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America’s Health Insurance Plans

February 10, 2011

I. Introduction

America’s Health Insurance Plans (AHIP) is the national association representing approximately 1,300 health insurance plans that provide coverage to more than 200 million Americans.  Our membership includes sponsors of Medicare Advantage health plans and Medicare Part D prescription drug plans who have a long history of providing high quality coverage to Medicare beneficiaries and a strong commitment to the long-term success of the Medicare program.  Our members also participate in other public programs and offer a broad range of health insurance products in the commercial marketplace. 

We appreciate the committee’s interest in examining the impact of the Affordable Care Act (ACA) on the Medicare program and the 48 million Americans it serves.  The provisions of the new law – most notably, the deep funding cuts – have far-reaching implications for the quality of care, benefits, and choices available to Medicare beneficiaries.  The law’s impact will be particularly severe for the 11 million seniors who have chosen to enroll in Medicare Advantage plans because they value the improved quality of care, additional benefits, and innovative services these plans provide. 

Our statement focuses on two areas: 

·         We review data and research findings demonstrating the impact the ACA will have on beneficiaries who rely on the Medicare Advantage program to meet their health care needs.  

·         We review the success Medicare Advantage plans have achieved in improving health care quality and patient care for beneficiaries, and the importance of preserving private health plan choices to achieve greater value and efficiency throughout the entire Medicare program. 

II.      The Impact of the ACA on Medicare Advantage Enrollees

According to the Congressional Budget Office (CBO)[1], the ACA will directly reduce funding for the Medicare Advantage program by an estimated $136 billion over ten years (2010-2019).  CBO further estimates that, because of the linkage between Medicare Advantage payment benchmarks and Medicare fee-for-service (FFS) spending, the ACA’s Medicare FFS reimbursement changes will indirectly reduce funding for Medicare Advantage by an additional $70 billion over ten years.  These deep funding cuts – combined with the new premium tax that begins in 2014 – pose a serious threat to the health benefits and choices of the nation’s 11 million Medicare Advantage enrollees. 

Under the ACA, Medicare Advantage payment benchmarks for 2011 are frozen at 2010 levels – meaning that plans did not receive rate increases this year to account for recent health care cost growth.  Despite this rate freeze, Medicare Advantage plans are continuing to offer affordable plans to Medicare beneficiaries, with most plans making little change in premiums from 2010 while continuing to offer robust benefits.  These offerings demonstrate that Medicare Advantage plans are working hard to continue to provide value to Medicare beneficiaries in light of the ACA funding cuts.

In future years, however, beneficiaries likely will begin to see the impact of the ACA funding cuts, since the cuts become increasingly larger with each passing year.  CBO’s estimates show that the Medicare Advantage cuts for 2012 ($6 billion), 2013 ($9.4 billion), and 2014 ($13.1 billion) are many times larger than the cuts for 2011 ($1.8 billion).  As the cuts become deeper in 2012 and beyond, plan sponsors will be challenged in their efforts to cushion the blow for beneficiaries.

The magnitude of this challenge is highlighted by projections that have been released by CBO, the Office of the Actuary of the Centers for Medicare & Medicaid Services (CMS), and the Heritage Foundation.  These projections clearly demonstrate that the ACA will adversely impact enrollment in the Medicare Advantage program, reduce benefits, and increase out-of-pocket costs for enrollees.    

Lower Enrollment

Both CBO and the CMS Chief Actuary have projected major declines in Medicare Advantage enrollment as a direct result of the funding cuts in the ACA. 

According to CBO[2], the ACA will cause enrollment in Medicare Advantage plans in 2019 to be 4.8 million lower – dropping from 13.9 million to 9.1 million – than was projected prior to the law’s enactment.  This represents a 35 percent decline in enrollment by 2019.

The CMS Chief Actuary[3] projects an even larger decline, stating:  “We estimate that in 2017, when the MA provisions will be fully phased in, enrollment in MA plans will be lower by about 50 percent (from its projected level of 14.8 million under the prior law to 7.4 million under the new law).” 

The departure of millions of Medicare beneficiaries from the Medicare Advantage program, as anticipated by both CBO and the CMS Chief Actuary, will translate into lower health care quality and reduced value for the affected beneficiaries and an overreliance on the fragmented Medicare FFS program.  We discuss these issues in greater detail beginning on page 6 below.   

