MA Plans Projected They Would Allocate Most of the Rebates to Beneficiaries in the Form of Reduced Cost Sharing and Reduced Premiums

MA plans projected that, on average, they would allocate most of the  rebates to beneficiaries as reduced cost sharing and reduced premiums for  Part B services, Part D services, or both. In 2007, almost all MA plans in  our study (1,874 of the 2,055 plans, or 91 percent) received a rebate  payment from Medicare that averaged $87 PMPM. MA plans  projected they would allocate relatively little of the rebates (11 percent or  $10 PMPM) to additional benefits that are not covered under Medicare  FFS. 1.) On average, for plans that provided detailed cost  estimates, the projected dollar amounts of the common additional benefits  ranged from a low of $0.11 PMPM for international outpatient emergency  services to $4 PMPM for dental services. MA Plans Projected that MA Beneficiaries, on Average, Would Have Lower Cost Sharing than if They Were in Medicare FFS, but Some MA Beneficiaries Could Pay More

For 2007, MA plans projected that MA beneficiary cost sharing, funded by  both rebates and additional premiums, would be 42 percent of estimated  cost sharing in Medicare FFS. Although plans projected that beneficiaries’ overall cost sharing was  lower, on average, than Medicare FFS cost-sharing estimates, some MA  plans projected that cost sharing for certain categories of services was  higher than Medicare FFS cost-sharing estimates. For example, 19 percent of MA  beneficiaries were enrolled in plans that projected higher cost sharing for  home health services, on average, than in Medicare FFS, which does not  require any cost sharing for home health services. Some MA  beneficiaries who frequently used these services with higher cost sharing  than Medicare FFS could have had overall cost sharing that was higher  than what they would pay under Medicare FFS. MA Plans Projected Approximately 87 Percent of Total Revenue Would be Spent on Medical Expenses

For 2007, MA plans projected that of their total revenues ($783 PMPM),  they would spend approximately 87 percent ($683 PMPM) on medical  expenses. Plans further projected they would spend approximately   9 percent of total revenue ($71 PMPM) on nonmedical expenses, such as  administration expenses and marketing expenses, and approximately   4 percent ($30 PMPM) on the plans’ profits, on average. In 2007, the average MA plan receives a Medicare  rebate equal to approximately $87 PMPM, on average. MA plans projected  they would allocate the vast majority of their rebates—approximately   89 percent—to beneficiaries to reduce premiums and to lower their cost- sharing for Medicare-covered services. Plans projected they would use a  relatively small portion of their rebates—approximately 11 percent—to  provide additional benefits that are not covered under Medicare FFS. Whether the value that MA beneficiaries receive in  the form of reduced cost sharing, lower premiums, and extra benefits is  worth the increased cost borne by beneficiaries in Medicare FFS is a  decision for policymakers. However, if the policy objective is to subsidize  health-care costs of low-income Medicare beneficiaries, it may be more  efficient to directly target subsidies to a defined low-income population  than to subsidize premiums and cost sharing for all MA beneficiaries,  including those who are well off. As Congress considers the design and  cost of the MA program, it will be important for policymakers to balance  the needs of beneficiaries—including those in MA plans and those in  Medicare FFS—with the necessity of addressing Medicare’s long-term  financial health.
Why GAO Did This Study

Although private health plans were originally envisioned in the 1980s as a potential source of Medicare savings, such plans have generally increased program spending. In 2006, Medicare paid $59 billion to Medicare Advantage (MA) plans--an estimated $7.1 billion more than Medicare would have spent if MA beneficiaries had received care in Medicare fee-for-service (FFS). MA plans receive a per member per month (PMPM) payment to provide services covered under Medicare FFS. Almost all MA plans receive an additional Medicare payment, known as a rebate. Plans use rebates and sometimes additional beneficiary premiums to fund benefits not covered under Medicare fee-for-service; reduce premiums; or reduce beneficiary cost sharing. In 2007, MA plans received about $8.3 billion in rebate payments. This testimony is based on GAO's report, Medicare Advantage: Increased Spending Relative to Medicare Fee-for-Service May Not Always Reduce Beneficiary Out-of-Pocket Costs ( GAO-08-359 , February 2008). For this testimony, GAO examined MA plans' (1) projected allocation of rebates, (2) projected cost sharing, and (3) projected revenues and expenses. GAO used 2007 data on MA plans' projected revenues and covered benefits, accounting for 71 percent of beneficiaries in MA plans.

What GAO Found

GAO found that MA plans projected they would use their rebates primarily to reduce cost sharing, with relatively little of their rebates projected to be spent on additional benefits. Nearly all plans--91 percent of the 2,055 plans in the study--received a rebate. Of the average rebate payment of $87 PMPM, plans projected they would allocate about $78 PMPM (89 percent) to reduced cost sharing and reduced premiums and $10 PMPM (11 percent) to additional benefits. The average projected PMPM costs of specific additional benefits across all MA plans ranged from $0.11 PMPM for international outpatient emergency services to $4 PMPM for dental care. While MA plans projected that, on average, beneficiaries in their plans would have cost sharing that was 42 percent of Medicare FFS cost-sharing estimates, some beneficiaries could have higher cost sharing for certain service categories. For example, some plans projected that their beneficiaries would have higher cost sharing, on average, for home health services and inpatient stays, than in Medicare FFS. If beneficiaries frequently used these services that required higher cost sharing than Medicare FFS, it was possible that their overall cost sharing was higher than what they would have paid under Medicare FFS. Out of total revenues of $783 PMPM, on average, MA plans projected that they would allocate about 87 percent ($683 PMPM) to medical expenses. MA plans projected they would allocate, on average, about 9 percent of total revenue ($71 PMPM) to nonmedical expenses, including administration and marketing expenses; and about 4 percent ($30 PMPM) to the plans' profits. About 30 percent of beneficiaries were enrolled in plans that projected they would allocate less than 85 percent of their revenues to medical expenses. As GAO concluded in its report, whether the value that MA beneficiaries receive in the form of reduced cost sharing, lower premiums, and additional benefits is worth the additional cost to Medicare is a decision for policymakers. However, if the policy objective is to subsidize health care costs of low-income Medicare beneficiaries, it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost sharing for all MA beneficiaries, including those who are well off. As Congress considers the design and cost of MA, it will be important for policymakers to balance the needs of beneficiaries and the necessity of addressing Medicare's long-term financial health.