McGuire study is part of a notable transformation in views on the MA program.  For many years, private plans were heavily criticized for costing too much while providing little additional value to beneficiaries. But those criticisms are now beginning to recede as the evidence mounts that MA plans can deliver more efficient and higher quality care than FFS.  And as valid criticisms fade in relevance so too do the arguments against using MA as a foundation for a larger reform of the Medicare program.

The Relative Efficiency of MA Plans

There has been a long-running debate about the relative costs of MA plans compared to traditional FFS.  That debate has often confused what Medicare pays MA plans with whether or not MA plans can deliver the same level of Medicare benefits less expensively than traditional FFS.  A growing number of studies confirm that, in general, MA plans can operate more efficiently than FFS (and sometimes much more efficiently), even if the government’s payments to MA plans on behalf of the beneficiaries often exceed what would be spent if the beneficiaries were enrolled in FFS.

Recent data compiled by the Medicare Payment Advisory Commission (MedPAC) confirms the relative efficiency of MA plans compared to FFS.  In 2014, MA plans of all types submitted premium bids to the Centers for Medicare and Medicaid Services (CMS) that came in at 98 percent of FFS costs.  In other words, MA plans are able to provide the Medicare benefit package, as defined in the statute, for two percent less than what it costs FFS.  When only MA HMOs are examined, the cost savings is 5 percent. (See Chart 9-6 and Table 1 below)


Of course, Medicare pays the MA plans based on benchmarks, which are set at levels that are generally above the MA bids.  Since 2004, MA plans have been paid what they bid, plus 75 percent of the difference between what they bid and the benchmarks – if their bid is below the applicable benchmark. If a plan bids above its benchmark amount, the beneficiaries are required to pay the additional premium to make up the difference. More recently, this split in the share of the difference received by lower-bidding plans has been adjusted in the ACA based on quality ratings assigned to MA plans (See page 329); beginning in 2014, the rebated amount will be between 50 percent and 70 percent of this difference, with the highest rated plans receiving a 70 percent rebate.  MA plans are also required to return the added payment above the bids to the beneficiaries, either in the form of benefits that go beyond what is required in Medicare law or through lower cost-sharing requirements, such as reduced premiums, deductibles, or copayments.

The relative efficiency of MA plans is highlighted in several recent assessments of the Medicare premium support model that find it would reduce program costs, and could reduce most beneficiaries’ premiums as well.  (Various premium support reform proposals would create direct competition between MA plans and FFS by setting the government’s contribution toward coverage based on their respective bids and requiring the beneficiaries to pay higher premiums for more expensive coverage.)  For example, the Congressional Budget Office (CBO) estimates that MA plans, even without a change in law, will be able to outperform FFS in 2020, with average bids that are 6 percent lower than average FFS spending.

CBO expects MA plan bids to fall by an additional 4 percent under a switch to a premium support model, due in part to the intensified competition the reform would bring about. (See pages 36-37)  The CBO analysis projects that MA plan bids will be an additional four percent below the average FFS spending for a beneficiary in 2020 — under either an average-bid or second-lowest bid option for premium support.

The growing differential between MA plan costs and FFS would result in program-wide cost reductions that could be shared with Medicare’s beneficiaries.  CBO expects that a premium support plan which specifies that the government’s contribution will be tied to the weighted average bid in a region, would cut Medicare spending by about 4 percent and beneficiary spending on health expenses by about 6 percent.

CBO’s findings are echoed in other assessments of the premium support model, including assessments by those generally critical of the concept.  Zirui Song, David Cutler, and Michael Chernew wrote an assessment of a similar Medicare reform plan in 2012 that argued that premium support would result in higher premiums in FFS, and thus would be harmful to beneficiaries.  That assessment, though critical, was also based on the assumption that MA plans would, in many parts of the country, provide the Medicare benefit package at costs well below FFS.  Specifically, the authors of this study estimated that the second-lowest MA plan bid in a region would, on average, be about 9 percent below FFS costs.  Consequently, beneficiaries who elected to stay in the more expensive FFS option would pay more.

