Nothing on Healthcare Coming Out of Washington This Year? Think Again.

The presence of Medicare Advantage plans in the healthcare marketplace continues to grow.

Unless you have been living under a rock, you are aware that healthcare has been a topic firmly positioned at front and center in Washington, D.C. for the past nine months. This past week has been highlighted by another failed attempt by the U.S. Senate to pass legislation that would repeal and replace much of the Patient Protection and Affordable Care Act (PPACA) and the resignation of U.S. Health and Human Services Secretary Dr. Tom Price.

So you might think, because of all this chaos, there has been no major change in how the Centers for Medicare & Medicaid Services (CMS) pays for healthcare in 2017. Well, in that case, you would be wrong. 

In July 1965, driven by President Lyndon Johnson, Congress enacted Medicare under Title XVIII of the Social Security Act. This provided health insurance to people age 65 and older, regardless of income or medical history. In other words, and in the language used in contemporary debates about healthcare, people do not have to have below a certain income to qualify for Medicare, nor do people get turned down for Medicare because they have a preexisting condition.

Medicare was introduced as a fee-for-service (FFS) model. In the 1980s, a series of demonstration projects were initiated with private companies that allowed beneficiaries to enroll in a health maintenance organization (HMO)-style payment model. The Balanced Budget Act of 1997, signed by President Bill Clinton, established Medicare Part C. Under Part C, beneficiaries were formally given the option to continue in traditional fee-for-service Medicare or sign up for a capitated health insurance Part C plan. These plans were initially known as “Medicare+Choice.”

In 2003, these “Medicare+Choice” plans were rebranded as “Medicare Advantage” (MA) plans. These plans accept a monthly payment from Medicare for each member they enroll, and in turn accept the risk for the members.

When a Medicare beneficiary is hospitalized, if he or she has FFS Medicare, the hospital will bill Medicare directly for the services they provide. If a beneficiary is enrolled in a Medicare Advantage plan, the hospital will bill the entity that sponsors the plan. This is a profoundly different payment model that can greatly affect how hospitals are paid for services provided to Medicare beneficiaries – and the differences may not be apparent to the beneficiary. In this article, I am not saying that one payment model is better than the other; I am only pointing out the significant difference in the hospital payment model. 

Detractors of Medicare Advantage plans raise concerns that a financial incentive to deny or pay less for medical services could conflict with patient care and physician decision-making. However, proponents of MA plans point to a financial incentive created by the plans to deny payment for medically unnecessary and/or redundant services in a more robust way than the traditional Medicare FFS – thereby improving the efficiency and quality of the Medicare system.

Regardless of where you fall in the debate, the reality is that enrollment in Medicare Advantage plans has been growing steadily since 2004. By 2006, there were 6.8 million beneficiaries enrolled in MA plans, or 16 percent of all Medicare beneficiaries. This year, there are 19 million people enrolled in Medicare Advantage plans, or one out of three Medicare beneficiaries. By 2026, the Congressional Budget Office projects that 41 percent of Medicare beneficiaries will be enrolled in an MA plan.

When this increased Medicare Advantage engagement is combined with a projected 50 percent increase in the total number of Medicare beneficiaries over the next 15 years, the number of Medicare Advantage plans in the U.S. healthcare system is clearly growing and will likely continue to grow.

Ask your hospital administrators and physicians how the differences in payment between traditional Medicare and Medicare Advantage plans affect your institution. Despite the current stagnation in Congress, I’ll bet you’ll find that a lot of changes in healthcare have already come out of Washington, D.C. this year.