Additional Benefits Reduced and Out-of-Pocket Costs Increased  

For Medicare Advantage enrollees who are able to stay in the program, the ACA’s funding cuts will have a significant impact on the benefits they receive and the out-of-pocket costs they pay.  Historically, Medicare Advantage plans have provided enrollees additional benefits beyond those offered in the Medicare FFS program, including vision, hearing, dental, and health and wellness programs.  The ability of plans to continue to offer these extra benefits will be severely compromised as deeper funding cuts are implemented in the coming years. 

CBO projects that the average value of additional benefits provided by Medicare Advantage plans in 2019 will be $67 per month under the ACA; this represents a 50 percent cut from the $135 per month amount that was projected prior to enactment of the new law.  

Similarly, the CMS Chief Actuary states that the ACA will “result in less generous benefit packages” for Medicare Advantage enrollees.  Noting that plan sponsors use rebates to provide extra benefits and reduce cost-sharing for enrollees, the CMS Chief Actuary indicates[4] that the average rebate per enrollee dropped sharply from $1,093 in 2010 to $684 in 2011, and will decline further to $43 by 2019.  (Under the Medicare Advantage payment formula, rebates are based on how a plan’s bid compares to the benchmark.)  The CMS Chief Actuary also has estimated that, taking into account both the Medicare Advantage and Medicare FFS provisions of the new law, beneficiaries will face higher out-of-pocket costs of $473 per enrollee in 2012, $812 per enrollee in 2015, and $923 per enrollee in 2017.     

These findings are reinforced by research the Heritage Foundation[5] has conducted on the ACA’s impact on benefits for Medicare Advantage enrollees.  This study reached the following conclusions:

·         By 2017, individuals who would have been enrolled in Medicare Advantage plans under prior law will lose an average of $1,841 in benefits due to the Medicare Advantage funding cuts alone.  Such beneficiaries will lose a total of $3,714 when the effects of the entire bill, including Medicare FFS cuts, are considered.  This latter figure represents a 27 percent reduction in benefits relative to what would have been provided under prior law.  The aggregate loss for all beneficiaries nationwide is estimated to be $55 billion annually by 2017. 

·         The loss of benefits will vary widely across the nation, with beneficiaries in the hardest-hit counties facing cuts almost five times as large as cuts for those in the least-hit counties.  Even in counties where the impact is least severe, the average beneficiary will lose at least 15 percent of his or her benefits by 2017. 

·         Beneficiaries in the following states will face the largest benefit losses in 2017 as a result of the ACA’s Medicare Advantage funding cuts: Louisiana ($5,092 per beneficiary), Texas ($4,732), Hawaii ($4,693), New York ($4,512), and New Mexico ($4,177). 

Impact on Low-Income and Minority Beneficiaries

In evaluating the impact of the ACA’s funding cuts, it is important to recognize the crucial role the Medicare Advantage program plays as a health care safety net for many low-income and minority Medicare beneficiaries. 

In December 2010, AHIP published a study[6] showing that Medicare Advantage plans are a valuable choice for low-income and minority beneficiaries, particularly those who are not eligible for Medicaid and do not have employer-sponsored retiree benefits.  For many of these individuals, Medicare Advantage may be their only option for comprehensive, affordable coverage. 

Key findings of this AHIP study include the following:

·         Among Medicare beneficiaries who were not enrolled in Medicaid or employer-based supplemental coverage and who had annual incomes between $10,000 and $20,000 in 2008, 37 percent chose Medicare Advantage plans, 30 percent purchased Medigap supplemental policies, and 33 percent were covered by the Medicare FFS program alone.

·         Nationwide, 25 percent of African-American Medicare beneficiaries and 29 percent of Hispanic beneficiaries were enrolled in Medicare Advantage plans.  By comparison, 21 percent of all Medicare beneficiaries were enrolled in Medicare Advantage plans.

·         Sixty-nine percent of all minority beneficiaries enrolled in Medicare Advantage in 2008 had incomes below $20,000.  By comparison, 37 percent of White Medicare Advantage enrollees had incomes below $20,000.

These findings demonstrate that Medicare Advantage plans are important to many minority beneficiaries and many low-income beneficiaries who cannot afford the high out-of-pocket costs they would incur under the Medicare FFS program.  These vulnerable beneficiaries will pay a heavy price if the ACA’s Medicare Advantage funding cuts are fully implemented. 

