Daniel Medicare

Overview of Medicare Spending

Medicare, the federal health insurance program for 57 million people ages 65 and over and people with permanent disabilities, helps to pay for hospital and physician visits, prescription drugs, and other acute and post-acute care services. In 2015, spending on Medicare accounted for 15% of the federal budget (Figure 1).

Medicare plays a major role in the health care system, accounting for 20% of total national health spending in 2014, 29% of spending on retail sales of prescription drugs, 26% of spending on hospital care, and 23% of spending on physician services.¹ This issue brief includes the most recent historical and projected Medicare spending data from the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary (OACT), the 2016 annual report of the Boards of Medicare Trustees² and the 2016 Medicare baseline and projections from the Congressional Budget Office (CBO).³

 

 

 

Medicare benefit payments totaled $632 billion in 2015; just under one-fourth was for hospital inpatient services (23%), 12% for the Part D drug benefit, and 11% for physician services (Figure 2). More than one-fourth of benefit spending (27%) was for Medicare Advantage private health plans covering all Part A and Part B benefits; in 2016, 31% of Medicare beneficiaries are enrolled in Medicare Advantage plans.⁴

 

Both in the aggregate and on a per capita basis, Medicare spending growth has slowed in recent years. While spending is expected to continue to grow more slowly in the future compared to historical trends, there are signs that spending growth could increase at a faster rate than in recent years, in part due to rising prescription drug spending, growing enrollment in Medicare, increases in provider payments, and higher growth in input prices for medical care.⁵ Net Medicare spending is projected to grow modestly as a share of the federal budget and the nation’s economy in the next ten years.

Historical Trends in Medicare Spending

Trends in Total and Per Capita Medicare Spending

The recent years have seen a notable reduction in the growth of Medicare spending compared to prior decades, both overall and per beneficiary.

• Average annual growth in total Medicare spending was 4.4% between 2010 and 2015, down from 9.0% between 2000 and 2010, despite faster growth in enrollment since 2011 with the baby boom generation reaching Medicare eligibility age (Figure 3).
• Average annual growth in spending per beneficiary averaged just 1.4% between 2010 and 2015, down from 7.4% between 2000 and 2010.

 

Slower growth in Medicare spending in recent years can be attributed in part to policy changes that took effect as part of the Affordable Care Act (ACA) and the Budget Control Act of 2011 (BCA).⁶ The ACA included reductions in Medicare payments to plans and providers and introduced delivery system reforms that aimed to improve efficiency and quality of patient care and reduce costs, including accountable care organizations (ACOs), medical homes, bundled payments, and value-based purchasing initiatives. The BCA lowered Medicare spending through sequestration that reduced payments to providers and plans by 2% beginning in 2013. In addition to policy changes implemented through legislation, the trajectory of Medicare spending in recent years has shifted downward due to slower growth in prescription drug spending, a reduction in inpatient hospital readmissions, a sharp decline in home health spending, and recoveries from program integrity efforts.

Spending trends for medicare compared to private health insurance

Over the past 25 years, Medicare spending has grown at a slightly slower rate than private health insurance spending on a per enrollee basis. With the recent slowdown in the growth of Medicare spending, the difference in growth rates between Medicare and private health insurance spending per enrollee widened.

• Between 1989 and 2014, Medicare spending per enrollee grew at an average annual rate of 5.5%, somewhat slower than the 6.3% average annual growth rate in private insurance spending per enrollee over these years.⁷
• Between 2000 and 2010, per enrollee spending growth rates were comparable for Medicare and private insurance (Figure 3). Between 2010 and 2015, however, Medicare per capita spending grew considerably more slowly than private insurance spending, increasing at an average annual rate of just 1.4% over this time period, while average annual growth in private health insurance spending per capita increased at just over twice that rate (3.0%).

Medicare Spending Projections

Short-term spending projections for the next ten years

Looking ahead, net Medicare spending (that is, mandatory Medicare spending minus income from premiums and other offsetting receipts) is projected to increase from $591 billion in 2016 to $1.1 trillion in 2026, according to CBO. CBO projects total Medicare spending to increase from $695 billion to $1.3 trillion over this time period (Figure 4).⁸ Net Medicare spending is projected to grow modestly as a share of the federal budget and the nation’s economy over the next ten years. Between 2016 and 2026, Medicare’s share of the budget is projected to increase from 15.2% to 16.8%, while Medicare spending as a share of the gross domestic product (GDP) is projected to increase from 3.2% to 3.9%.