The study presumed that many millions of beneficiaries would be resistant to switching out of FFS, even if staying in FFS costs them much more each month in premiums, but that appears to stretch the limits of plausibility. More importantly, this study supports the conclusion that, in many parts of the country, MA plans will be able to bid far below projected FFS costs.

The Spillover Benefits of MA Enrollment

The positive impact of private plans is not limited just to what is delivered to MA plan enrollees.  Several studies continue to show that higher MA enrollment in a community is beneficial for all Medicare beneficiaries, including the non-MA participants.

A 2008 study by Michael Chernew, Philip DeCicca, and Robert Town found that, for every 1 percent increase in MA enrollment in a community, there was a corresponding 0.9 percent reduction in FFS spending per enrollee.  Another study in 2013 by Katherine Baicker, Michael Chernew, and Jacob Robbins found that when MA penetration rates rose in a county, costs per hospital admission and average lengths of stay fell system-wide, including a spillover reduction in FFS hospital costs and treatment intensity.

The implication of these studies is that higher MA plan penetration has a positive effect on the practice patterns among the physicians participating in the MA plan, as well as the hospitals with which they work, and that these physicians carry these improved practice patterns over into their care for FFS enrollees as well.

Minimizing Risk Selection

Newhouse and McGuire devote significant attention to the question of risk adjustment. For many years, critics of private-plan risk contracting in Medicare have argued, with some evidence, that the private plans benefitted from favorable selection and a rudimentary risk adjustment methodology.  Until 2000, payments to the private plans were only adjusted based on the age, sex, and the eligibility categories of the beneficiaries, not their underlying health conditions.

Beginning that year, however, CMS administrators started to phase in additional payment adjustments to MA plans based on inpatient diagnoses discernible from FFS claims data and MA plans’ “encounter” data.  In 2004, CMS introduced a more comprehensive risk-adjustment model based on physician and outpatient claims data from the FFS population as well.  Since 2007, risk scores for MA plans have been based entirely on this model.  These scores are used to adjust the government’s capitated “benchmark” payments to MA plans to reflect the risk scores of their enrollees.

In addition, legislative amendments enacted in 2003 have phased in a “lock in” feature for MA plans that limits the ability of beneficiaries to disenroll between annual open enrollment seasons.  (Previously, beneficiaries could disenroll from MA plans on a monthly basis, and move back and forth between FFS and MA as often as they wished.)  Having reviewed the most recent data, Newhouse and McGuire conclude that these two features of current MA policy have greatly reduced favorable risk selection for the participating private plans, to the point where accusations of skewed selection are no longer a strong argument against the efficacy of the program.

A 2011 study by Jason Brown, Mark Duggan, Ilyana Kuziemko, and William Woolston challenges this conclusion by contending that risk selection has now moved from avoiding those with expensive health conditions to finding the least costly patients within a risk adjustment category.  In other words, their study suggests that the private plans have ways of finding the least costly diabetic among those who get coded with diabetes in the new risk adjustment system. Those enrollees would appear to be cheaper to care for than their official risk scores predict.

The authors estimate that the amount by which MA private plans were paid above the cost of covering them directly through FFS — so-called “differential payments” — increased after risk adjustment and totaled $30 billion (almost eight percent of total Medicare expenditures) in 2006.

Newhouse and McGuire (See pages 373-375) make a couple of points to refute this argument.  First, they conducted their own analysis and found that the distribution of high-cost and low-cost cases within a risk adjustment code had not changed substantially from the years preceding introduction of the new inpatient-and-outpatient-diagnosis-based risk adjustment method.  In fact, the amount of risk bias favoring the plans had fallen, rather than risen.  Therefore, whatever is happening is not the result of adjustments in plan behavior since introduction of the new method.

In addition, they note that there is no evidence of favorable selection at all across the risk adjustment coding system, such as from Medicare beneficiaries with cancer to those with diabetes.  They point out that it would be far more profitable for an insurance plan to employ methods to skew their enrollment in this way than to try and find the least costly patients within a diagnosis code. And yet there is no evidence this is happening.

