Options for Defining Medicare Advantage Regions: An Assessment of Tradeoffs - Len M. Nichols et al
Issue Briefs Friday, July 30th, 2004Executive Summary:
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) (P.L. 108-173) was designed to achieve five goals related to private Medicare Advantage (MA) health plans and the Medicare program: (1) maximize the number of beneficiaries with access to MA plans, (2) encourage MA plans to enter areas not served by MA plans today, especially rural areas, (3) promote vigorous competition among MA plans in all markets, (4) expand the range of private plan types in MA, and (5) reduce long-term growth in program outlays. A key policy decision that will affect the achievement of these goals involves selecting the number of market regions into which the nation will be divided and the geographic boundaries of those regions. While leaving this decision to the Secretary of the Department of Health and Human Services (HHS), the MMA limited the secretary’s discretion somewhat by mandating that the number of regions be no less than 10 and no greater than 50.
To encourage health plans to serve Medicare beneficiaries with regional PPO products as opposed to as a local plan, the MMA included special and temporary incentives as well as a two-year moratorium on plans initiating new local PPOs. The legislation also requires competitive bidding by MA plans, and sets out three important rules to govern the bidding process: (1) regional MA plans must bid one price for the entire region (local plans are allowed to bid one price for each county); (2) the government payment will be set equal to a benchmark premium (adjusted for relative beneficiary risk), so beneficiaries will have to pay—in addition to their usual Part B premium—the difference between the bid and the benchmark if the bid exceeds the benchmark; (3) benchmarks are determined differently for regional and local plans, and will generally not be equal for the two types of plans even though they may compete against each other in some counties. These different benchmarks could very profoundly affect market dynamics and program outcomes.
To explore the implications of the secretary’s decision in light of these rules and the central goals of the MMA, the Office of the Assistant Secretary of Planning and Evaluation (ASPE) of HHS contracted with the Center for Studying Health System Change (HSC) to conduct the analysis documented in this report. The purpose of the report, therefore, is not to make specific recommendations to ASPE about which strategy it should use in drawing MA market regions. Rather, we sought to identify and analyze tradeoffs inherent in alternative strategies. In some sense, the valuations of these tradeoffs are not economic judgments, but political ones, which are best left to policymakers, not policy analysts. We can, however, inform the policy process by articulating what some of the key implications of these judgments are, relative to the very clear goals of the MMA.
This summary reviews HSC’s approach to the analysis, the dynamics of plan competition that should be considered in drawing the MA market regions to achieve MMA goals, the scenarios that might come about as a result of these dynamics, and the pros and cons of some alternative numbers and types of market regions.