 

Spending growth rate projections

• Average annual growth in total Medicare spending is projected to be 7.1% between 2015 and 2025, faster than the 4.4% average annual growth rate between 2010 and 2015.
• On a per capita basis, Medicare spending is projected to grow at a faster rate between 2015 and 2025 (4.3%) than it has in recent years, but somewhat more slowly than average annual growth in per capita private health insurance spending over this time period (4.8%) (Figure 5).
• Medicare per capita spending is not expected to grow uniformly across the coming ten-year period, however. Average annual per capita spending growth is expected to be slower in the first five years of the projection period than in the last five years: 3.9% between 2015 and 2020, increasing to 4.7% between 2020 and 2025.

 

 

Rising prescription drug spending

• OACT projects a comparatively higher per capita growth rate in the coming years for Part D than for the other parts of the program due to higher costs associated with expensive specialty drugs. Per capita spending growth is projected to be 5.8% for Part D, compared to 3.2% for Part A and 4.6% for Part B (Figure 6).
  

 

Long-term spending projections

Over the longer term (that is, beyond the next ten years), both CBO and OACT expect Medicare spending to rise more rapidly relative to GDP due to a number of factors, including the aging of the population and faster growth in health care costs than growth in the economy on a per capita basis. According to CBO’s most recent long-term projections, net Medicare spending will grow from 3.2% of GDP in 2016 to 3.9% in 2026, 5.0% in 2036, and 5.7% in 2046.⁹

Over the next 30 years, CBO projects that “excess” health care cost growth¹⁰ will account for a somewhat larger share of projected growth in spending on the nation’s major health care programs (Medicare, Medicaid, and subsidies for ACA Marketplace coverage) than the aging of the population.¹¹ CBO cites new medical technology and rising personal income as the driving factors behind projections of rising health care costs. At the same time, CBO notes that the projected rate of excess cost growth in Medicare spending for the coming years is lower than the historical rate of growth, based on the expectation that use of Medicare services will continue to grow slowly and on the smaller provider payment updates called for under current law relative to past payment increases.¹²

How Is Medicare Financed?

Medicare is funded primarily from three sources: general revenues (42%), payroll taxes (37%), and beneficiary premiums (13%) (Figure 7).

 

• Part A is financed primarily through a 2.9% tax on earnings paid by employers and employees (1.45% each) (accounting for 88% of Part A revenue). Higher-income taxpayers (more than $200,000/individual and $250,000/couple) pay a higher payroll tax on earnings (2.35%).
• Part B is financed through general revenues (73%), beneficiary premiums (25%), and interest and other sources (2%). Beneficiaries with annual incomes over $85,000/individual or $170,000/couple pay a higher, income-related Part B premium reflecting a larger share of total Part B spending, ranging from 35% to 80%. The ACA froze the income thresholds through 2019, and beginning in 2020, the income thresholds will once again be indexed to inflation, based on their levels in 2019 (a provision in the Medicare Access and CHIP Reauthorization Act of 2015¹³). As a result, the number and share of beneficiaries paying income-related premiums will increase as the number of people on Medicare continues to grow in future years and as their incomes rise.
• Part D is financed by general revenues (77%), beneficiary premiums (14%), and state payments for dually eligible beneficiaries (10%). As for Part B, higher-income enrollees pay a larger share of the cost of Part D coverage.
• The Medicare Advantage program (Part C) is not separately financed. Medicare Advantage plans such as HMOs and PPOs cover all Part A, Part B, and (typically) Part D benefits. Beneficiaries enrolled in Medicare Advantage typically pay monthly premiums for additional benefits covered by their plan, in addition to the Part B premium.

Assessing Medicare’s Financial Condition

Medicare’s financial condition can be assessed in different ways, including estimating the solvency of the Medicare Hospital Insurance (Part A) trust fund, and comparing various measures of Medicare spending—overall or per capita—to other spending measures, such as Medicare spending as a share of the federal budget or as a share of GDP. Such measures are also used in the context of broader discussions of the national budget and federal debt and in the Independent Payment Advisory Board (IPAB) process, described below.

Solvency of the Medicare Hospital Insurance Trust Fund

The solvency of the Medicare Hospital Insurance trust fund, out of which Part A benefits are paid, is one way of measuring Medicare’s financial status, though because it only focuses on the status of Part A, it does not present a complete picture of program spending overall. The solvency of Medicare in this context is measured by the level of assets in the Part A trust fund. In years when annual income to the trust fund exceeds benefits spending, the asset level increases, and when annual spending exceeds income, the asset level decreases. When spending exceeds income and the assets are fully depleted, Medicare will not have sufficient funds to pay all Part A benefits.

Each year, the Medicare Trustees provide an estimate of the year when the asset level is projected to be fully depleted. The Trustees now project that the Part A trust fund will be depleted in 2028, two years earlier than was projected in 2015, attributable to lower payroll tax receipts and a slowing rate of reduction in inpatient utilization (Figure 8).

