New publication looks at the immediate effects of the Medicare Modernization Act

Before the Medicare Modernization Act of 2003 (MMA), private plan options for beneficiaries had eroded substantially, with severely limited or no choice in most communities.

A new publication from Mathematica Policy Research's series on Medicare+Choice reviews the MMA's attempts to breathe life into troubled Medicare markets in the six communities that Mathematica tracks - Albuquerque, Baltimore, Detroit, New Orleans, Orange County (CA), and Orlando, noting slight improvements in benefit packages and premium reductions in some communities.

Prior to the MMA, private plan offerings declined in all six markets. In 1998, each of the six markets had at least four health maintenance organization (HMO) choices, and three markets had eight or more choices. More than 1 in 10 beneficiaries were in HMOs in all of the markets except Detroit. By 2003, only Orange County had four or more Medicare private plan choices, and Baltimore and Detroit effectively had none. In addition, market penetration fell to single digits in three markets: 7 percent in Orlando, 3 percent in Detroit, and less than 1 percent in Baltimore.

The MMA authorized a number of changes in the Medicare+Choice program, which included renaming it Medicare Advantage and increasing payment rates to plans for 2004. Under the MMA, plans now receive at least 100 percent of traditional Medicare payment in the counties where they provide services. A new method for calculating annual updates guarantees plans an increase of at least 6.3 percent for 2004 (versus 2 percent in each of the previous years).

Plans must use the increased payments to reduce enrollee premiums or cost sharing, enhance benefits, stabilize provider networks, and/or put the dollars in a stabilization fund to offset potential future premium or cost-sharing increases or benefit cuts. Plans in four markets chose to use some of the increase to reduce premiums or cost sharing, and plans in all six markets chose to enhance their benefits by improving drug coverage. Only one plan interviewed was considering putting the extra money in a stabilization fund.

Reactions from plan representatives interviewed soon after the MMA was enacted ranged from cautiously optimistic to enthusiastic about whether the MMA would help resuscitate the Medicare Advantage market, at least in communities where there was still a Medicare Advantage infrastructure. Although market penetration for plans in these markets has held steady between March 2003 and March 2004, as of May 2004 penetration had increased slightly in five of the six markets. This pattern suggests that benefit improvements and premium reductions may be having a beneficial effect on enrollment.

“The MMA raised payments to plans in 2004 and 2005 to stabilize the market in anticipation of 2006,” said Marsha Gold, a senior fellow at Mathematica and co-author of the report. “Changes to date show some beneficial effects from these payments. However, it is too early to tell whether the additional funding will be sufficient to offset the reactions of plans, providers, and beneficiaries to earlier withdrawals and erosion of choice and benefits.”

The research is based on telephone interviews conducted in January and February 2004 with insurance counselors from state health insurance plans, staff at Area Agencies on Aging, state aging and insurance officials, and health plan officials in the six communities. Respondents were asked about plan and provider changes in the local Medicare Advantage market, the effect of the MMA on plans in the short and long term, and how beneficiaries responded to the MMA and how they think it will affect the Medicare information infrastructure.