The previously-cited study by the Heritage Foundation also addresses this concern, estimating that 70 percent of the ACA’s cuts to the Medicare Advantage program will be imposed on beneficiaries with annual incomes below $32,400 in today’s dollars.  This study also estimates that these cuts will cause Hispanics to lose $2.3 billion in benefits and African-Americans to lose more than $6.4 billion in benefits, while also causing nearly 300,000 Hispanics and more than 800,000 African-Americans to lose access to Medicare Advantage plans.  The study describes the Medicare Advantage cuts as “a regressive tax that disproportionately punishes low-income and minority seniors.”

Lessons From Balanced Budget Act of 1997

We urge the committee to consider the lessons learned following the deep funding cuts that the Balanced Budget Act of 1997 (BBA) imposed on the Medicare health plan program, known at that time as “Medicare+Choice.”  Following the enactment of this law, Medicare health plan enrollment initially remained stable, but eventually Medicare beneficiaries saw their health plan choices diminish as many health plans were forced to withdraw from the program or limit their service areas due to inadequate funding and excessive regulatory burdens.  Over the next several years, from 1999-2003, nearly 2.4 million Medicare beneficiaries were forced to change plans or return to the Medicare FFS program due to the unintended consequences of the BBA.  If the ACA’s Medicare Advantage funding cuts are fully implemented, another generation of Medicare beneficiaries will likely experience similar disruptions in their health coverage.  

III.    The Value Provided by Medicare Advantage Plans

Medicare Advantage plans have a strong track record of pioneering new innovations and strategies for improving health care quality, promoting the efficient delivery of health care services, and advancing an evidence-based health care system.  As a result, the Medicare Advantage program offers a solid foundation for modernizing the broader Medicare program to meet the health care needs of current and future generations of beneficiaries. 

Evidence of Quality Improvement 

Over the past 18 months, AHIP’s Center for Policy and Research has conducted a series of increasingly expansive studies comparing certain utilization measures, including hospital readmission rates, for enrollees in the Medicare Advantage program and the Medicare FFS program.  Recognizing that reducing preventable hospital admissions has become an important national priority, and a goal of the ACA, for achieving both quality improvement and cost control, health plans have developed a variety of innovative programs that are revitalizing primary care, improving care transitions, and helping patients achieve better health outcomes.

Our research findings demonstrate that these strategies are succeeding in helping to keep patients out of the hospital and avoid potentially harmful complications.  The most recent AHIP studies on hospital readmissions include the following findings:  

·         Based on a risk-adjusted comparison of patterns of care among patients enrolled in two large, multi-state Medicare Advantage HMO plans and in the Medicare FFS program, we found that the Medicare Advantage plans improved health care for their enrollees by reducing emergency room visits by 24 percent, reducing hospital readmissions by 39 percent, reducing certain potentially avoidable hospital admissions by 10 percent, and reducing inpatient hospital days by 20 percent.[7]

·         Based on an analysis of hospital discharge datasets in nine states, we found that risk-adjusted hospital readmission rates were about 27-29 percent lower in Medicare Advantage than in Medicare FFS for each enrollee, 16-18 percent lower for each person with an admission, and 14-17 percent lower for each hospitalization.[8] 

·         Based on an analysis of data on gaps in time between hospital admissions and discharges in five states, we found that risk-adjusted 30-day readmission rates per hospitalization were about 12-18 percent lower in Medicare Advantage than in Medicare FFS, that risk-adjusted 30-day readmissions per patient with an admission were 12-27 percent lower in Medicare Advantage among patients with at least one admission, and that 30-day readmissions per enrollee (including enrollees not hospitalized in a year) were 22-43 percent lower in Medicare Advantage.[9]

All of these studies consistently show that Medicare Advantage plans are reducing the need for preventable hospitalizations.  As a result of this success, health insurance plans not only are improving the health and well-being of their enrollees, but also achieving greater efficiencies and cost savings for the Medicare program and for taxpayers. 