 

Because of slower growth in Medicare spending in recent years, the solvency of the Part A trust fund has been extended further into the future compared to projections before the ACA was passed. Part A trust fund solvency is also affected by the level of growth in the economy, which affects Medicare’s revenue from payroll tax contributions, by overall health care spending trends, and by demographic trends—of note, an increasing number of beneficiaries—especially between 2010 and 2030 when the baby boom generation reaches Medicare eligibility age—and a declining ratio of workers per beneficiary making payroll tax contributions.

Part B and Part D do not have financing challenges similar to Part A, because both are funded by beneficiary premiums and general revenues that are set annually to match expected outlays. Expected future increases in spending under Part B and Part D, however, will require increases in general revenue funding and higher premiums paid by beneficiaries.

The Independent Payment Advisory Board

The Independent Payment Advisory Board (IPAB), authorized by the ACA, is a new approach to controlling Medicare spending. IPAB is required to recommend Medicare spending reductions to Congress if projected spending growth exceeds specified target levels. The Board is to consist of 15 full-time members appointed by the President and confirmed by the Senate. To date, however, no members have been appointed, and in fact there have several attempts by Congress to repeal the Board altogether.¹⁴

IPAB is required to propose spending reductions if the 5-year average growth rate in Medicare per capita spending is projected to exceed the per capita target growth rate, based on general and medical inflation (2015-2019) or growth in the economy (2020 and beyond). If there are no Board members appointed when a proposal for spending reductions is required, the Secretary of Health and Human Services is responsible for making recommendations to achieve the required spending reductions.

Based on its most recent Medicare spending growth rate projections relative to the targets, OACT has estimated that the IPAB process will first be triggered in 2017 (Figure 9). This would initiate a three-year cycle ending with spending reductions implemented in 2019. OACT also projects that spending growth will exceed the target growth rate in 2022, 2024, and 2025. CBO has projected that Medicare spending growth will be below the target growth rate for each fiscal year through 2018, but will exceed the target growth rate in 2019, 2024, and 2026. Based on its IPAB projections, CBO estimates Medicare savings of $8 billion as a result of the IPAB process between 2019 and 2026.¹⁵

 

The Future Outlook

While Medicare spending is on a slower upward trajectory now than in past decades, total and per capita annual growth rates appear to be edging away from their historically low levels of the past few years. This raises several questions about recent spending trends and projections for future spending growth: Can the recent slowdown in Medicare spending be sustained and can this be done without adversely affecting access to or quality of care? How are payment and delivery system reforms influencing spending levels? How will future spending be affected by Medicare’s new approaches to physician payment that will be established pursuant to the 2015 law known as MACRA?¹⁶ What steps could be taken to moderate the projected growth in Medicare spending due to the availability of new specialty drugs and medical technology?

A number of changes to Medicare have been proposed that could help to address the health care spending challenges posed by the aging of the population, including: restructuring Medicare benefits and cost sharing; eliminating “first-dollar” Medigap coverage; further increasing Medicare premiums for beneficiaries with relatively high incomes; raising the Medicare eligibility age; shifting Medicare from a defined benefit structure to a “premium support” system; and accelerating the ACA’s delivery system reforms. At the same time, changes have been proposed to improve coverage under Medicare in order to limit the financial burden of health care costs on older Americans and younger beneficiaries with disabilities, though such changes would likely require additional spending. In addition to these potential changes, which would affect future spending levels, revenue options could also be considered to help finance care for Medicare’s growing and aging population.¹⁷

The prospects for these and other proposals that would affect Medicare spending and financing are unknown, but few would question the importance of carefully deliberating ways to bolster the Medicare program for today’s beneficiaries and for the growing number of people who will depend on Medicare in the future.

 

Source: The Facts on Medicare Spending and Financing Jul 20, 2016 | Juliette Cubanski and Tricia Neuman

 

 

 

 

 

 

Medicare is most commonly known as a health insurance program for people ages 65 and older, but, since 1973, the program has also provided coverage to millions of people with permanent disabilities who are younger than age 65.¹ People under age 65 qualify for Medicare after they receive Social Security Disability Insurance (SSDI) payments for 24 months.

