December 19, 2006
Medicare: Last-Minute Legislating

The 109th Congress packed up and went home December 9th, leaving behind some last-minute Medicare tinkerings worth noting. The omnibus tax and healthcare bill they sent to the White House will establish a two-year open enrollment period for Original Medicare enrollees to switch to a Medicare Advantage plan that doesn’t include prescription drug coverage.

Other provisions of the bill:

• Eliminate the 5.5% physician pay cut that was slated to take effect January 1 and establish a physician payment stabilization fund in 2008,

• Reduce the $10 billion Medicare Stabilization Fund to $3.5 billion, and

• Make high-deductible health plans more attractive by easing some restrictions on health savings accounts (HSAs).

The effect of the high-profile physician payment provision should be widespread relief and reassurance that doctors won’t stop taking Medicare patients just as the first of the baby-boomers give serious consideration to their senior healthcare options. Congress put off for another day the main topic: how to rationalize healthcare provider payment schedules into a system that will encourage better care and more affordable health insurance. There’s sure to be more discussion of this in the coming months.

To fund the higher physician reimbursement rate, Congress agreed to reduce the size of the Medicare Stabilization Fund, a mechanism set up in the 2003 Medicare Modernization Act (MMA) to encourage widespread availability of Medicare Advantage plans. Under MMA, the fund is available to attract insurance plans to underserved MA markets in 2007-2013. Strong enrollment trends in MA plans led the Health and Human Services Secretary to tell Congress he “has no intention or need” to access the fund next year – further evidence of the health of the MA market.

MA-Only Enrollment

The sleeper of the 2006 legislation was a behind-the-scenes boost for Medicare Advantage plans that don’t include prescription drug coverage. Plan sponsors will be looking to move their PDP-only enrollees into MA-only plans during this two-year period and eventually transition them into MA-PD plans.

We should have a glimpse at how well this two-stage strategy might work when CMS releases the results of the 2006-2007 open enrollment period.

Who to watch? The top MA-Only parent organization in July 2006, just after the end of the initial PDP enrollment period, was UnitedHealth, but it only had 13% of its members in MA-Only plans. Strategy-wise, Sterling and Regence are more interesting, with more than half their members in MA-Only plans.

Source: CMS data and MFA analysis
Note: Though CMS last released MA-Only enrollment data in July, ongoing monthly reports track aggregate enrollment in MA plans.

Companies that operate both MA and stand-alone PDPs are also positioned to benefit from the legislative change. It will be interesting to see which parent organizations have the most Original Medicare seniors enrolled in their PDP-Only plans at the end of the 2006-2007 open enrollment period on December 31. CMS’ most recent data are interesting for a benchmark.

Source: CMS data and MFA analysis

HSA Improvements

Another section of the legislation stands to benefit not only Medicare Advantage plans but all sponsors of consumer-directed health plans (CDHPs). Insurers’ biggest boost from the “Health Opportunity Patient Empowerment” section of the bill may come from a group of provisions intended to make HSAs more flexible and attractive.

One HSA provision, pushed by America’s Health Insurance Plans (AHIP), repeals the 2003 law’s limitation on the income tax deduction that individuals can claim for HSA contributions, which previously capped the annual tax write-off at the CDHP’s annual deductible amount. Although the monetary limitations imposed by the original law remain in effect, the 2006 change will benefit many policyholders and make the tax deduction easier to understand. For 2007, the deductible limitation will be $2,850 for individual coverage and $5,650 for family coverage, including the inflation index amounts added since 2003. Covered individuals who have reached age 55 by the end of the year will be allowed an extra $800 “catch-up” contribution deduction.

Other HSA changes will:

• Allow for one-time distributions into HSAs from other kinds of savings accounts–health reimbursement accounts (HRAs), healthcare flexible spending accounts (FSAs), and individual retirement accounts (IRAs).

• Allow a full year’s contribution for part-year coverage when the covered individual becomes eligible for the account after the beginning of the year, as long as the individual keeps the plan for at least a year.

• Allow employers to make larger HSA contributions on behalf of lower-paid employees.

AHIP President and CEO Karen Ignagni said the legislation helps consumers prepare for their long-term care needs. “If you want consumers to prepare for long-term care, they need to develop a long-term strategy,” she said. “With higher contribution limits that are indexed to inflation, HSAs will offer new opportunities for consumers to plan for their long-term care expenses.”

Watch This Space …

When President Bush signs the Tax Relief and Health Care Act of 2006 – the big, messy bill with these and other provisions – the book will be closed on the 109th Congress. But for Medicare plan sponsors, the story is far from complete. The Democratic-controlled 110th Congress has healthcare high on its agenda, particularly a more comprehensive fix for the physician payment formula and perhaps some “fixes” for prescription drug benefits under Medicare Part D. There will be more to say on healthcare legislation after the first of the year, that’s for sure!

Medicare Business Online – Track the Changes

MFA organizes Medicare enrollment and market share data in user-friendly tables within Medicare Business Online™. The database is updated at least monthly and presents the latest enrollment figures by company for Medicare Advantage (includes county-level) and stand-alone PDPs. Subscriptions also include market analysis reports about Medicare Advantage and PDP competition. Subscribe by December 29th to take advantage of 2006 discounted rates.

Mark Farrah Associates (MFA), headquartered in Kennebunk, Maine, provides health insurance market data and analysis. Our portfolio includes online data products, industry-focused market and research consulting services. MFA has been analyzing industry trends, market share and competition since 1997. Our products, reports and consulting services are credible and reliable as we strive to always exceed client expectations.

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