Health Plans: New Safeguards

By JANE ZHANG and VANESSA FUHRMANS

Seniors will likely pay more for Medicare's private health plans next year, but new consumer protections that come with those plans could ensure they remain an attractive alternative to traditional Medicare.

The changes come as the Obama administration moves to tighten the screws on private plans offered under Medicare, the federal insurance program for the elderly and disabled. The Centers for Medicare and Medicaid Services, or CMS, recently unveiled stricter terms for insurers offering the so-called Medicare Advantage plans, taking effect next year, and will effectively cut payments to them by as much as 5%.

Enrollment in the Medicare Advantage program has surged to 10.5 million enrollees currently from 5.4 million in 2005. These plans wrap physician and hospital services into one, often with extra benefits, such as vision and dental coverage. Instead of paying doctors and hospitals directly, as it does under traditional Medicare, the federal government pays plans to manage care under the Advantage program.
Response to Cuts

The payment cuts could mean monthly premium increases for beneficiaries of between $40 and $70, or the equivalent in benefit reductions, according to the Blue Cross Blue Shield Association. That assumes insurers won't absorb any of the cuts themselves, though it might be hard for the insurers not to do so in competitive markets without losing enrollees. Big players such as Humana Inc., UnitedHealth Group Inc. and WellPoint Inc. say they are trying to figure out how to respond to the cuts.

Plans looking to consumers to make up the cost difference could increase their premiums, introduce higher copayments or cost-sharing, or pare or eliminate some benefits. Kris Haltmeyer, deputy executive director for legislative and regulatory policy for the Blue Cross Blue Shield Association, said plans looking to control costs might strengthen disease-management or care-coordination programs, or require patients to get approval first to receive certain treatments or tests.

Seniors will also see some new protections under the Advantage plans. The plans will have to abide by new federal rules, including stricter marketing standards, caps on certain out-of-pocket costs and a requirement that plans use easy-to-understand language to explain coverage terms.

"We are working to provide consumers with better information so they understand the options they are considering," said Jonathan Blum, director CMS's Center for Medicare Management.

Under the new CMS requirements, Advantage plans won't be allowed to charge low-income, sick patients more than what they would pay under traditional Medicare. CMS said it will increase scrutiny of plans that don't cap patients' out-of-pocket costs at $3,400 or less per year, and ask violators to reduce charges.

CMS said it will closely watch plans that fail to include hospital and physician services when calculating out-of-pocket cost. The agency will also keep an eye on patient charges for services and medical equipment often linked to chronic illnesses, such as hospitalizations, nursing-home care and wheelchairs.

Beneficiaries could also find it easier to compare plans. Starting next year, plans must indicate in their names the type of plan they are, such as a health-maintenance organization or a private fee-for-service plan. Drug plans will be required to list on their Web sites the conditions patients have to meet to get drugs, such as trying a cheaper drug first or receiving prior authorization from plans.

A small number of seniors -- less than 1% of Advantage enrollees -- may find that their plans no longer exist next year. CMS said it is seeking to eliminate about 1,400, or 27%, of all Advantage plans, because they have fewer than 10 enrollees each and are often similar to other plans. Officials said they will work with affected enrollees to sign them up for similar plans.

Other consumer-friendly features: All Advantage plans will have to accept patients who enroll through Medicare's Web site, www.medicare.gov. Plans also will have to resolve most urgent complaints, such as lack of access to doctors, within two days.

"There's a clear sense that CMS wants to make sure that this program works," said Vicki Gottlich, a senior policy attorney at the Center for Medicare Advocacy, a Connecticut-based patient-advocacy group, "and that it works in the best interest of the consumers, rather than the plans."

Some consumers are still worried. Ed Svikhart, a retired financial executive in Salt Lake City, Utah, said he and his wife together might have to pay between $1,200 and $2,000 more a year because of the government's payment cuts to Medicare Advantage. He said he has been happy with his Regence Blue Cross Blue Shield Medicare Advantage plan, for which he and his wife each pay $79 a month.

"We were disappointed when we learned that these plans will increase costs for us, or may be limited entirely," said Mr. Svikhart, 78 years old, who has seen his retirement investments shrink during the recession.
Bids in June

An Obama administration official said it won't know how the payment changes affect consumers specifically until June 1, when insurers submit their bids to offer Advantage plans for next year.

Medicare policy analysts say many private plans will continue to be a relatively affordable option, especially compared to more-expensive Medigap plans, which offer supplemental coverage to traditional government-run Medicare. "I don't think there will be some massive dislocation," said Dan Mendelson, president of Avalere Health, a Washington consulting firm. "These markets are competitive and the [private plans] will have to anticipate what the competition is going to do."

Medicare policy analysts say the impact of the cuts is likely to be felt more in rural areas where it's more costly for plans to operate.

Medicare has left the door open to tweaking the policy. The payment rates for plans announced this month assume a planned, 21% cut in Medicare's reimbursements to physicians, but Congress is almost certain to introduce legislation to reverse the physician-fee cut this summer. Medicare officials have said they are open to working to adjust the amount of the cuts.

Write to Jane Zhang at Jane.Zhang@wsj.com and Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com