Younger adults with end-stage renal disease (ESRD) and amyotrophic lateral sclerosis (ALS) are eligible for Medicare as soon as they begin receiving SSDI benefits. Over time, the share of Medicare beneficiaries under age 65 has more than doubled, from 7% (1.7 million people) in 1973² to 16% (9.1 million) this year.³

Medicare beneficiaries under age 65 with disabilities differ from beneficiaries age 65 and older in several ways.⁴ In 2012, nearly two-thirds of all younger Medicare beneficiaries (65%) had a cognitive or mental impairment, compared to 29% of seniors. Nearly 6 in 10 (59%) reported their health status as fair or poor and almost the same share (58%) reported having one or more limitations in their activities of daily living, compared to 20% and 34% of seniors, respectively. In 2014, half of all Medicare beneficiaries under age 65 lived on income less than $17,050, one third less than median income of $26,150 among beneficiaries age 65 and older.⁵

Differences in health status between younger and older Medicare beneficiaries suggest that Medicare spending could also differ for these two groups. In 2014, Medicare beneficiaries under age 65 accounted for 18% of the 38.5 million beneficiaries in traditional Medicare (excluding Medicare Advantage enrollees), and a somewhat higher share (23%) of total traditional Medicare spending that year.⁶ Per capita spending also could vary for these two groups, both overall and by type of service. This data note compares average per capita Medicare spending and service use for beneficiaries under age 65 to spending among those over age 65.⁷ The analysis is based on data from a 5% sample of Medicare claims for services covered under Parts A, B, and D for traditional Medicare beneficiaries from the Chronic Conditions Data Warehouse (CCW) of the Centers for Medicare & Medicaid Services (CMS) from 2000 to 2014. The analysis excludes beneficiaries enrolled in Medicare Advantage because comparable data on Medicare spending by service are not available for these enrollees.^8,9

Findings

Average Medicare per capita spending on Part A and Part B services is only modestly higher for beneficiaries under age 65
than those over 65. Average total spending is higher for beneficiaries under age 65, mainly due to Part D prescription drug spending.

• Medicare per capita spending for beneficiaries younger than age 65 averaged $13,098 in 2014, nearly one third more than average per capita Medicare spending for beneficiaries over age 65 ($9,972) (Figure 1). Excluding Part D drug spending, the difference narrows considerably, to $9,281 for beneficiaries under age 65 and $8,814 for those over age 65, on average.
• Since 2000, per capita spending for Medicare-covered services under Part A and Part B has been similar for beneficiaries under and over age 65. Beginning in 2006, with the start of the Medicare Part D prescription drug benefit, average total per capita Medicare spending for those under age 65 surpassed that of beneficiaries over age 65, due to higher Part D spending among younger beneficiaries. (Figure 2)
  

  Figure 1: In 2014, Medicare per capita spending was higher for beneficiaries under age 65
  than for those over age 65, primarily due to higher Part D prescription drug spending

  

  Figure 2: Medicare per capita spending was lower for beneficiaries under age 65 than those
  over age 65 between 2000 and 2005; this pattern reversed beginning in 2006 when Part D began

The pattern of spending by type of service is different for beneficiaries under age 65 with disabilities than for those over age 65. On average, beneficiaries under age 65 have higher per capita spending for drugs covered under Part D and for inpatient and outpatient services, but lower spending on post-acute and hospice care than beneficiaries over age 65.

• In 2014, average Medicare per capita spending on outpatient Part D prescription drugs was more than three times larger for beneficiaries under age 65 ($3,817) than for those over age 65 ($1,159).¹⁰ Part B drug spending, however, was somewhat lower among those under age 65 ($287) than those over age 65 ($360). (Figure 3; Table 1) The pattern of much higher Part D drug spending but somewhat lower Part B drug spending by beneficiaries under age 65 compared to those over age 65 could be because a considerable share of total Part B drug spending is for drugs used to treat cancer and its side effects,¹¹ which may be more likely to be used by older beneficiaries.¹²
• Medicare per capita spending on hospital inpatient and outpatient services was higher among beneficiaries under age 65 ($3,781 and $2,203, respectively) than among older beneficiaries ($3,092 and $1,448) in 2014.
• Conversely, average Medicare per capita spending for post-acute care (skilled nursing facility and home health services) was half as much for younger beneficiaries with disabilities than for those over age 65 in 2014 ($690 versus $1,324). Although a similar share of both groups of beneficiaries used inpatient services in 2014, smaller shares of beneficiaries under age 65 used post-acute care services than those over age 65.¹³
• Similarly, average Medicare per capita spending on hospice care was considerably lower for beneficiaries under age 65 than those over age 65 ($85 versus $333). This is partly because the death rate is lower among beneficiaries under age 65 than among those over age 65,¹⁴ and because roughly half as many younger Medicare beneficiaries who died in 2014 used hospice services than older beneficiaries who died that year.¹⁵

Part D prescription drug spending accounts for a much larger share of total spending for beneficiaries under age 65 than older beneficiaries, while post-acute care spending accounts for a larger share of spending among beneficiaries over age 65.