There are also more benign explanations for within-diagnosis risk selection.  Some beneficiaries in MA plans may disenroll temporarily in order to get a procedure done out of their MA plan network.  It is also possible, and perhaps likely, that the MA plans are more aggressively and efficiently managing the care of their more expensive cases, and that is showing up as “risk selection” in after-the-fact analyses that assume FFS and MA are no different in this regard. The Brown et al. model assumes away the possibility that MA plans might be better at controlling costs than FFS; nor does it account for the effects of insurers identifying the enrollees for whom their managed care practices would be particularly effective at reducing costs below FFS.

The stylized approach by Brown et al. only looks at beneficiaries switching between FFS and MA, but not enrollees choosing MA in their initial year of Medicare eligibility. However, in more recent years, younger Medicare beneficiaries are more likely than older ones to enroll in MA plansThey also appear to be coming at random from the entire risk distribution. (See page 379)  Not surprisingly, any efforts by MA plans to selectively enroll the healthiest beneficiaries will become increasingly difficult as their larger plan populations grow inherently more representative of all Medicare eligibles.

In its assessment of the “premium support” reform model, CBO notes that MA plans would be able to bid well below FFS costs in many counties around the country, and that improved efficiency among MA plans in a more intensively competitive environment would be one of the reasons for the lower private plan bids.  The agency states that the lower bids would also be due to some additional selection bias – that is, the risk adjustment methodology would not fully correct for the healthier enrollees that MA plans would attract in a direct competition with FFS.  But CBO does not provide a precise estimate of what it expects the additional selection bias to be, so it is possible that the estimated effect is small.

Moreover, under premium support, MA enrollment would increase to an even larger percentage of total program participation, thus making it more difficult for MA plans to serve a beneficiary population that is atypical of the Medicare population in general.  In addition, there is no reason to believe that the substantial progress that has been made in recent years in reducing selection bias in the MA program, through policy changes as well as better data, would halt if the program moved toward the premium support model.

Higher Value Services in MA Plans

In the past, MA plans and their predecessors were often dismissed for not providing any added value for the beneficiaries.  This was always more of an assertion than a proven fact, given the paucity of clear quality comparisons between MA and FFS.  Indeed, one of the great ironies of the MA-FFS debate is that it is far easier to secure measures of quality for plans with organized networks of providers than it is from the unaffiliated and disorganized providers receiving FFS payments.  Moreover, given the documented benefits of well-organized and integrated systems, there was never a very good empirical basis to assume that the beneficiaries were better off in FFS than MA.

In fact, more evidence has begun to emerge in recent years indicating that MA plans can and do provide higher quality care than FFS in many instances.  A 2013 study in Health Affairs found that MA HMOs outperformed FFS on breast cancer screening, diabetic care, and cholesterol testing for heart disease.  A separate study, in the American Journal of Managed Care, found that MA plans have hospital readmission rates that are 13 to 20 percent below those of FFS.

Several recent studies have attempted to debunk the value of MA plans to beneficiaries by arguing that the plans have failed to pass through to the beneficiaries a sufficient amount of the payments that are made to them above their bid amounts.  For example, a 2014 study by Mark Duggan, Amanda Starc, and Boris Vabson claims that only about one-fifth of the additional payments provided to MA plans find their way to the enrollees in the form of “better coverage.”  The implication is that a larger share accrues to private insurers in the form of higher profits and possibly a large increase in advertising expenditures to attract MA enrollees.

The study relies on a 2001 Medicare payment policy change that raised the minimum payment floor in larger urban counties. It focuses on the effects of those payment hikes during the 2007-2011 period. The study uses a process of elimination (little evidence of much lower premiums, substantial additional medical benefits, higher MA plan ratings, greater utilization of services, better health outcomes, changes in beneficiary selection) to imply that only a small share of the increased payment levels were passed on to consumers.

This study draws a broad policy conclusion — that MA plans are not providing substantial additional services to their enrollees for the higher payments they are receiving — based on an inexact methodology and questionable assumptions.  More importantly, the premise is flawed.  Even if accurate, the study is only a critique of payment adjustments that were made for certain counties (low-cost urban areas) for political reasons.  There is no basis to connect this with the dynamics of a genuine premium support approach based on competitive bidding among all Medicare options, including MA plans and FFS.

