Medicare officials divided the country into 26 coverage regions last week in a compromise ruling that many private insurers said would likely prompt them to expand their participation in the newly revised Medicare program.
CMS officials originally had considered creating as few as 10 large regions to ensure that rural and underserved areas would be covered by the PPOs that opt to take part in the Medicare Advantage system, which will provide prescription drug coverage to seniors starting in 2006. But many insurers complained the regions would be too big, making them less willing and able to participate in the program, which was established under the Medicare Modernization Act of 2003.
Under the new structure, the more populous states such as California and New York will form their own regions, while less densely populated states like Montana, Nebraska and Wyoming will be combined with others (See map). PPOs that want to operate in a given area must provide coverage to the entire region.
In a related step, the CMS also established 34 regions for private companies that plan to administer a stand-alone drug benefit to seniors who opt to stay in traditional, fee-for-service Medicare rather than enroll in a Medicare PPO or HMO.
"The number and design of the regions recognize each geographic area's specific characteristics and appear to maximize private plans' ability to offer seniors the same kinds of consumer-oriented products now offered to the under-65 market," said R. Eugene Shields, senior vice president of government and senior products for Humana, which recently received approval to market Medicare PPOs in 14 local markets and hopes to expand into another 15.
Aetna Chairman and Chief Executive Officer Jack Rowe was equally bullish about the new regional structure, saying it ensures an adequate number of beneficiaries in each area, making them "actuarially sound" and hence more attractive business prospects. Aetna had withdrawn from several unprofitable Medicare markets over the past several years, sharply reducing its Medicare enrollment to 130,000 members today from 648,000 in 2000. "I think the likelihood that we will be in more regions is greater today than last week," Rowe told Modern Healthcare after the CMS ruling.
Not everyone was pleased with the final regions, however. The Blue Cross and Blue Shield Association, which had pushed for the creation of 50 state-based regions, called the decision disappointing and said smaller plans like many of its affiliates would have to start joint ventures in order to entirely cover the large, multistate areas.
"Partnering with other companies is time-intensive and much more complex (because) each plan is going to have its own medical management policy and its own contracts with providers," said Alissa Fox, executive director of policy for the association, whose 41 affiliates currently cover nearly 1 million Medicare beneficiaries. "You have to hash all that out."
But Rowe pointed out that many Blues plans would have had to create joint ventures even if the CMS had established 50 state-based regions. Currently, many Blues plans only operate in portions of their home state, such as Highmark Blue Cross and Blue Shield and Independence Blue Cross, which cover the Pittsburgh and southeastern Pennsylvania regions, respectively.
The CMS said it relied on "extensive public input and expert analysis" to carve out regions that are large enough to support strong provider networks yet small enough that insurers can start enrolling members quickly. "We particularly wanted to make sure there will be plenty of opportunities for beneficiaries who live in rural communities to have access to lower-cost health plans," CMS Administrator Mark McClellan said in a news release.
The Medicare reform law signed by President Bush last December was designed to encourage more of the nation's 42 million Medicare beneficiaries to move into private plans, which theoretically are more efficient and can provide richer benefits packages at a lower cost than traditional Medicare. The law established a number of incentives designed to lure more insurers into the program, including substantial rate increases and a $12 billion "stabilization fund" that can be tapped by regional PPOs willing to operate in underserved areas (Dec. 22-29, 2003, p. 30).
Yet, two reports released last week by the Commonwealth Fund questioned whether the payment increases to private plans, which now cover a total of 5 million Medicare beneficiaries, were being put to the best use.
According to one study, Medicare Advantage plans used half of their 10.9% average payment increase in 2004 to improve benefits and reduce premiums for enrollees and 42% to boost payments to providers. But it pointed out that enrollees in poor health did not benefit from reductions in out-of-pocket costs as much as those in good health.
The other report found that private plans next year will receive an average of 7.8%, or $546, more per enrollee than the cost for traditional Medicare beneficiaries. It concluded that the total $2.72 billion in extra payments, if spread more evenly across all 42 million Medicare enrollees, would be enough to cut 2005 premiums by 46%, to $6.30 from $11.60 per month.
"We should be concerned about whether these extra payments to private plans are the best use of federal budget resources to improve affordability and access to services for all Medicare beneficiaries, particularly those with the greatest healthcare needs," Commonwealth Fund President Karen Davis said.