• Part D drug spending accounted for 29% of per capita spending among beneficiaries younger than age 65 in 2014, but just 12% of per capita spending for beneficiaries over age 65. (Figure 4; Table 1)
• Post-acute care services (skilled nursing facility and home health services) comprised a much smaller share of total per capita spending for beneficiaries under age 65 than those over age 65 (5% versus 13%).
• Inpatient and outpatient services accounted for similar shares of per capita spending in 2014 for both beneficiaries under age 65 (29% and 17%, respectively) and those over age 65 (31% and 15%, respectively).

Among beneficiaries under age 65, Medicare per capita spending increases with age until beneficiaries reach their 40s and then generally levels off.

• In 2014, average per capita Medicare spending increased from $7,918 for 25 year-olds to $11,834 for 35 year-olds to $13,578 for 45 year-olds, leveling off at around that amount for beneficiaries between the ages of 45 and 64. (Figure 5; Table 1)
• Both in dollar amounts and as a share of total spending, Medicare per capita spending for inpatient, outpatient, and physician services is similar at different ages among beneficiaries younger than age 65, while per capita Part D prescription drug spending increases modestly but then declines as beneficiaries age. (Figures 6 and 7)
• Average per capita spending on skilled nursing facility, home health, and hospice services increases by year of age among beneficiaries under age 65, but these services account for a very small share of total Medicare spending for younger beneficiaries—ranging from less than 1% to 5% of total per capita spending for skilled nursing facility services, 1% to 3% for home health services, and around 1% for hospice services for beneficiaries as they age from 25 years old to 64 years old.

Among beneficiaries over age 65, Medicare per capita spending is nearly two times higher for those who initially qualified for Medicare before age 65 due to disability or ESRD.

Among beneficiaries over age 65, average Medicare per capita spending is considerably higher for those who originally qualified for Medicare before they turned 65 due to having a permanent disability, ESRD, or ALS, than for older beneficiaries who qualified for Medicare based on age alone. In 2014, 2.6 million traditional Medicare beneficiaries over age 65 (9% of all traditional Medicare beneficiaries over age 65) initially qualified for Medicare due to receiving disability insurance benefits, having ESRD, or both prior to turning age 65¹⁶; these beneficiaries had average spending of $17,193, nearly twice the level of average spending among the 26.7 million traditional Medicare beneficiaries over age 65 who first became entitled to Medicare when they turned 65 ($9,278) (Figure 8).

Discussion

Comparing Medicare per capita spending by beneficiaries under age 65 with disabilities and spending by those over age 65 shows a large difference between the two populations, primarily due to substantially higher Part D prescription drug spending for beneficiaries under age 65. Other spending differences by type of service—such as lower spending on post-acute care services and higher spending on inpatient and outpatient services among beneficiaries under age 65 compared to those over age 65—reflect variation in medical needs and treatment among beneficiaries at different years of age.

Contrary to what might be expected based on health status differences between Medicare beneficiaries under age 65 with disabilities and older beneficiaries, average Medicare per capita spending on services covered under Part A and Part B was only moderately higher among those under age 65 than over age 65 in 2014, and was in fact somewhat lower among younger beneficiaries between 2000 and 2011. Total per capita spending began to diverge more widely beginning in 2006 when the Part D prescription drug benefit took effect, with much higher average Part D spending among beneficiaries under age 65. These findings suggest that curtailing rising drug costs would have the effect of reducing the Medicare spending gap between beneficiaries under and over age 65.

While this analysis shows that younger beneficiaries with disabilities have similar spending patterns as older beneficiaries for Medicare-covered hospital and physician services combined, we are unable to examine spending for certain services not covered by Medicare that may be needed and used more often by younger beneficiaries with disabilities, in particular long-term services and supports and dental care. For these services, state Medicaid programs may be playing a much greater role for Medicare beneficiaries with disabilities than older beneficiaries. Addressing gaps in Medicare-covered benefits could help to address unmet needs for long-term services and supports and dental services that both younger and older beneficiaries may face—especially those who are not dually eligible for Medicare and Medicaid—but would also add to Medicare’s bottom line.

 

Source:  Aug 16, 2016 | Juliette Cubanski, Tricia Neuman Follow @tricia_neuman on Twitter , and Anthony Damico

Each year, Medicare Advantage enrollees have the opportunity to change plans during an annual enrollment period. This opportunity is important because Medicare Advantage plans can make changes in their benefits, cost-sharing, provider networks, and premiums each year, and beneficiaries’ health needs may change from one year to the next.

The open enrollment period allows enrollees to compare plans, stick with their current plan, switch to another plan, or shift to traditional Medicare. It is also the time when beneficiaries in traditional Medicare can switch to Medicare Advantage plans.