Another 2012 study by Zirui Song, Mary Beth Landrum, and Michael Chernew similarly purports to demonstrate the limited benefits to consumers from competitive bidding and competition in Medicare.  It finds that a $1 increase in Medicare’s payment to private HMO plans led to a 49 cent increase in plan bids, with 34 cents going to beneficiaries in the form of extra benefits or lower cost sharing.  It adopts the rather unrealistic assumption that MA plans in a “simple” model of competition should not raise their bids when Medicare raises its payments to those plans, but instead should transfer the bulk of those extra payment amounts into expanded benefits for the plans’ enrollees.

The study uses a rebasing of MA benchmark payments in 2007 and 2009 as an experiment in changes in levels of benchmark reimbursement for plans that were largely uncorrelated with changes in their underlying costs in any specific county.  Its analysis is limited to MA local plans, does not include employer plans or special needs plans, involved data from 2006 to 2010, and does not observe actual plan costs. It could not observe the impact of more recent Medicare payment changes.

While claiming to show the limited value of MA plans to consumers, what the unremarkable study actually shows is that competition in the Medicare market is not perfectly competitive under current rules and that bidding systems in which administratively determined benchmarks are known in advance are less effective than competitively determined benchmarks at revealing true costs.  Administratively-determined benchmarks may even lead to higher provider fees. The authors acknowledge that administratively set prices have their own flaws, including political manipulation that may lead either to excessive spending or less access to care. This study, like the earlier one by Duggan et al., failed to address how a Medicare premium support reform based on competitive bidding across a level playing field for all Medicare options would actually perform.

A third study in 2009 by Steven Pizer, Austin Frakt, and Roger Feldman confirms this point.  It is sometimes cited for the proposition that MA plans return little value to consumers when they receive higher payments from the Medicare program.  But, among other things, the study found that the Medicare drug benefit structure for paying private plans was far more effective than the MA program in terms of delivering value to customers.  The authors estimate that the drug benefit produced nine times as much value per government dollar for the beneficiaries compared to an increase in payments to MA HMOs. Why?  Because the authors conclude that the solution is to more closely tie MA payments to “competitive bids,” rather than to administratively determined benchmark rates.

Improving Competition Between MA and FFS

The Newhouse and McGuire assessment of the state of MA policy is particularly interesting in its look at the playing field for MA-FFS competition.

For starters, they make it clear that default options matter.  Under current policy, if beneficiaries make no overt choices, then they are presumed to select FFS.  Further, like many other markets, Medicare displays “status quo” selection bias.  That is, once a beneficiary is in a plan, he or she tends to stay there, even when switching would make sense.  So the current system, with FFS as default coverage, is biased toward more FFS enrollment.

A possible remedy would be to change Medicare’s default rules.  For newly eligible beneficiaries who do not make an overt selection of coverage, the Medicare program could provide random assignment among MA plan options instead of automatically placing them in FFS.  To minimize undue financial hardship and unexpected surprises, those default options might be limited to the two low-cost Medicare plan options (under one version of competitive bidding) or to those plans with bids equal to or less than the average enrollment-weighted bid in a particular county (under another version of competitive bidding).  This change would not apply to current enrollees in FFS.

Newhouse and McGuire also make it clear that the current bidding system is flawed and needs improvement. All beneficiaries, including those in MA plans, must pay the Medicare part B premium, which is generally withheld from the amounts otherwise due to the beneficiaries in their Social Security checks.  MA plans are permitted to provide premium rebates to the beneficiaries as a way of attracting enrollment, but current policy requires those rebates to come in the form of adjusting the part B premium withheld from Social Security checks.  This is a very non-transparent way of encouraging direct price competition between FFS and MA because a beneficiary choosing a plan offering a rebate would not see the change in any bill they owe to the MA plan.  The adjustment would come in form of an adjustment to their net Social Security benefit, which is indirect and less visible.  The result is that very few MA plans compete with FFS in this way; instead, they charge no premium above the part B premium and then give away whatever else they can in the form of expanded benefits, including adjustments in deductibles and other copayments.

