The Center's work on 'Medicare' Issues


Reducing Medicare Advantage Overpayments

February 19, 2015 at 12:22 pm

Ahead of Friday’s announcement of Medicare’s preliminary payment rates and policies for Medicare Advantage insurers in 2016, insurers have launched an advertising campaign claiming that potential payment changes would undermine the program.  For numerous reasons, it’s hard to take these doom-and-gloom predictions seriously.

For starters, Medicare Advantage continues to thrive — enrollment has reached an all-time high and is expected to keep growing in 2016, according to the Congressional Budget Office (CBO) and Office of Management and Budget (OMB) — despite health reform’s ongoing, much-needed effort to curb overpayments to insurers.

In addition, Medicare Advantage payments still average about 105 percent of the cost of covering comparable beneficiaries in traditional Medicare, according to preliminary estimates by analysts from the Medicare Payment Advisory Commission (MedPAC), Congress’ official advisory body on Medicare payment policies.

MedPAC estimates that roughly 60 percent of that differential reflects the phenomenon known as “upcoding” — the first time MedPAC analysts have quantified how much upcoding inflates Medicare Advantage payments.  Medicare Advantage includes a risk adjustment system that raises or lowers payments to plans based on their enrollees’ relative health, measured by a “risk score” based on patient diagnoses; upcoding occurs when the risk scores that plans submit rise over time — making enrollees appear increasingly unhealthy — without actual changes in enrollees’ health.  This results in higher-than-warranted payments to Medicare Advantage plans.

Upcoding is a long-standing problem in Medicare Advantage, as CBO and the Government Accountability Office (GAO) have documented.  According to MedPAC, risk scores were 8 percent higher in Medicare Advantage, on average, than in traditional Medicare for comparable beneficiaries.  And MedPAC analysts noted that the amount of upcoding seems to be getting larger.

Policymakers could better address upcoding by raising Medicare’s annually required “coding intensity” adjustment.  Health reform requires the Centers for Medicare and Medicaid Services (CMS) to adjust Medicare Advantage’s risk adjustment system by at least a minimum amount each year to compensate for upcoding.  The President’s 2016 budget would raise that minimum annual adjustment very modestly starting in 2017, saving $36.2 billion over ten years, OMB estimates.

Moreover, while CMS has only applied the minimum required adjustment in recent years, it has the discretion to institute a larger adjustment than required, for example as part of the 2016 preliminary rate announcement.  MedPAC estimates that this year’s adjustment would have to have been more than 50 percent larger to fully offset the effects of upcoding.  (GAO similarly found that the annual adjustment likely needs to be substantially larger than the minimum level.)

Policymakers could also reduce upcoding by excluding in-home health assessments from Medicare Advantage risk score calculations unless the assessment diagnoses are later confirmed in treatment settings.  Medicare Advantage plans increasingly provide in-home health assessments of their enrollees; for example, a nurse may come to a patient’s home to do a physical exam.  CMS has found that insurers primarily use these assessments to “collect” diagnoses in order to increase enrollees’ risk scores for purposes of risk adjustment, rather than to improve follow-up care or identify illnesses requiring treatment.

CMS proposed last year to exclude any diagnoses identified during an in-home assessment that subsequent clinical encounters fail to confirm.  CMS, however, dropped the proposal in the face of industry opposition, opting to collect additional data about the impact of these assessments and revisit the issue later.  CMS could include this prior proposal in its 2016 preliminary rate announcement in order to limit the use of these assessments to promote upcoding.

Projected Health Spending Has Fallen Since 2010, Even With Health Reform’s Coverage Expansions

January 28, 2015 at 11:20 am

The Congressional Budget Office (CBO) now projects that federal health spending — including the costs of health reform’s coverage expansions — will be about $600 billion less over 2011-2020 than CBO projected in January 2010 without health reform (see figure).

In other words, projected health spending over the decade has fallen by $600 billion since 2010, despite $1 trillion in additional spending for premium tax credits and expanded Medicaid to help cover 27 million more Americans.