Innovative Programs and Tools

A recent AHIP publication[10] provides plan-specific examples of the types of programs and services that health plans have implemented to reduce preventable hospital readmissions and emergency room visits.  Examples of these programs include the following:

·         Expanding patient access to urgent care centers, after-hours care, and nurse help lines to give patients safe alternatives to emergency rooms for non-emergency care;

·         Arranging for phone calls and, in some cases, in-home visits by nurses and other professionals to ensure that follow-up appointments are kept, medications are being taken safely, care plans are being followed, medical equipment is delivered, and home health care is being received;

·         Offering intensive case management to help patients at high risk of hospitalization access the medical, behavioral health, and social services they need;

·         Arranging for home visits by multidisciplinary teams of clinicians who provide comprehensive care, teach patients and their caregivers how to take medications correctly, and link families with needed community resources; and

·         Revamping physician payment incentives to promote care coordination and improved health outcomes.

Health plans have developed a wide range of tools and strategies to improve quality and efficiency, and build an evidence-based health care system.  The value of these health plan initiatives was recognized by a July 2010 study[11] published by the American Enterprise Institute for Public Policy Research.  This study focused on geographic variations in both Medicare spending and utilization of services, noting that variation in the public sector exceeds variation in the private sector by about 2.8 times for outpatient visits and 3.9 times for hospital days. 

In explaining this finding, the study notes that private payers have multiple tools for directing health care resources, including directing patients “toward preferred providers who deliver more efficient care using benefits management or through preferred networks.”  The authors conclude, “To reduce spending and more appropriately limit geographic variation in utilization among Medicare beneficiaries, the program should consider the utilization-management techniques employed in the private sector as a model.” 

The ACA attempts to introduce a number of these initiatives to the Medicare FFS program.  However, we are skeptical that these efforts will be as effective as ongoing health plan programs. Health plans routinely offer health risk assessments to help identify high risk populations in need of specific services.  These assessments, combined with the use of a patient’s information on frequency and usage of health care services, enables the health plan to provide care management models, disease management programs, prescription drug support, home care, and tailored outreach to Medicare Advantage enrollees to meet their specific needs.  While health plans have been highly successful in using this information to improve patient care, the Medicare FFS program lacks the infrastructure and coordination that are needed across providers to address the specific needs of each individual patient. 

Fraud Prevention Initiatives

Preventing health care fraud is another essential ingredient of any strategy for achieving quality improvement.  Health plans devote substantial resources to fraud prevention programs that identify individuals who provide care under false credentials, deliver medically unnecessary services, or make treatment decisions based on illegal referral relationships.  These investments play a key role in improving patient care. 

AHIP recently released a report[12] highlighting efforts by health plans to prevent and detect health care fraud.  This report outlines survey findings on the cost savings achieved from these initiatives, the types of programs health plans have implemented, and the future of fraud detection and prevention programs. 

Survey respondents included a cross-section of health plans ranging from small, regional companies to large, multi-state commercial carriers.  Among the large companies in the survey, estimated net savings from anti-fraud operations (savings less costs) exceeded $3 per enrollee, resulting in an estimated total net savings of nearly $300 million in 2008.  For the medium-sized companies reporting, estimated net savings were about $1 per enrollee and 2008 total net savings were about $10 million.  For smaller companies, estimated net savings were about $2.70 per enrollee, and total net savings reported were approximately $5 million in 2008.

Survey respondents were asked to estimate only the costs and savings directly attributable to their anti-fraud efforts.  These estimates do not include the impact of deterrence, which is likely the largest associated savings from insurers’ anti-fraud programs.  The knowledge that health plans have robust anti-fraud measures and controls likely prevents inappropriate billings or claims from occurring in the first place.

Patient Safety Initiatives

On another front, health plans regard patient safety as a top priority under their quality improvement initiatives.  Plans have developed and implemented several approaches to improve patient safety and increase awareness of safety-related issues, including efforts to reduce healthcare-acquired infections and prevent “never events” (i.e., serious reportable events that should never occur in a health care setting and are associated with patient death or serious disability). 

Specific patient safety strategies used by health plans include using evidence-based care and national benchmarks to prevent infections and improve surgical safety.  This includes, for example, providing physicians with tool kits based on a standardized set of procedures and instructions to create a consistent approach to infection prevention.  Other examples include training providers and hospitals on error reduction techniques, and pre- and post-surgical team briefings in order to maintain consistency of safe practices across providers. 

Health plans also have developed innovative payment models to incentivize hospitals to reduce hospital-acquired conditions and infections.  Such models reward providers that meet performance targets and include additional per-patient per-month quality payments.  The structure of these programs include root-cause analysis of never events, communication with patients/families when never events or serious reportable events occur, and forums to discuss best practices and lessons learned. 