Little is known about the extent to which Medicare Advantage enrollees change plans during the annual open enrollment period. Prior research shows that roughly the same share of beneficiaries, 5 percent, shift between Medicare Advantage and traditional Medicare each year,¹ that most enrollees tend to stay in a Medicare Advantage plan once in Medicare Advantage,² and that switching rates from Medicare Advantage to traditional Medicare are higher among high-need, high-cost patients.^3,4

This analysis focuses on enrollees in Medicare Advantage plans with prescription drug coverage (MA-PDs) who change plans when given the opportunity. It also analyzes the variation in the rate of plan switching by enrollee and plan characteristics and whether people who voluntarily switch plans tend to move to plans with lower premiums, lower out-of-pocket limits, or higher quality ratings. The analysis is based on a five percent sample of Medicare claims data merged with plan data from 2007 to 2014 (see Methods).

Switching Rates

About one in ten Medicare Advantage plan enrollees (11 percent) in 2013 voluntarily switched to another plan in 2014 (Figure 1). Another two percent of enrollees voluntarily switched to traditional Medicare¹ and another five percent were required to switch (involuntarily switched) plans because their plan exited the market.

 

Of the five percent of involuntary switchers, four percent switched to a different Medicare Advantage plan, and about one percent elected coverage under traditional Medicare. Another three percent of enrollees in 2013 died before the start of the 2014 calendar year. Overall, 78 percent of Medicare Advantage enrollees did not change their source of coverage between 2013 and 2014.

Switching Rates, by Year

The share of Medicare Advantage enrollees switching plans has been virtually the same each year between 2007 and 2013, averaging 9 percent annually (Figure 2). The relatively constant rate of voluntary plan switching is noteworthy given the number of changes in Medicare Advantage policies and payments implemented during this time frame, including the establishment of new network requirements for private fee-for-service (PFFS) plans enacted as part of the Medicare Improvements for Patients and Providers Act (MIPPA) and implemented in 2011, as well as the reductions in federal payments to plans enacted as part of the Affordable Care Act of 2010.

 

Voluntary switching rates were slightly higher between 2009 and 2010 and between 2013 and 2014 than in other years. The slight increase between 2009 and 2010 may have been due to PFFS plans encouraging their enrollees to switch to another plan offered by their firm in anticipation of terminating their PFFS plans in 2011 due to new provider network requirements for PFFS plans.² Involuntary switching rates were also higher between 2009 and 2011.

Switching Rates, By Firm

Switching rates among enrollees were not consistently higher or lower in one large firm compared to another, with the exception of plans offered by Kaiser Permanente, which had consistently low switching rates relative to all other firms (Figure 3). Switching rates by firm fluctuated over the years. Higher switching rates in some years may have been due to PFFS plans exiting markets, a larger share of people switching out of regional PPOs, or other firm-specific factors.

 

Between two percent and four percent of Kaiser Permanente enrollees switched Medicare Advantage plans between 2007 and 2014 – far lower than the overall average of ten percent. The low voluntary switching rate among enrollees in Kaiser Permanente plans could be partly due to its integrated delivery system, which would require enrollees to change doctors if they switched to a plan offered by another firm.

Comparison of Switching Rates Across Markets

Medicare Advantage enrollees switch plans at similar rates as Medicare prescription drug plan (PDP) plan enrollees but at much lower rates than enrollees in ACA Marketplace plans (Figure 4). Between 2006 and 2010, 13 percent of Medicare PDP enrollees voluntarily switched plans (excluding enrollees receiving Low Income Subsidies),³ similar to the share of Medicare Advantage enrollees switching plans between 2007 and 2014. A much higher share of Marketplace enrollees – 43 percent – switched plans between 2015 and 2016.⁴ Even when all plan switchers, both voluntary and involuntary, are included, the rate (17 percent) is still much lower among Medicare Advantage than Marketplace enrollees.⁵

 

The lower switching rate among Medicare Advantage enrollees may be due to a number of factors. Marketplace enrollees save more in premiums when they switch plans than Medicare Advantage enrollees. Between 2015 and 2016, for example, Marketplace enrollees saved more than twice as much on annual premiums (saving $504 per year, on average) than Medicare Advantage enrollees saved by switching plans in 2014 (saving $210 per year, on average; Figure 5).⁶ Other factors influencing the difference in switching rates could include the anchoring of subsidies to the second lowest cost silver plan in the Marketplaces, more news coverage about the importance of switching Marketplace plans, greater volatility in premiums among the Marketplace plans, more technology savviness among younger Marketplace enrollees,⁷ and better tools available to help Marketplace enrollees shop for plans.

 

Factors Associated with Voluntarily Switching Plans

Beneficiary Characteristics

Age

Switching rates among enrollees were somewhat higher among beneficiaries who were relatively young (ages 65 to 75). Plan switching declined with age, from 12 percent (ages 65-74) to 7 percent (ages 85 and older) between 2013 and 2014 (Figure 6).