The decline in projected spending, which continues a pattern of downward revisions to CBO’s projections in recent years, stems from several factors.  One is health reform’s cuts in payments to Medicare providers and health plans.  Another is the recession, which has reduced the demand for health care services by slowing income growth.

But CBO and other experts have also concluded that a substantial part of the health care cost slowdown reflects structural changes in the health care system.  Professional associations, hospitals, and doctors are taking steps to curb costly and ineffective procedures and treatments.

CBO’s new report says, “Although views differ on how much of the slowdown is attributable to the recession and its aftermath and how much to other factors, the slower growth has been sufficiently broad and persistent to persuade [CBO and the Joint Committee on Taxation] to significantly lower their projections of federal health care spending.”

Health reform itself has most likely contributed to the slowdown as well.  As Kaiser Family Foundation President Drew Altman has written, “Even though its direct effects on system-wide costs may be limited so far, I believe Obamacare is having a significant indirect effect, although cause and effect and the magnitude are hard to prove. . . .  [It] is entirely likely that Obamacare has played and will continue to play a role in the slowdown in health-care cost growth and accelerating market change.”

To be sure, federal health spending — even if cost growth remains moderate — will keep rising as more baby boomers become eligible for Medicare and Medicaid.  Making the U.S. health care system more efficient thus remains a major budget challenge.  But CBO’s latest projections show that we’ve already made substantial progress.

Six Ways Health Reform Helps the Middle Class

December 2, 2014 at 2:21 pm

Health reform offers substantial benefits to middle-class Americans, contrary to some recent claims.  Here are some of the most important ones:

  1. A safety net for all. Insurers can no longer refuse to sell someone health coverage or charge higher premiums because of a pre-existing health condition.  Health plans must now cover preventive care, such as vaccinations and routine screenings, with no cost sharing.  Plans must also limit the amount they can require enrollees to pay out-of-pocket each year for covered benefits.
  2. Financial help buying insurance. People without access to affordable coverage from an employer can receive premium tax credits to help them buy insurance in the marketplaces.  Credits are available to households with incomes up to 400 percent of the poverty level.  That’s up to $95,000 a year for a family of four.
  3. No more job lock. Because health reform helps workers without access to affordable job-based coverage afford coverage on their own, workers no longer have to stay in or choose an otherwise less desirable job simply because it offers health coverage.  They can start a business or retire early without worrying about access to health insurance.  And losing a job no longer means losing health insurance.
  4. Health coverage for young adults. Parents whose insurance provides dependent coverage may now include children up to age 26 on their plans.  As a result, more than 6 million additional young adults have enrolled in a parent’s health plan, 3 million of whom would otherwise be uninsured.
  5. Improving Medicare benefits. Health reform is gradually closing the prescription drug “donut hole,” the gap in coverage faced by beneficiaries with high drug costs.  Last year alone, 3 million seniors and persons with disabilities saved $3.9 billion on their prescriptions — more than $900 per beneficiary.  Health reform also eliminated cost-sharing charges for preventive health services (such as cancer screenings), and 37 million Medicare beneficiaries received at least one free preventive service last year.
  6. Strengthening Medicare financing. Health reform includes a number of measures to slow Medicare cost growth, such as cutting overpayments to private Medicare Advantage plans. These steps, along with other factors, have significantly strengthened Medicare’s financial outlook.  Medicare’s Hospital Insurance (HI) trust fund is now projected to remain solvent 13 years longer than before health reform’s enactment.  And the HI program’s projected 75-year shortfall has shrunk by three-quarters.

Medicare and Medicaid Should Be Protected in Trade Agreements

October 22, 2014 at 3:39 pm

CBPP, AARP, the AFL-CIO, Consumers Union, and ten other national organizations have written to the U.S. Trade Representative asking that Medicare, Medicaid, and other health programs be excluded from the investor-state dispute settlement (ISDS) provisions of pending trade agreements.

