GAO: Low-Cost Medicare Advantage Programs Have High-Cost Expenses

A number of Medicare Advantage plans that attracted beneficiaries in "good health" with lower cost plans in 2008 had far higher levels of cost sharing and unexpected expenses than those plans attracting beneficiaries in "poor health," according to a Government Accountability Office (GAO) report.

Acting CMS Administrator Charlene Frizzera, in response to the report's findings, said they were consistent with CMS' general experience that "beneficiaries select health plans based on their individual health status"—that beneficiaries with "poorer health status tend to choose plans with higher premiums and lower cost sharing."

However, others in Congress saw the report, requested by Democrats on the House Ways and Means and House Energy and Commerce committees, somewhat differently.

"This report shows that left to their own devices, insurance companies will design plans that benefit their profit margins above all else, House Ways and Means Health Subcommittee Chairman Pete Stark (D CA) said in a statement.

"Unfortunately, these discriminatory plans leave many seniors with unexpected out of pocket costs, much higher than they would have had if they had been in traditional Medicare," Stark said. "As CMS implements Medicare Advantage reforms, they need to hold insurance companies accountable so they can't stick seniors with the bill for their profit maximizing schemes."

The "good health" group of Medicare Advantage plans had average beneficiaries with projected healthcare costs at least 10% below those for all beneficiaries within the plan's service area.

Using 2008 data on beneficiaries' expected healthcare costs, the most recent data available, GAO sorted 2,899 plans enrolling 7.5 million beneficiaries into three groups: 43% of plans were in the good health group, 37% in the average health group, and 20% in the poor health group.

According to the GAO, the good health group of plans tended to have higher cost sharing for the services they reviewed—which included inpatient hospital acute stays, inpatient mental health stays, skilled nursing facility (SNF) stays, and renal dialysis—than the poor health group of plans:

• The average plan in the good health group charged about $100 more in cost sharing for a typical inpatient hospital stay (six days) and about $150 more for a typical inpatient mental health stay (21 days) than the average plan in the poor health group.
• The average plan in the good health group charged about $500 more in cost sharing for a typical SNF stay (35 days) than the average plan in the poor health group.
• The average plan in the good health group charged over $300 more in cost sharing for a year of renal dialysis (156 sessions) than the average plan in the poor health group.

In 2008, a greater share of plans in the good health group had an out-of-pocket maximum that limited their beneficiaries' overall financial risk compared to plans in the poor health group—63% percent compared with 40%, respectively.

However, the out-of-pocket maximum for the good health group of plans averaged 55% percent higher than the out-of-pocket maximum for the poor health group ($3,515 compared with $2,262). Also, these of plans were most likely to exclude Part B drugs (15% of plans), renal dialysis (6% of plans), and durable medical equipment (6% of plans) from their out-of-pocket maximum.

The insurance industry responded that the GAO report demonstrated that Medicare Advantage plans overall did save seniors money compared to traditional Medicare.

"The vast majority of seniors have expressed very high satisfaction with their Medicare Advantage coverage," America's Health Insurance Plans spokesperson Robert Zirkelbach said in a statement, referring to all plans.

"Recent reports have found that seniors in Medicare Advantage spend fewer days in a hospital, are subject to fewer hospital readmissions, and are less likely to have 'potentially avoidable' admissions," he said, "for common conditions ranging from uncontrolled diabetes to dehydration, compared to fee for service Medicare."

The GAO report noted that since 2008, CMS has revised its process for reviewing Medicare Advantage plans for the likelihood of discrimination. It developed a new methodology for setting cost sharing thresholds—criteria used to identify benefit packages likely to discriminate against certain beneficiaries.

For contract year 2010, CMS had contacted all Medicare Advantage plans with benefit packages identified as likely to discriminate, and "all plans subsequently met cost sharing thresholds," the report noted.

The new methodology for setting cost sharing thresholds allowed higher cost sharing for some services relative to 2009: For example, among plans without an out-of-pocket maximum or one above $3,400 for 2010, allowed cost-sharing for a typical inpatient mental health stay doubled (from $61 per day to $130 per day) and allowed cost-sharing for a typical skilled nursing facility stay increased (from $53 to $70 per day) compared to 2009 rates.