Impending change in the Medicare market: How it affects you

By Debie Knowles

Standard Life and Accident Insurance Company


On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) was signed into law. Most elements of the legislation affect providers and beneficiaries, but many of the changes and updates to this bill will have a direct impact on you, the producer -- both on your day-to-day selling practices as well as on your long-term strategy. In this article we will outline the key components of the bill and explain how they might affect your business.

Background

MIPPA was enacted by Congress to prevent mandated cuts in Medicare payments to physicians for approved services. It retroactively blocked the 10.6 percent cut affected on July 1, 2008 and the additional 5.4 percent cut scheduled to take effect on January 1, 2009. The Bill extended the June 2008 rates through the end of 2008 and increased Medicare payments by 1.1 percent in 2009. These increases are accompanied by the establishment of a Medicare Improvement Fund -- complete with a $19.9 billion deposit earmarked for 2014-2017.

You may be asking, why are all these figures so important? Because the substantial increases in Medicare payments are offset by dramatic cuts in federal funding for Medicare Advantage (MA) plans. Along with the elimination of several different forms of payments, the bill also includes new restrictions on MA plan structures as well as new regulations and standards for marketing and sales practices. This shift in policy raises questions about the government's commitment to the long-term viability of MA plans in general, and means substantial changes for how producers go about their business.

Let's look at how some of these new provisions could affect the way you market Medicare Advantage and Medicare Supplement plans.

Medicare Advantage private fee for service plans

MIPPA places significant restrictions on Medicare Advantage private fee for service (PFFS) plans. Medicare PFFS plans are one of the types of Medicare Advantage plans offered by private insurers. Unlike MA plans in the form of health maintenance organizations (HMOs) and preferred provider organizations (PPOs), currently, PFFS plans do not restrict enrollees to a network of approved and coordinated hospitals and providers. Instead, they allow enrollees to see any physician who accepts Medicare and the coverage offered by the insurance carrier.

Since their initial offering in 1997, Medicare PFFS plans have become very popular products. They were easy to introduce partly because there was no network of providers to organize and negotiate. Consumers are also drawn to the often small premium payments and not being "restricted" to a limited network of providers. Lack of education on the product meant that the public was largely unaware that, while not restricted by a network, they also were not guaranteed that their providers would accept the coverage.

Under the new MIPPA provisions, starting in 2011, PFFS plans offered in areas where two or more Medicare Advantage HMO or PPO plans are offered must obtain legal contracts with networks of providers. This will change the nature and perceived value of private fee for service contracts, as these plans must now organize and coordinate providers. Enrollees in rural areas may be left without a provider in their community, and others may find themselves without coverage, as some PFFS plans may be unable to find cooperative providers.

These new regulations may symbolize a negative view of Medicare Advantage PFFS plans by the federal government. According to the National Committee to Preserve Social Security and Medicare, the government pays 17 percent more to PFFS plans than would be paid per beneficiary under traditional Medicare plans. Additionally, this bill all but ensures that all MA plans soon will be restricted to some kind of network. The most attractive part of the Medicare Advantage PFFS plans was their "absolute freedom." The new regulations will do much to curb the appeal these products once had, as the only Medicare product with actual freedom of choice will be Medicare Supplement plans.

Medicare Advantage marketing regulations

The MIPPA addresses alleged fraudulent marketing activities related to the sales of MA plans by restricting sales practices and compensation. Effective in 2009, sales tactics such as door-to-door sales, cold calling, providing free meals and cross-selling of non health-related products are prohibited. Compensation in the form of commissions, renewals and gifts is now limited as well, and all Medicare Advantage plans must submit 2009 compensation schedules to the Centers for Medicare & Medicaid Services for approval.

These particular regulations have the most direct effect on you as a producer. After all, the appeal of selling MA plans was in their mass-marketability. Every day, increasing numbers of seniors become eligible for Medicare benefits. With potential enrollees already clamoring for low-premium products and generous compensation offered by MA providers, the incentive to sell as many as possible is evident. However, the new provisions may lead you to rethink selling strategies, and possibly, your entire approach to the Medicare market.

Medicare Advantage funding cuts and regulations

Under MIPPA, Medicare Advantage payments will be cut by roughly $12.5 billion from 2009-2013. The new bill makes reductions in what are called "indirect medical education" (IME) payments to MA plans. Medicare makes these IME payments to hospitals that train physicians in approved residency training programs. Identical IME payments were also being made to MA plans when one of their insureds was treated by an approved hospital. These duplicate payments to MA plans have been eliminated, while teaching hospitals will still be reimbursed directly by Medicare.

The MIPPA also eliminated the $10 billion Medicare Advantage Stabilization Fund. This fund was established by the Medicare Modernization Act of 2003 and was intended to help private Medicare Advantage PPOs enter the market and remain in the Medicare program. With large enrollment figures for Medicare Advantage PPOs, the fund has been deemed unnecessary and the money reallocated elsewhere.

Again, the significant decrease of funding outlined in the MIPPA may signify a progressively negative view of the government's expectations for the future of Medicare Advantage plans. Simultaneously, the new bill is a sign of increased congressional faith in the Medicare system as a whole, as the funds taken from Medicare Advantage plans have been used to increase physician acceptance of bolstered Medicare payments. In terms of commissions and renewals alone, it's important to realize that with this restructuring of the Medicare Advantage program, there might be better business strategies to consider than continuing to enroll clients in MA plans.

How to interpret the situation

The overriding theme of the Medicare Improvements for Patients and Providers Act of 2008 is the federal government's apparent change in attitude toward Medicare Advantage plans. The new regulations will certainly disrupt or impede the operations of many of the Medicare Advantage PFFS plans, as they are essentially required to morph into PPO plans.

The new legislation gives a glimpse into the future of the Medicare landscape. Medicare Advantage plans have already lost support in Congress and not only has funding been cut for the next few years, but reserve funds have also been reallocated.

There is, however, more to the new legislation than regulations and restrictions on Medicare Advantage plans. Much of it is aimed at securing and modernizing Medicare, such as increased subsidies for low-income qualifying individuals, extended coverage of Medicare Part D to cover most drugs in certain important drug classes, the elimination of some Medicare Supplement plans deemed redundant by the new Medicare Part D, and the introduction of two new Medicare Supplement plans with modified cost-sharing structures.

Medicare Supplements are solid and stable products that are widely accepted by physicians across the country. According to a 2007 study by the US Centers for Medicare and Medicaid Services, approximately 99.7 percent of physicians in the United States accept Medicare assignments1. Medicare Supplement policies are not restricted by approved networks or primary care physicians, so your clients are virtually assured of coverage no matter where they are. With a stable, well-regulated selling market, both producers and clients can trust Medicare Supplement policies to be well-rounded, established products with a secure future.

All things considered, there is a positive growth forecast for Medicare Supplement sales as more stringent restrictions are placed on Medicare Advantage plans, sales and commissions. A large part of profitable business is being savvy enough to see change coming and positioning you and your business to benefit as much as possible from that change. MIPPA is the weather vane of Medicare change, indicating that a shift in your Medicare Supplement business now could put you in a favorable position for the surge of senior enrollees as they continue to emerge.

1US Department of Health and Human Services. Data Compendium. Online 2007 Edition of US Centers for Medicare and Medicaid Services. http://www.cms.hhs.gov/DataCompendium/17_2007_Data_Compendium.asp#TopOfPage

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