THE COMMONWEALTH

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Medicare’s Future:Medicare’s Future:What Does It Hold?What Does It Hold?

Stuart GutermanAssistant Vice President

Director, Program on Payment System ReformThe Commonwealth Fund

Families USA Conference: Health Action 2010Washington, DCJanuary 28, 2010

THE COMMONWEALTH

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Medicare Policy ChallengesMedicare Policy Challenges

THE COMMONWEALTH

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Medicare Policy ChallengesMedicare Policy Challenges

• Spending Growth

• Improving Value

• Protecting the Most Vulnerable Beneficiaries

• Physician Payment

• The Role of Private Plans

• The Prescription Drug Benefit

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Spending GrowthSpending Growth

THE COMMONWEALTH

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Federal Spending on Medicare and Medicaid and Total Federal Spending on Medicare and Medicaid and Total Federal Spending as a Percentage of GDP, 1962-2082Federal Spending as a Percentage of GDP, 1962-2082

0

5

10

15

20

25

30

35

1962 1972 1982 1992 2002 2012 2022 2032 2042 2052 2062 2072 2082

Medic are and Medic aid T otal*

Percentage of GDP

*Total includes all federal non-interest spending.

Note: Figures for 2007-2082 are projections.

SOURCE: Congressional Budget Office. Budget Outlook.

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Sources of Growth in Projected Federal Spending on Medicare and Sources of Growth in Projected Federal Spending on Medicare and Medicaid, 2007 to 2082Medicaid, 2007 to 2082

Source: Congressional Budget Office (2007). The Long-Term Outlook for Health Care Spending. Washington, DC, as presented by P. Orzag at the New America Foundation, November 2007, accessible at: http://www.newamerica.net/files/Orzag%20PPT%20111307.pdf

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Percent of Income Spent on Health Care,Percent of Income Spent on Health Care,Selected Groups, 2003Selected Groups, 2003

20.6

52.9

32.7

20.1

9.7

39.2

30.4

20.614.3

0

10

20

30

40

50

60

70

80

90

100

All

<1

00

10

0-1

99

20

0-3

99

40

0+

Po

or

Fa

ir

Go

od

Ex

ce

lle

nt/

Ve

ry G

oo

d

Percent of Income

By Income(Percent of Federal Poverty Level)

By Health Status

SOURCE: P. Neuman, J. Cubanski, K.A. Desmond, and T.H. Rice. “How Much Skin in the Game Do Medicare Beneficiaries Have? The Increasing Financial Burden of Health Care Spending” Health Affairs Nov./Dec. 2007 26(6):1692-1701.

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ConclusionsConclusions

• Medicare cost growth is largely driven by overall growth in health care costs

• Nonetheless, Medicare is unique in the way it puts pressure on the federal budget

• However, simply reducing provider payment, or increasing beneficiary cost-sharing, will only shift the burden without addressing the underlying problem

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Improving ValueImproving Value

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5+ chronic conditions

66%

No chronic conditions

1%

4 chronic conditions

13%

1-2 chronic conditions

10%

3 chronic conditions

10%

Source: G. Anderson and J. Horvath, Chronic Conditions: Making the Case for Ongoing Care (Baltimore, MD: Partnership for Solutions, December 2002)

Two-Thirds of Medicare Spending is for People with Two-Thirds of Medicare Spending is for People with Five or More Chronic ConditionsFive or More Chronic Conditions

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0.75

1.00

1.25

0.75 1.00 1.25

Relative Resource Use**(Median Relative Resource Use = $25,994)

Qu

ali

ty o

f C

are

* (1

Ye

ar

Su

rviv

al

Ind

ex

, M

ed

ian

= 7

0%

)

* Indexed to risk-adjusted 1 year survival rate (median = 0.70).** Risk-adjusted spending on hospital and physician services using standardized national prices, indexed to median.Data: E. Fisher and D. Staiger, Dartmouth College analysis of data from a 20% national sample of Medicare beneficiaries.

Quality and Cost of Care for Medicare Patients HospitalizedQuality and Cost of Care for Medicare Patients Hospitalizedfor Heart Attacks, Colon Cancer, and Hip Fracture,for Heart Attacks, Colon Cancer, and Hip Fracture,

by Hospital Referral Regions, 2000–2002by Hospital Referral Regions, 2000–2002

Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 11

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ConclusionsConclusions• Need better coordination of care for chronically ill

beneficiaries– Traditional Medicare

– Medicare Advantage

• Need better information on quality of care– Post information on performance

– Study relation of process to outcomes

– Indicate what improvements are needed

• Need better incentives for coordination, quality improvement, and efficiency– Encourage desired behavior

– Counter adverse incentives

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The Role of Private PlansThe Role of Private Plans

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Medicare Private Plan Enrollment as a Percentage of Medicare Private Plan Enrollment as a Percentage of All Medicare Beneficiaries,All Medicare Beneficiaries,

1995-20091995-2009

8

16

12

2321

1817

131312

141616

14

11

0

5

10

15

20

25

1995 1997 1999 2001 2003 2005 2007 2009

Source: B. Biles et al. “The Continuing Cost of Privatization: Extra Payments to Medicare Advantage Plans Jump to $11.4 Billion in 2009.” Commonwealth Fund Issue Brief, May 2009.

