Rochester Business Journal

Roughly $136 billion in planned cuts nationwide for Medicare Advantage funding over the next several years will leave local plans largely unharmed, area carriers predict.

Privately administered but largely government funded, Medicare Advantage has proved highly popular in the Rochester region with more than 100,000 people enrolled locally. Such plans substitute HMO coverage for standard Medicare's fee-for-service model.

In standard Medicare, the government directly pays providers 80 percent of costs with beneficiaries picking up the difference. Seniors using standard Medicare usually enroll in Medigap plans, which pay much of the cost not covered by the government but charge premiums that can be much higher than Medicare Advantage premiums.

Medicare Advantage has been popular with insurance companies, many of which have found the program to be a moneymaker. When Schenectady-based MVP Health Care took over Rochester-based Preferred Care HMO in 2006, MVP CEO David Oliker cited Preferred Care's profitable Medicare Advantage program as the main selling point.

Profits were high because until this year, insurance companies got payments 14 percent higher than standard Medicare rates as an incentive to run Medicare Advantage programs. The extra cash allowed insurers to offer benefit-rich plans to seniors in direct-pay Medicare Advantage plans. The premiums added little or nothing to the roughly $100-a-month premium for standard Medicare Part B.

The $136 billion in Medicare Advantage cuts-enacted under the Patient Protection and Affordable Care Act-zeroes out the Medicare Advantage overpayment in a series of graded annual steps.

That the act would gut coverage for millions of U.S. seniors enrolled in Medicare Advantage plans became a key and highly effective point in many Republicans' midterm-election campaign ads. Reports of plans' demise have been exaggerated, however, said executives of local Medicare Advantage carriers.

As a two-month Medicare Advantage open enrollment period begins this month, Medicare Advantage insurers are courting new business aggressively, running television ads, sending direct-mail solicitations and running informational seminars in hopes of signing new enrollees.

MVP and the Rochester-based Excellus BlueCross BlueShield largely dominate the local Medicare Advantage market. Both also offer commercial group and other health coverage across upstate New York.

St. Louis-based Essence Health Care, which operates in six states and writes only Medicare Advantage coverage, is a relatively tiny player here. It entered the Rochester market last year, hoping to capture a significant share.

With some 87,000 Rochester-area Medicare Advantage enrollees, MVP has long been the market leader here. Excellus is a distant second with some 18,000 local Medicare Advantage enrollees.

Essence has signed 1,745 people to its plans. The company is confident that the number will at least double in 2011 and continue to climb, Essence spokesman Andrew Shea said.

A provider panel confined to some 600 doctors affiliated with or working for Rochester General Health System has limited Essence's reach, he said. The St. Louis insurer is expanding the panel to doctors affiliated with Unity Health System, a move Shea expects to add hundreds of new doctors to its panel next year and entice new subscribers.

The impending loss of the 14 percent overpayment is a potential but completely manageable problem, officials of all three insurance companies said.

"We're in good shape," said Patrick Gleavy, MVP vice president for Medicare.

Michael Burke, Excellus vice president for Medicare, echoed him.

"Half of our overpayment is gone already, but it's a challenge we're geared up for," Essence CEO Frank Ingari said.

The reason for the insurance executives' lack of concern is a little-publicized feature of the Patient Protection and Affordable Care Act: Funding taken from Medicare by the act can be replaced. A key point: Lost funds are restored only to insurance companies that can prove they are paying for high-quality, low-cost care.

Medicare Advantage insurers can recoup disappearing overpayment funds in two ways. Both depend on quality and cost measures, as tracked by the Centers for Medicare and Medicaid Services through claims data and other records.

First is a temporary adjustment under which carriers get extra payments based on how well enrollees are doing. CMS studies claims data on a county-by-county basis, setting rates in each county.

"We're doing very well across all our counties," Excellus' Burke said.

MVP's Gleavy concurs.

Essence, whose New York presence is limited to Monroe and Wayne counties, is likewise in good shape, Ingari said.

A second and more permanent round of extra support can come under a rating system in which CMS awards one to five stars to insurers. A five-star rating signifies the best results. Carriers must score four stars or better to be eligible for bonus payments. Higher ratings mean higher bonus payments.

MVP and Excellus have each earned CMS ratings of four-and-one-half stars. Essence has earned four-star ratings in other markets, Shea said. Its Rochester-area plan has not operated long enough to earn a rating but would match the company's other markets, he predicted.

The executives also named Medicare Advantage's risk-adjusted reimbursement plan as a feature that would bolster profitability and ensure fair coverage. Risk-adjusted reimbursements pay higher fees for the care of sicker patients, a method that contrasts with past HMO payment strategy, which paid flat rates.

Flat rates encouraged HMOs to limit or drop coverage for sicker and therefore higher-cost enrollees. Risk adjustment encourages opposite policies, Ingari said.

While the Medicare Advantage executives generally are upbeat about their plans' ability to survive the coming cuts, they concede that higher benefit levels required under the new health care law are having an effect on premiums.

Excellus last year offered a Medicare Advantage plan with a $5.50-a-month premium. Earlier it had offered a no-premium plan. This year, its lowest Medicare Advantage premium is $33 a month.

In 2005, MVP's precursor, Preferred Care, cut its least expensive Preferred Care Gold premium from $30 a month to $16.43. It was the third year in a row when rates had dropped. MVP Gold's lowest monthly premium in 2011 will be $48.

Essence, which introduced its product to Rochester last year with no-premium and $69-a-month plans, is keeping rates the same in 2011.

11/26/10 (c) 2010 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail service@rbj.net.