 

Dual Eligibles

A somewhat larger share of enrollees dually eligible for Medicare and Medicaid (13 percent) than other Medicare Advantage enrollees (10 percent) switched plans. One possible explanation for this is that dually eligible beneficiaries are permitted to switch plans at any time during the year, unlike other Medicare Advantage enrollees, while another possible explanation is that dually eligible beneficiaries feel their needs are not being met by their current plan. Other research has also noted that a larger share of dually eligible beneficiaries than other Medicare beneficiaries switch from Medicare Advantage to traditional Medicare.⁸

Switching rates were lower among dual eligibles in Medicare Advantage Special Needs Plans (SNPs), which are for beneficiaries who are either dually eligible for Medicare and Medicaid, require an institutional level of care, or have specific chronic conditions. Between 2013 and 2014, about nine percent of dually eligible beneficiaries in SNPs switched to another Medicare Advantage plan compared to 13 percent of dual eligibles in non-SNP Medicare Advantage plans and 11 percent of all dual eligibles in Medicare Advantage plans.⁹

Other Characteristics

Switching rates among Medicare Advantage enrollees did not vary by gender, nor were they consistently higher or lower than among enrollees in metropolitan or non-metropolitan areas.¹⁰ Due to data limitations, this analysis does not examine whether switching rates differed by enrollees’ health status, chronic conditions, or use of health care services.

Plan Characteristics

Premiums

Switching rates were higher among Medicare Advantage enrollees who faced higher increases in premiums between 2013 and 2014. Among Medicare Advantage enrollees who faced a premium increase of less than $20, about 11 percent switched plans, but switching rates were much higher among enrollees who faced a premium increase of $20 or more and switching rates rose with premium increases (Figure 7). About one in five (21 percent) enrollees who faced a premium increase of $20 to $29 switched plans, one in four (24 percent)enrollees who faced a premium increase of $30 to $39 switched plans, and three in ten (29 percent) enrollees who faced a premium increase of $40 or more switched plans.¹¹ Notably, nine percent of enrollees who faced a premium reduction switched plans – similar to the switching rates for enrollees with premium increases between $0 and $19.

 

Most (79 percent) Medicare Advantage enrollees in 2013 faced premium increases of less than $10, which may have influenced their decision to stay in their plan. Conversely, 11 percent of Medicare Advantage enrollees faced premium increases of $20 or more, and more than 20 percent of these enrollees elected to change plans. As noted in more detail later, Medicare Advantage enrollees who switched plans tended to change to a plan with a lower premium, on average.

Quality Ratings

Medicare Advantage enrollees who voluntarily switched plans were disproportionately in plans with lower quality ratings. Between 2013 and 2014, one in seven (14 percent) enrollees in plans with 2 or 2.5 star quality ratings switched plans compared to one in ten (9 percent) enrollees in plans with 4 or 4.5 stars and only one in thirty (3 percent) enrollees in 5 star plans (Figure 8). These findings suggest that factors related to the star ratings may cause some beneficiaries to switch plans. However, as noted later, enrollees who switched plans ended up in a plan with only modestly higher quality ratings.

 

 

Plan Type

For most years between 2007 and 2014, a larger share of enrollees in regional PPOs than enrollees in other plan types voluntarily switched plans (Figure 9). In contrast, the switching rate was generally lowest among HMO enrollees.

 

 

Age of Contract

Switching rates from enrollees in plans under relatively new contracts (beginning in 2006 or more recent) were higher than among enrollees in plans under older contracts. Between 2013 and 2014, nine percent of enrollees in contracts that began before 2000 switched plans compared to 15 percent of enrollees in contracts that began in 2006 or later. However, these differences are intertwined with the types of plans that were available in a given year. For example, regional PPOs, which have higher switching rates than other plan types, could not be offered prior to 2006. Similarly, most of the contracts prior to 2000 were for HMOs.

County Characteristics

Voluntary switching rates did not differ across the county characteristics that were examined, including the number of plans available or the Medicare Advantage payment quartile for the county.

Changes in Premiums, Out-of-Pocket Limits, Quality Ratings, Firms, and Plan Types

Premiums

Enrollees who switched plans saved $15.87 per month in premiums, on average. Enrollees who switched plans would have paid $35.97 per month in premiums, on average, had they stayed in the same plan, but instead paid $18.46 per month, on average, after switching to another plan, saving $17.51 per month, on average (Figure 10). In contrast, enrollees who stayed in the same plan paid $4.26 more per month in premiums, on average. As noted earlier, switching rates were higher among Medicare Advantage enrollees who faced higher premium increases, particularly among enrollees with monthly premium increases of $20 or more.