8

16

12

2321

1817

131312

141616

14

11

0

5

10

15

20

25

1995 1997 1999 2001 2003 2005 2007 2009

BBA 1997 MMA 2003

THE COMMONWEALTH

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Medicare Advantage Enrollment by Type of Medicare Advantage Enrollment by Type of Plan, September 2009Plan, September 2009

Other

0%Regional PPO

4%

Local CCPs

73%

PFFS

23%

Source: Medicare Advantage, Cost, PACE, Demo, and Prescription Drug Plan Contract Report—Monthly Summary Report (Data as of September 2009) from CMS web site.

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Growth in Medicare Advantage Enrollment, Growth in Medicare Advantage Enrollment, by Type of Plan,by Type of Plan,

August 2006-September 2009August 2006-September 2009Other

0%Regional PPO

9%

Local CCPs

50%

PFFS

41%

Source: Medicare Advantage, Cost, ACE, Demo, and Prescription Drug Plan Contract Report—Monthly Summary Report (Data as of August 2006 and Data as of September 2009) from CMS web site.

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Benchmark Rates, Plan Bids, and Payments to Benchmark Rates, Plan Bids, and Payments to Medicare Advantage Plans as a Share of Medicare Medicare Advantage Plans as a Share of Medicare

Fee-for-Service Costs, 2009Fee-for-Service Costs, 2009

118

121

114

120

113

118

112

118

98

108106

113

90

95

100

105

110

115

120

125

HMOs Local PPOs Regional PPOs PFFS

Benchmark Payments Bids

Source: Medicare Payment Advisory Commission, Healthcare Spending and the Medicare Program: A Data Book (Washington, DC: MedPAC, June 2009).

Percent of fee-for-service costs

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Comparison of Estimated Out-of-Pocket Costs for Comparison of Estimated Out-of-Pocket Costs for Individuals in Poor Health in 2005,Individuals in Poor Health in 2005,

Selected MA Plans vs. Fee-for-ServiceSelected MA Plans vs. Fee-for-Service

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

Out-of-P oc ket Cos ts for Medic are Advantage P lan

Out-of-P oc ket Cos ts for Medic are Fee-for-S ervic e P lus Medigap P lan F

Source: B. Biles, L. Hersch Nicholas, and S. Guterman. “Medicare Beneficiary Out-of-Pocket Costs: Are Medicare Advantage Plans a Better Deal?” The Commonwealth Fund. May 2006.

Medicare Advantage Plans

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ConclusionsConclusions

• Private plans offer Medicare beneficiaries a wider choice of options and, often, additional benefits

• However, Medicare currently pays private plans substantially more than their enrollees would cost under the traditional fee-for-service program

• More information is needed to monitor how well private plans serve their Medicare enrollees

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Impact of Pending LegislationImpact of Pending Legislation

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Implications for Medicare• Spending growth decreased from an estimated 6.6 percent annually to 5.3 percent

annually or less

• The House and Senate bills would restructure payments to Medicare Advantage plans, phasing payment down to bring plans closer to traditional fee-for-service costs.

• The House and Senate bills incorporate productivity improvement allowances across all Medicare services (other than physician services, which are considered separately)

– Reflects proposal by the major hospital associations in July 2009

• The Senate bill establishes an Independent Payment Advisory Board with a mandate to make payment decisions within parameters established by Congress and subject to review by the president and Congress.

• The House bill would eliminate the Rx doughnut hole and require the HHS secretary to negotiate directly with pharmaceutical manufacturers to lower drug prices for Medicare standalone Part D plans and Medicare Advantage Part D plans.

• The House and Senate bills do not address SGR reform

– Companion bill (H.R. 3961, the Medicare Physician Payment Reform Act of 2009) passed by the House on November 19, 2009

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Payment Innovation inPayment Innovation inHealth Reform LegislationHealth Reform Legislation

• Medical home: Expansion of current Medicare demonstration, new Medicare pilots, Medicaid initiatives

• ACO: Broad responsibility for quality and cost of patient care, rewards for quality, shared savings

• Bundled payments: Medicare pilots for hospital and post-acute care, Medicaid initiatives

• Center for Medicare and Medicaid Innovation

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Medicare Spending with System Savings, 2010–2019:Current Projection and Alternative Scenarios

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Current projection

House bill with system savings (CBO)

Senate bill with system savings (CBO)

Billions

* Notes: Compound annual growth rate.Data: Congressional Budget Office (CBO) cost estimates.

$422

$7976.6% annual

growth*

Total 10-Year Medicare System Savings

Compared with Modified Current Projection

House bill (CBO) $484 billion

Senate bill (CBO) $387 billion

House $703Senate $705

5.3% annual growth*

5.2% annual growth*