- Analysis Provides Options for Containing the Cost of a New Medicare Dental, Hearing, and Vision Benefit
- Health Affairs Blog Highlight How the Medicare “Money Machine” Draws Medicare Advantage Plans and Investors into Direct Contracting Demonstrations
- Report: COVID-related Death Rates in Nursing Homes Spike Due to Delta Surge
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Analysis Provides Options for Containing the Cost of a New Medicare Dental, Hearing, and Vision Benefit
The USC-Brookings Schaeffer Initiative for Health Policy recently posted an analysis entitled Options for containing the cost of a new Medicare dental, hearing, and vision benefit by Matthew Fiedler, Ph.D. (September 2021).
Noting the potential cost of adding dental, hearing and vision coverage to Medicare, as Congress is currently considering doing as part a potentially historic reconciliation package, Dr. Fiedler’s analysis outlines “two ways that policymakers could reduce the cost of adding this new coverage to Medicare without reducing the generosity of that coverage.” He also outlines a combination of both approaches. Each approach is briefly outlined below.
Option 1: Exclude new benefit from MA benchmarks
Dr. Fiedler proposes to exclude
what traditional Medicare spends on the new benefits from the “benchmarks” that Medicare uses to determine payment rates for private Medicare Advantage (MA) plans. I estimate that this step would reduce the fiscal cost of introducing a benefit similar to the one in the 2019 House bill by 41% [the 2019 bill is H.R. 3, as discussed in this CMA Alert]. This is because federal payments to MA plans would rise only modestly if the benchmarks excluded the new benefits, whereas they would rise substantially if the benchmarks included them. The effect on federal costs is so large because of the large and growing share of Medicare enrollment accounted for by MA. I estimate that this step would also modestly reduce the Medicare Part B premium relative to what it would be if these costs were included in the benchmarks.
The analysis notes that this approach “would not prevent MA enrollees from receiving those benefits, which MA plans would be required to provide regardless. Rather, I estimate that MA plans would accept lower profit margins (or reduce their costs) if benchmarks excluded the new benefits, whereas those margins (or costs) would rise modestly if benchmarks included the new benefits […] Additionally, I estimate that MA plan spending on supplemental benefits other than dental, hearing, and vision coverage would change little relative to the status quo if benchmarks excluded the new benefits.”
Option 2: Include new benefit in Part B premium calculations
This option would “include the new benefits in the calculation of the Medicare Part B premium, just like other Part B benefits. […] I estimate that applying the usual Part B premium rules to the new benefit would reduce the fiscal cost of creating the new benefit by 22%.”
Option 3: Do both
Including the new benefits in the calculation of the Part B premium, “just like other Part B benefits,” together with excluding the new benefit from MA benchmarks, “would reduce the fiscal cost of the new benefit by 64%. Notably, across all policy scenarios I consider, the increase in benefit spending on behalf of enrollees would greatly exceed the increase in premium payments—both in traditional Medicare and MA. This strongly suggests that the new coverage would make Medicare beneficiaries better off even if the usual Part B premium rules apply.”
As of publication of this CMA Alert, negotiations continue on the reconciliation package, including whether to scale back the entire package and what proposals might remain. In short, an expansion of dental, hearing and vision benefits in traditional Medicare – an important, but still incomplete, step towards leveling the playing field between MA and traditional Medicare – is in jeopardy. So far, there is no indication that policymakers are considering addressing MA overpayments as a way to offset some of the costs of Medicare expansion, nor do they appear to be considering excluding the new benefit from MA benchmarks as proposed in this analysis, which, by itself, would reduce the cost of the expansion of benefits by 41%. The Center for Medicare Advocacy urges policymakers to address wasteful overpayments to MA plans, particularly if failing to do so leads to squandering a rare opportunity to make significant improvements to the program that will benefit everyone with Medicare.
Health Affairs Blog Highlight How the Medicare “Money Machine” Draws Medicare Advantage Plans and Investors into Direct Contracting Demonstrations
Heath Affairs Blog recently posted a two-part series by Drs. Richard Gilfillan and Donald Berwick, former Director of the Centers for Medicare and Medicaid Innovation (CMMI) and Administrator of the Centers for Medicare & Medicaid Services (CMS), respectively. The posts are available here: Medicare Advantage, Direct Contracting, And The Medicare ‘Money Machine,’ Part 1: The Risk-Score Game (Sept. 29, 2021) and Medicare Advantage, Direct Contracting, And The Medicare ‘Money Machine,’ Part 2: Building On The ACO Model (Sept. 30, 2021).
In the posts, the authors explore the disturbing “epidemic” of “financing and acquisitions of firms focused on serving Medicare beneficiaries,” including “the combined activity of private equity and venture capital firms, initial public offerings, special purpose acquisition companies (SPACs), and insurance company purchases of MA-focused firms.” They explain that through the two-part post, they would:
…attempt to explain the perverse MA business model that underlies this elevated level of investment, and we will explore its connection to the Direct Contracting model now being tested by CMS. The story is complex, but we think it is worth telling because the stakes for beneficiaries, the public treasury, and our health care system are very high. This business model is distorting health care delivery, creating excessive costs for taxpayers and Medicare beneficiaries, draining the Medicare Trust Fund, obstructing the badly needed value transformation of American health care, and diverting the money needed to fund other social services and goods.