 

Out-Of-Pocket Limits

Enrollees who switched plans lowered their out-of-pocket limit by $401, on average (Figure 11). Medicare Advantage enrollees who switched plans between 2013 and 2014 would have seen their out-of-pocket spending limits rise by $728, from $4,508 to $5,236, on average, had they stayed in the same plan. By switching plans, enrollees got better catastrophic protection, with lower out-of-pocket spending limits ($4,835, on average), a difference of $401.

 

 

Since 2011, all Medicare Advantage plans have been required to limit enrollees’ out-of-pocket expenses on Medicare Part A and B services to no more than $6,700 and are encouraged by the Centers for Medicare and Medicaid Services (CMS) to have limits of $3,400 or less.

Quality Ratings

Medicare Advantage enrollees who voluntarily switched plans changed to plans with slightly higher star ratings than their original plan, but the improvement was a modest 0.11 stars, on average. Between 2013 and 2014, Medicare Advantage enrollees who switched plans moved from a plan with 3.51 stars in 2014, on average, to a plan with 3.79 stars in 2014, on average –0.28 points higher than their prior plan. Had they stayed in the same plan, they would have seen their plan’s rating increase 0.17 points, on average, the same as the increase in quality ratings for enrollees who did not switch plans.

Firm and Plan Type

Among enrollees who voluntarily switched plans between 2013 and 2014, seven in 10 (71 percent) switched to a plan offered by a different firm (Table 1). Among enrollees who switched to a different firm, most chose a plan of the same type as their original plan. The fact that most people who switched plans moved to a plan offered by a different firm could be an indication that brand loyalty was not a strong factor in their plan choice.

Table 1: Share of Medicare Advantage Enrollees Switching Plans, by Differences in Firm and Plan Type
	Same Firm	Different Firm	Total
Same Plan Type	18%	44%	62%
Different Plan Type	11%	27%	38%
Total	29%	71%	100%

Most (62 percent) Medicare Advantage enrollees who voluntarily switched plans changed to a plan of the same type as their original plan, even if from a different firm. Yet, most of the loyalty to plan type was among the HMO enrollees. The majority of HMO enrollees who switched plans shifted to another HMO (81 percent), while a majority of local PPO, regional PPO, and PFFS enrollees who switched plans changed to a different type of Medicare Advantage plan between 2013 and 2014.

Discussion

Relatively few Medicare Advantage enrollees, roughly one in ten, voluntarily switch from one MA-PD to another MA-PD each year, suggesting that plan switching among seniors is more the exception than norm. The takeaway from this analysis for beneficiaries is not entirely clear. On the one hand, our analysis shows some price sensitivity among Medicare Advantage enrollees: switching rates were higher among the minority of enrollees with relatively big premium increases. On the other hand, the findings confirm that the vast majority of enrollees do not change plans, and that plan “stickiness” may come at a cost, in terms of higher premiums and higher out-of-pocket spending limits.

Enrollees may be sticking with their plan for a number of reasons. They may be satisfied with their coverage. They may decide they would rather pay a bit more in premiums to avoid the hassle and time involved with making a change, particularly because most face a premium increase of less than $10 on average, in 2014. In focus groups, seniors have said that they appreciate the opportunity to change plans but often feel that the differences across plans are not important enough to warrant the time and effort it takes to compare and change plans.¹² Some enrollees may place a higher value on other factors, such as having access to specific doctors or the comfort of sticking with a plan that is familiar. They may find that the information they need to compare plans is not readily available or that the process of comparing premiums, benefits, and provider networks across plans is too tedious.

For plans, the relatively high enrollee retention rate could strengthen incentives to keep their enrollees relatively healthy with low medical costs over the course of many years.  However, it could also send a signal to plans that the risk of losing enrollees to a competitor is low as long as they do not drastically increase enrollees’ costs or disrupt their care arrangements.

For policymakers, these findings underscore the importance of tools and other support to help beneficiaries choose plans that are most likely to meet their individual needs. For instance, the Medicare Plan Finder could be improved to allow beneficiaries to more easily compare provider networks, cost-sharing, and benefits. Additionally, support could be strengthened for counselors and others who help Medicare beneficiaries with these increasingly complex decisions. Efforts that aim to make it easier for Medicare beneficiaries to evaluate their options could increase competition among plans and improve beneficiaries’ satisfaction with their coverage. The fact that most Medicare Advantage enrollees are not changing plans may not be cause for concern, but it does raise questions about whether the Medicare Advantage market is working as well as it could for consumers, especially those who are relatively old or with significant health care needs.

 

Source:  Sep 20, 2016 | Gretchen Jacobson, Tricia Neuman Follow @tricia_neuman on Twitter , and Anthony Damico