Other priorities include tracking and reporting infection rates at the hospital and physician level and reporting them internally and publicly (where state requirements exist).  Some health plans have enhanced their quality improvement and monitoring programs by requiring providers or hospitals to identify gaps in care and recommend changes to improve patient care safety systems.  Others require reporting of adverse events to designated patient safety organizations. 

Health plans use nationally-recognized measures of patient safety for never events, serious reportable events, surgical safety indicators, and preventable medical errors, specifically from CMS, the National Quality Forum, Leapfrog, the Joint Commission, and others.  Health plans have informed us that by working in collaboration with network hospitals, they have helped achieve the following measureable improvements in patient safety:

·         Health plan network hospitals participating in such improvement programs have reduced the rate of central line bloodstream infections well below the national average.  For example, one health plan measured its 2010 rate for central-line infections at 0.96, compared to the national rate of 1.96, as reported by the Centers for Disease Control and Prevention (CDC).

·         Health plan network hospitals also reduced cases of ventilator-associated pneumonia by 70 percent, to less than 1.5 per 1,000 ventilator days in over two years (2008-2010).

·         Over an eight year period (2002-present), one health system succeeded in reducing the number of ventilator-associated pneumonia cases by 97 percent and the number of central bloodstream infections by 91 percent.  


Preserving Medicare Health Plan Choices

Looking forward, it is important to maintain a stable Medicare Advantage program and preserve private health plan choices to achieve greater value and efficiency throughout the entire Medicare program. 

If the ACA funding cuts are fully implemented, millions of Medicare beneficiaries will be forced into the inefficient Medicare FFS program.  This, in turn, will undermine the broader health reform goals of enhancing quality and patient safety, improving efficiency and value, and containing costs.  Expanding enrollment in the outdated Medicare FFS program will result in more beneficiaries receiving fragmented care that is poorly coordinated under a system that prioritizes volume over quality.  Meanwhile, reducing enrollment in Medicare Advantage will result in fewer beneficiaries receiving coordinated care and benefiting from the innovations that private sector health plans have pioneered. 

We urge Congress and the Administration to reconsider the ACA funding cuts to ensure that Medicare Advantage remains viable and can serve as a foundation for building a modernized Medicare program that provides access to high quality health care. 

IV.    Conclusion

Thank you for considering our perspectives on the ACA and its impact on the Medicare program.  We stand ready to work with the committee to strengthen health care choices and benefits for our nation’s Medicare beneficiaries.   

[1] CBO, Selected CBO Publications Related to Health Care Legislation (2009-2010), December 2010, pages 29-34

[2] CBO, Selected CBO Publications Related to Health Care Legislation (2009-2010), December 2010, pages 29-34

[3] CMS Chief Actuary, Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended, April 22, 2010

[4] CMS Chief Actuary, Letter to Senator Charles Grassley, October 8, 2010

[5] Heritage Foundation, Reductions in Medicare Advantage Payments: The Impact on Seniors by Region, September 14, 2010

[6] AHIP Center for Policy and Research, Low-Income & Minority Beneficiaries in Medicare Advantage Plans, December 2010  

[7] AHIP Center for Policy and Research, Working Paper: Comparisons of Utilization in Two Large Multi-State Medicare Advantage HMOs and Medicare Fee-for-Service in the Same Service Areas, December 2009

[8] AHIP Center for Policy and Research, Working Paper: Using State Hospital Discharge Data to Compare Readmission Rates in Medicare Advantage and Medicare’s Traditional Fee-for-Service Program, May 2010  

[9] AHIP Center for Policy and Research, Using AHRQ’s ‘Revisit’ Data to Estimate 30-Day Readmission Rates in Medicare Advantage and the Traditional Fee-for-Service Program, October 2010   

[10] AHIP Center for Policy and Research, Innovations in Reducing Preventable Hospital Admissions, Readmissions, and Emergency Room Use, June 2010

[11] American Enterprise Institute for Public Policy Research, Addressing Geographic Variation and Health Care Efficiency: Lessons for Medicare from Private Health Insurers, July 2010

[12] AHIP Center for Policy and Research, Insurers’ Efforts to Prevent Health Care Fraud, January 2011