Part 1 – Medicare Advantage (MA)
In their first Blog post, the authors outline “[f]our main business realities” that
drive the interest in Medicare-related acquisitions. First is the expected doubling of Medicare spending from $800 billion in 2019 to $1.6 trillion in 2028 as Baby Boomers age. Second is the reality that MA harbors an arbitrage game in which CMS consistently overpays MA Plans with no demonstratable clinical benefit to patients. Third is the heavily subsidized and distorted market dynamics that result from these overpayments. Fourth is the Trump administration’s creation of the Direct Contracting Model as a vehicle for privatizing Medicare’s projected 2028 $1.6 trillion spend. [links omitted]”
Drs. Gilfillan and Berwick provide a damning indictment of MA plan risk-score gaming, which “creates a major transfer of wealth from taxpayers and Medicare beneficiaries to MA plans, and it lies at the heart of the business model for most MA plans.” Despite considerable evidence of such gaming, they note that “Congress and every administration since 2006 have avoided fixing this inaccuracy, in part because of plans’ enormous political clout.”
In short, in Part 1, the authors “explored the reasons for surging growth and profits in the Medicare Advantage (MA) program and the dynamics, largely related to risk-coding games, that make MA a costly form of transfer of public and beneficiary dollars into private hands.” In a set-up to Part 2, they note that while the “MA coding game … has heretofore been confined to the MA portion of Medicare”, the Trump Administration introduced the Direct Contracting demonstration models through the Centers for Medicare and Medicaid Innovation (CMMI) as a vehicle to achieve its “avowed […] intention to de-risk CMS by moving the 58 percent of Medicare beneficiaries who chose traditional coverage into MA-like full risk capitated arrangements [link omitted].”
Part 2 – Direct Contracting Demonstrations
Part 2 of the Medicare “Money Machine” series explores how some of the same dynamics behind the surging growth and profits in MA are being implanted into traditional Medicare via the Direct Contracting model.
The authors describe the structure of and rationale behind the Direct Contracting demonstrations that would allow “non-provider-controlled ‘Direct Contracting Entities (DCEs)’ to become the fiscal intermediaries between patients and providers.” They note that the “most extreme” model – the Geographic (or “Geo”) demo – would have been a “straightforward privatization of traditional Medicare, differing from MA only in that GEO Direct Contracting beneficiaries retained the right to see any Medicare provider under standard Medicare coverage.” (Note that the Center for Medicare Advocacy strongly opposed the “Geo” model, as discussed in this February 2021 CMA Alert.) In March 2021, the Biden Administration announced that the “Geo” model was suspended, but it remains “currently under review,” according to the CMMI website.
Drs. Gilfillan and Berwick outline the dangers of the remaining Global and Professional Direct Contracting (“GloPro”) models, and claim that, “[i]n short, millions of traditional Medicare beneficiaries, who made a specific choice not to enroll in MA, will find themselves in an MA-like managed care environment.” They also warn that “even if Direct Contracting does not prove profitable, it provides a perfect pathway for wholesale movement of beneficiaries into MA at a much lower cost of sales.”
In discussing the Direct Contracting models, the authors state:
Ironically, this is all reminiscent of the original, well-intended strategy for privatized Medicare: to bring health maintenance organization (HMO) savings and care improvements to Medicare. But the Direct Contracting model seems to have ignored the lessons learned from the experience of MA and its predecessors at a cost to CMS and taxpayers of hundreds of billions of dollars. As MedPAC confirmed recently, over 35 years, privatized Medicare has always cost more than traditional Medicare, not less [links omitted]. (Emphasis added.)
In conclusion, the authors outline recommendations to reform the MA program which is “fundamentally flawed,” including instructing CMS to replace the current Hierarchical Condition Category (HCC) risk-adjustment scoring system and “fixing the structural overpayments related to benchmarks and the Quality Bonus Program.” With respect to the Direct Contracting model, the authors state that the “best way to mitigate [its] undesirable effects […] would be to stop the program” and replace it with a new Medicare Shared Savings Program (MSSP) model. Alternatively, they suggest that CMS make it clear that the Direct Contracting model “is a small experiment,” limit the number of beneficiaries involved, and call for eliminating all insurers from the model. They further promote building upon the experience with Accountable Care Organizations (ACOs).
Nursing homes around the nation experienced a 400% increase in COVID-19 related deaths between July and August this past summer. Furthermore, the COVID death toll increased faster in nursing homes, according to a new KFF report, than in community settings. The number of COVID-related deaths jumped from 350 in July to almost 1,800 in August. This marks the highest number of nursing home deaths in a single month since February. The increase is due to the spread of the Delta variant.
According to the Centers for Disease Control and Prevention (CDC), the Delta variant spreads more easily than previous variants and could cause more than twice as many infections. The CDC highlights that older adults are more likely to get very sick from COVID-19, meaning they might need hospitalization, intensive care, or face a higher likelihood of death. COVID-related deaths in long-term care facilities currently account for one-third of the nation’s total death toll.
 Chidambaram, P., & Garfield, R. Nursing Homes Experienced Steeper Increase in COVID-19 Cases and Deaths in August 2021 than the Rest of the Country. KFF. Oct. 1, 2021). Available at: https://www.kff.org/coronavirus-covid-19/issue-brief/nursing-homes-experienced-steeper-increase-in-covid-19-cases-and-deaths-in-august-2021-than-the-rest-of-the-country/
 CDC. Delta Variant: What We Know About the Science. (Aug. 26, 2021). Available at: https://www.cdc.gov/coronavirus/2019-ncov/variants/delta-variant.html
 CDC. Older Adults Risks and Vaccine Information. (Aug. 2, 2021). Available at: https://www.cdc.gov/aging/covid19/covid19-older-adults.html
 KFF. State COVID-19 Data and Policy Actions. (Updated Oct. 6, 2021). Available at: https://www.kff.org/coronavirus-covid-19/issue-brief/state-covid-19-data-and-policy-actions/
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