This limitation of the current, flawed price competition between MA and FFS can also be seen from the perspective of what the beneficiaries must pay to remain in FFS.  Under current law, the premium for FFS is always the uniform, national part B premium, regardless of the relative cost of FFS to the available MA plans in the region.

The solution is to ensure clear, transparent price competition between MA and FFS that is visible and tangible for the beneficiaries during annual open enrollment seasons.  The most straightforward approach would be to base the government’s contribution toward coverage on the average, enrollment-weighted bid in a region, with measured FFS costs included in the calculation.  Under this approach, the government’s contribution toward coverage in a region would be the total, weighted-average bid less the part B premium that beneficiaries would pay under current rules for their FFS coverage.  Beneficiaries would pay the entire additional premium for plans that cost more than the weighted-average bid, and they would get to keep 100 percent of the savings for enrolling in plans with below average premiums.

The government’s benchmark could also be set based on a lower-cost option, such as the second-lowest bid in a region.  Setting the government’s contribution in this way would likely put even more downward pressure on bids from MA plans, and thus reduce total costs even more than a reform based on weighted-average bids.  The downside of this approach is that it could be more volatile because one or two plan bids could substantially alter the benchmark, even if the plans making the bids had low enrollment.  Basing the government’s contribution on the weighted-average bid in an area (at least during the initial years of implementing a premium support reform) ensures payments are closely tied to the actual cost experiences of the most popular plans.

Importantly, in any reform plan based on competitive bidding, the premium owed by the beneficiaries should be paid separate and apart from their Social Security checks.  Under this approach, if FFS was an above-average cost plan, the beneficiary would owe the additional premium, and it would be visible.  MA plans should also be required to offer to the beneficiaries a plan with an actuarial value equivalent to the statutory benefit.  Added benefits would be offered in supplemental coverage, for an added premium.  (Separating bids and premiums for standard Medicare benefits from supplemental coverage was originally recommended by the National Bipartisan Commission on the Future of Medicare.)

Other concerns about the impact of such Medicare payment reforms on more vulnerable beneficiaries can be addressed by additional premium support subsidies for low-income individuals and enhanced navigational support services for those who may have difficulty making plan choices without assistance.


The success of Medicare Advantage in recent years is changing the conversation on Medicare reform.  It is now possible to envision genuine bipartisan support for fair competition between MA plans and FFS.  The “premium support” concept still engenders highly politicized opposition in some quarters.  But support for the idea has also begun to cross ideological divides.  At various points, Senator Ron Wyden (D-Oregon), former Clinton administration budget director Alice Rivlin, and Austin Frakt of Boston University (and prolific defender of the ACA) have all embraced the idea.  Unlike others, they support the idea that a truly level playing field for MA-FFS competition requires full FFS participation in the bidding process and transparent beneficiary choices based on the resulting premiums that must be charged for coverage.

Serious Medicare reformers on both sides of the political aisle also increasingly recognize that private plans are far more flexible than FFS, and that is a major advantage.  They can adapt and improve their networks, their care management protocols, their customer support systems, and other features of their plans far more rapidly than can FFS.  Moreover, in premium support, Medicare’s beneficiaries get to choose the kind of coverage that suits their needs.  This is in stark contrast to other reforms, like ACOs, which attempt to place beneficiaries in new delivery models without their full consent.

Premium support is of course a complex reform.  It requires risk adjustment of payments and regulation of plans to ensure fair competition.  But the risk adjustment system and the regulation need not be perfect for the reform to work; indeed, the system already in place today for MA plans should provide sufficient confidence that a competitive reform model would be beneficial for the program’s participants.

The main obstacle to more intensive competition in Medicare has been distrust.  MA advocates believe the bureaucracy will tilt the playing field toward FFS; and FFS defenders believe private plans will find new ways to risk select and game the system or to influence policymakers to provide them with overly generous terms on their payment rates.   Only a more transparent competitive bidding system between MA and FFS has a chance of overcoming this mutual distrust and ensuring that both beneficiaries and taxpayers receive the most value for each Medicare dollar.