Why do sick people quit their Medicare Advantage plans?

Heading back to Mama Fed
Heading back to Mama Fed

Health plans don’t like sick people. They rack up big medical expenses, drive up health plan administrative expenses, and generally knock down profitability. In the bad old days of Medicare managed care, some plans went out of their way to make sure their membership rolls were filled with healthy people. My favorite tactic from those times? Putting the enrollment office on an upper floor of a no-elevator building to keep out the frail.

Plans are supposed to have fewer incentives now to avoid the sick. The government pays Medicare Advantage plans on a risk-adjusted basis, so in theory plans are indifferent to member health status. But a new study in Health Affairs (High-Cost Patients Had Substantial Rates of Leaving Medicare Advantage and Joining Traditional Medicare) shows that when Medicare Advantage patients get sick they tend to drop out and put themselves back in the arms of the government.

What’s going on? The authors aren’t certain, but they float some ideas:

  • Plans lack incentives to spend their enhanced payments for the sick. (Maybe they just pocket some of the extra funds)
  • Plans are inexperienced managing post-acute and long-term care
  • Risk adjustment factors aren’t high enough
  • Plans impose too much cost sharing
  • Provider networks are too limited

These explanations are all reasonable and –like other findings– raise questions about the value of Medicare Advantage plans and of health plans in general. They spend a lot of money on various administrative functions and generate friction with providers and members. But at the end of the day they don’t tend to add a lot of value in cost management or quality improvement, and patients who use the system a lot would rather take their chances in a government-run program. Some plans actually realize this, which is one reason they lobbied so strongly against the “public option” in the Affordable Care Act.

Health plans, including Medicare Advantage plans, have a long way to go to prove themselves, and I have my doubts about whether they’ll make it. I’ll be interested to see what happens over the next decade or two. Will providers (in the form of accountable care organizations or similar) take over the role of health plans and will they be more effective? Will we eventually move to a single payer system that does away with health plans?

Stay tuned.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

One thought on “Why do sick people quit their Medicare Advantage plans?”

  1. It seems to surprise the people who comment on this apparently flawed Brown University research that seniors on Medicare tend to make supplemental insurance decisions that are best for them financially. If they do not need a lot of medical care, they choose insurance with low premiums and high co-pays. If they need a lot of medical care, they choose insurance with high premiums and low co-pays. How can this be the academics and the left wingers ask? After all, it is academic-elite/Democratic-Party dogma that seniors are stupid.

    I say the Brown University research is apparently flawed because although I am one of the taxpayers than funded it, I can’t read it. Brown hides this taxpayer funded research behind a paywall. But based on the press release that Brown put out it trying to sell its crap it appears to be based on a real lack of understanding of how Medicare works. For example:

    — People on Medicare who are placed on Medicaid leave public Part C health plans because Medicaid duplicates the secondary-to-Medicare supplemental coverage that are the key components of public Part C plans’ benefits. It would make no sense to be on both public supplemental plans — both Medicaid and Part C.
    — People in custodial care in long term nursing facilities leave public Part C health plans disproportionately because about 50% of them are on Medicaid (see first bullet)
    — People who are homebound leave public Part C health plans because penny-wise, pound-foolish bureaucratic government rules make it very hard for Part C health plans to provide home visits for medical services. In fact the current position of most academics is that Part C home health care is fraudulent
    — Of course, public Part C health plans have a limited network of providers. They are typically HMOs. That’s how HMOs work for everyone of every age. That has nothing to do with Medicare (really making the Brown University researchers look stupid)

    The Brown University research seems to leave out the most important information: what do the 50% of people in nursing homes for custodial care who are not on Medicaid do? Are they the ones who stay on Part C or move to Part C? If they move to private fee for service Medigap insurance that runs on average twice as expensive as public Part C health plans they are in trouble because the Obama administration is moving them back with no choice.

    As I said above, perhaps the Brown University research factors in these issues. But we will never know because we are just the suckers that paid for the research but we can’t read it.

    As for your comments on the Brown research, when did anyone need to go to an “enrollment office” to get managed Medicare? And no one managed Medicare has ever been “out of the hands of the government.” All the insurance discussed here – Parts A, B, C and D — is public insurance usually administered by the same 30 or so private insurance companies. They could care less which combination of one, two, up to four additional insurance policies seniors choose on top of Medicare.

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