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From January through March of each year, Medicare beneficiaries have an Open Enrollment Period (OEP) during which they may enroll in, disenroll from, or change Medicare Advantage (MA) plans.  MA plans are free to engage in marketing activities during the OEP and, in previous years, many marketing violations occurred during this time frame.[1]  Beneficiaries are urged to act with caution before making changes in how they receive their Medicare coverage.

Reports issued by the Government Accountability Office (GAO) in 2008 indicate that beneficiaries should exercise particular care about enrolling in Medicare Advantage Private Fee-for-Service (PFFS) plans.[2]  These plans enrolled one-fifth of all beneficiaries who were enrolled in an MA plan as of June 2008.  They account for 45% of the growth in MA plan enrollment since the enactment of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).  Nevertheless, the GAO reports that beneficiaries who enroll in PFFS plans may face substantial financial risks and experience high rates of dissatisfaction.[3]

PFFS Plan Enrollees

In its December 2008 report about PFFS plans, the GAO described a snapshot of the characteristics of PFFS enrollees as compared to enrollees in other MA plans[4] as of April 2007.  Because rural beneficiaries generally do not have access to the other MA options available to beneficiaries in urban areas, PFFS plan enrollees were more likely to reside in rural areas (14 %) than beneficiaries in other MA plans (1%).  They also were more likely to have been enrolled in traditional Medicare before enrolling in a PFFS plan (81% compared to 65%).

Significantly, in the 2007 snapshot, PFFS enrollees tended to be younger than those in other MA plans.  PFFS plans had fewer enrollees who are aged 85 years and older than did other MA options or the traditional Medicare program.  As a result, PFFS plans enrolled a healthier population with lower projected health care expenditures.  The GAO reported that health care expenditures for PFFS plan enrollees were seven percent less than expenditures for other MA plan enrollees and ten percent less than expenditures for beneficiaries in traditional Medicare.[5]  These factors may help account for the fact that PFFS plans are overpaid more than most other types of MA plans.[6]

Financial Risks to PFFS Plan Enrollees

In the same December report, the GAO found that PFFS plan enrollees face increased financial risks that other beneficiaries do not face.[7] If they or their providers did not obtain an advance coverage determination as to whether a service would be covered and how much the beneficiary would have to pay, the beneficiary could be responsible for the full cost of the service if the plan determined that a Medicare-covered service was not medically necessary.[8] The burden to request an advance determination of coverage falls on the enrollee, and requesting such a determination is optional for enrollees.  The Medicare statute requires that notice of anticipated cost-sharing be provided for hospital services and gives the Secretary of the Department of Health and Human Services the discretion to require advance notice for other services identified as possibly requiring substantial cost-sharing.  CMS guidance, however, only requires that notice be provided in the hospital setting.[9]

Traditional Medicare operates quite differently.  Under traditional Medicare, a beneficiary may be absolved from liability if s/he did not know or should not have known that the item or service would not be covered, even if the provider was aware or should have been aware of the non-coverage.[10]  Beneficiaries are presumed to know that a service is not covered if they receive an Advance Beneficiary Notice (ABN) from the provider explaining that they will be liable if Medicare determined that the service was not medically necessary.   Unlike with PFFS plans, however, the beneficiary does not have to request the notice. It is the obligation of the provider to give the beneficiary the ABN if the provider believes the service will not be covered. If the provider does not give the beneficiary the ABN, the beneficiary is not liable to pay for the service.

The GAO identified a second issue of increased liability for PFFS enrollees. Some PFFS plans require their enrollees to pay higher cost-sharing if they do not comply with pre-notification requirements.  Plans may require their enrollees to notify them before hospital stays, before obtaining inpatient mental health services, before obtaining SNF services, and/or before obtaining durable medical equipment (DME).  The GAO gave as examples plans that increased cost-sharing from thirty percent to seventy percent for DME and prosthetic devices that cost more than $750, or increased cost sharing up to $50 per day for inpatient mental health stays or for hospitalizations.[11]

Note, also, that even when PFFS plans do not increase cost-sharing for failure to pre-notify the plan, the standard PFFS cost-sharing may exceed that of traditional Medicare.  In the above example, the 30-70% cost-sharing for DME in PFFS plans is greater than the 20% cost-sharing for DME in traditional Medicare.   The GAO reported in February 2008 that beneficiaries in Medicare Advantage plans paid more for certain services than they would have had they remained in traditional Medicare.[12]  Such services included home health services, inpatient mental health services, inpatient hospital services, and skilled nursing facility services.