ISDS would give companies a new legal avenue to challenge U.S. pricing and patent policies for drugs and medical devices: the ability to sue the U.S. government before an international arbitration panel that wouldn’t be subject to normal democratic checks and balances.  In our letter, we say:

ISDS . . . would allow global pharmaceutical firms to challenge mechanisms that state legislatures, the Congress and public agencies use to manage pharmaceutical costs in public programs.  For example, a pharmaceutical company could challenge a state’s Medicaid preferred drug list or drug utilization management rules that limit access to a certain drug under specific circumstances.  Reimbursement policies for medicines under Medicare Part B could be challenged.  If adopted, the President’s own proposal to establish rebates under the Medicare Part D program for low-income beneficiaries could be subject to an ISDS challenge.  Simply stated, ISDS would impose an unnecessary risk to government administered health programs by limiting what policy makers can do to keep these programs affordable for taxpayers and beneficiaries.

Concerns about ISDS are growing and span the political spectrum.  In a recent editorial, The Economist suggested various ways of defining and narrowing the scope of ISDS, including exempting measures “to protect legitimate public welfare objectives, such as health, safety, and the environment,” allowing only governments to bring complaints against another government, and making proceedings public and subject to appeal.  As The Economist concludes, “Firms need protection; but so does the right of governments to pursue reasonable policies.”

Health Reform Reduces the Deficit, Contrary to Senate GOP Analysis

October 21, 2014 at 5:00 am

A recent analysis by Senate Budget Committee Republican staff that claims health reform will increase the deficit rests on two dubious propositions.  Under more reasonable assumptions, health reform will reduce the deficit, as the Congressional Budget Office (CBO) and Joint Committee on Taxation have consistently estimated.  Just a few months ago, CBO Director Douglas Elmendorf wrote, “the agencies have no reason to think that their initial assessment that [health reform] would reduce budget deficits was incorrect.”

How did the Senate Budget Committee’s Republican staff reach such a different conclusion?

First, they produced an estimate of savings from the health reform provisions that reduce Medicare and other program costs that’s significantly lower than CBO’s.  They did so by assuming that health reform had nothing whatsoever to do with the substantial slowdown in health care cost growth in the past few years.  That slowdown has led CBO since 2010 to lower its projections of Medicare and Medicaid spending by $1.1 trillion over this decade (see graph).

The decline in projected Medicare spending means that health reform provisions that cut Medicare costs directly will save less than previously thought.  (A provision that reduces Medicare costs by a certain percentage will save fewer dollars if that percentage cut is applied to a smaller base of costs.)  But the Senate Republican analysis lowers CBO’s estimate of health reform’s Medicare savings to reflect that effect alone, as though not one dollar of the savings from the slowdown in health costs were due to health reform’s focus on reducing cost growth in the U.S. health care system.

As Kaiser Family Foundation President Drew Altman has written, “Even though its direct effects on system-wide costs may be limited so far, I believe Obamacare is having a significant indirect effect, although cause and effect and the magnitude are hard to prove. . . . [It] is entirely likely that Obamacare has played and will continue to play a role in the slowdown in health-care cost growth and accelerating market change.”

Even under the conservative assumption that health reform accounts for only a small part of the slowdown in health care costs, it would more than offset the Senate Republicans’ reduction in health reform’s estimated Medicare savings

Second, the Senate Republican analysis overstates the budgetary impact of changes in labor supply (that is, the total hours of work that workers choose to supply) under health reform.  CBO estimates that health reform will cause a small reduction in the labor supply, in significant part because some people who now work mainly to obtain health insurance — a situation known as “job lock” — will choose to retire earlier or work somewhat less; that reduction will shrink total labor compensation by roughly 1 percent from 2017 through 2024, according to CBO.  The Senate Republican analysis assumes that the overall amount of income subject to tax will drop by the same percentage.

But wages and salaries, in fact, represent only about 70 percent of adjusted gross income, which also includes interest, dividends, rental income, capital gains, and some retirement distributions.  Thus, a 1-percent cut in labor compensation would shrink tax revenues by much less than 1 percent.

Correcting the Senate Republican staff analysis for these two factors shows that health reform will still reduce the deficit, as CBO has estimated — not increase it.  Those who seek the best assessment of the fiscal impacts of health reform should stick with CBO’s.