High Disenrollment Rates[13]

The December 2008 report compared disenrollment rates from PFFS plans with disenrollment rates from all Medicare Advantage plans for the period January through April 2007. The GAO found that PFFS plans, on average, had disenrollment rates that were more than twice the rate of other MA plans; 21% compared to 9%.  Rates ranged from about 4% to about 59%, with 19% of enrollees in plans that had disenrollment rates of 30% or more.  The GAO said that disenrollment rates could reflect differences in beneficiary satisfaction with care, service, and out-of-pocket costs. Another factor, not mentioned by the GAO, could have been fraudulent marketing practices by some PFFS plans that resulted in the unintended enrollment of some beneficiaries.[14]

As with people who disenroll from all Medicare Advantage plans, those who disenroll from PFFS plans tend to be sicker than beneficiaries who remain in the MA plan. Health care expenditures for MA plan dis-enrollees tend to be higher than projected expenditures for those who remain in their health plan.  However, the differential in health care expenditures for PFFS dis-enrollees was estimated to be twice as high as the expenditures for dis-enrollees from other MA plans (6% compared to 3% differential).  Unlike other MA plans, there is a correlation between age and disenrollment from PPFS plans.  People age 85 and older disenrolled at a rate of about twenty-five percent, higher than for other age groups.[15]

Additional Issues

Other GAO reports draw into question the value provided to beneficiaries by PFFS plans. Overall, PFFS plans tend to spend less of their revenues on actual medical care or extra health benefits for enrollees than other MA plans.

MA plans receive Medicare payments based on their projected expenditures.  The amount of extra benefits or cost-sharing reductions they are required to provide to their enrollees is also determined by these projections. The GAO issued another report in December 2008 that found, on average, MA plans reported lower expenditures on medical expenses and higher profits for 2005 and 2006 than they had originally projected.  Specifically, in 2006, profits averaged 6.6% of total revenue, rather than the 4.1% the plans had projected.  While actual profits were closer to projected profits for 2006 than for 2005, the dollar amount difference between actual and real profits increased in 2006 as a result of increased MA plan enrollment. Thus, if plan projections had been more accurate, Medicare expenditures for MA plans might have been reduced, and/or plans might have had to provide beneficiaries with additional benefits or reductions in cost-sharing.[16]

The profit margins reported by PFFS plans were smaller than those of HMOs and PPOs.  However, PFFS plans also reported spending one-third more of their revenue on non-medical expenses (15.6%) than HMOs (9.4%) and PPOs (10.5%). Actual non-medical expenses for PFFS plans were 50% more than the plans had originally projected.[17]  Again, aggressive marketing may account for the difference. The GAO report from February 2008 found that PFFS plans allocate more of their revenue towards marketing and sales than other plans, 3.6% for PFFS plans vs. 2.0% for HMOs and PPOs.[18]

In its February report, the GAO looked at out-of-pocket expenses in MA plans and compared how plans allocated the rebates they received to beneficiaries.[19] PFFS plans provided fewer extra benefits with their rebate dollars than other MA plans. Although both PFFS plans and PPOs allocated, on average, the same percentage of their rebate dollars to reductions in cost-sharing, PPFS plans projected that the reduction would cost $10 more per enrollee per month than PPOs.[20] PFFS plans were more likely to include a cap on out-of-pocket spending; however, their caps tended to be higher than the caps in other types of MA plans.[21]

The GAO reports did not discuss in detail one of the biggest problems with PFFS plans, access to providers.  PFFS plans are currently not required to have a network of providers, though they may have providers with whom they enter into a contract to provide services.  Providers may be deemed to have a contract with the PFFS plan if they treat a beneficiary who is enrolled in the plan and if they have a reasonable opportunity to obtain the terms and conditions of the PFFS plan.  Most importantly, providers can decide on a patient-by-patient and service-by-service basis whether they will accept the plan.  The December GAO report referenced the fact that access to providers may be more limited for PFFS plan enrollees than if they had remained in traditional Medicare.[22]

Conclusion

Beneficiaries should consider carefully whether they want to enroll in any Medicare Advantage plan during the Open Enrollment Period, but they should be extra vigilant about PFFS plans. PFFS plans are overpaid even more than most other MA plans, yet they spend more money on non-medical services, including marketing, provide fewer extra benefits than other plans, and expose their enrollees to financial liability to which they otherwise may not be exposed.  In addition, provider access may be limited. The GAO reports call into question whether these plans provide any value to the people they entice to enroll.