The JAMA study published in December of 2022 about the quality levels for fee-for-service Medicare and for Medicare Advantage tells us that the third leg in the government funded care tool kit is on track and working well.
Government funded care had three major functional strategies, component parts, and key tools — and we should be looking now at all three of those agendas because one is in trouble, one is limping along but salvageable, and one is going extremely well and exceeding expectations.
One: Medicaid Expansion Was Priority One
Medicaid was a number-one priority for everyone when the health care bills were passed, because our need was so great and so clear for that particular area of reform. Expanding Medicaid was a key and foundational tool and piece because we have been the only country in the industrialized world that didn’t provide health coverage or health care to all of its lowest-income people and to all of our children.
Most states have used the full Medicaid package, and we now have a total of 90 million people enrolled in Medicaid. About 41 million are in the CHIP program for children.
Every state has used a number of the modern care improvement tools to provide significantly better care than the Medicaid enrollees had in too many settings before the expansion happened.
We are at the point now where over half of the births in most states will be Medicaid births. The care approaches used in the Medicaid delivery systems in most states are significantly superior to the approaches that were used in most Medicaid settings before the expansion.
So there have been significant successes on leg one of the care stool and Medicaid expansion was clearly the right thing to do for the country and for all the low-income people who now receive that care.
The program has done well with higher quality care being delivered in all of those settings, and care teams and processes in place that are far better focused on kids than those programs had been in a majority of the states.
We have funding issues today for those programs, but we have better care design, better care coordination, and better care linkages for our poorest income children than we had in most settings when that legislation was passed.
Two: Universal Coverage Was Priority Two
The Exchanges and Universal Coverage components of leg two for Obamacare are the Exchanges and affordable care for anyone who wants it, with no exclusions for pre-existing conditions — and without the insurance company underwriting practices that created barriers to coverage for too many people in our enrollment processes in the past.
That infrastructure is now in place everywhere and there are insurance players in every setting. The key issues now will be the level of funding that we can get for those patients, because basically nothing has been done to bring down the average costs created by those members, but they're very nicely situated to meet the availability needs of the members.
Progress is happening for that tool as well. The exchanges are functioning in every state.
Some of the affordability issues for that enrollment were addressed with a combination of subsidies and insurance reforms that have allowed us to have about 20 million people now getting coverage through the exchanges.
The number of Americans under the age of 65 who are still completely uninsured has dropped from over 46 million people in 2010 to under 10 percent of the total population and about 27 million people now, as those programs and reforms have been rolling out and increasing in their enrollment success, but those numbers will probably change significantly in the next months as we figure out that funding agenda.
Three: Better Funding of Medicare Was Priority Three
Medicare improvement was the third leg of that agenda.
The carefully packaged and structured Purchase of Medicare was the third major leg of the Obamacare stool. The goal was to get more Medicare people enrolled in prepaid, capitated, structured, accountable and functionally packaged, coordinated and linked programs for care, in order to improve both the costs of care and the value of care for Medicare patients.
That reform in the purchasing approach was needed because pure traditional fee-for-service Medicare has far too often provided poor, ineffective and inadequate care — particularly for low-income people.
Fee-for-service Medicare has some fierce advocates and loyal proponents, but it actually doesn't have any quality components or quality goals, and it is also not close to being full coverage for its members.
People who have never received traditional Medicare and people who politicize the issue think that traditional Medicare is full coverage and often make that claim about the full scope of coverage in a number of political and public settings — but traditional Medicare isn't close to full coverage. It currently costs an average of more than $5500 out of pocket for each traditional coverage member. It has repeating deductibles and copayments and it has no limit on the total amount of money that a fee-for-service Medicare member can be charged for care.
Fee-for-service Medicare had major and clear flaws as a coverage and the cold reality is that the average and normal out-of-pocket cost of care for people today who only have the Medicare For All basic benefit package and who don’t buy supplemental coverage now is more than $5500 for each Medicare patient each year.
The people building the government care tool kit knew how weak those traditional Medicare benefits were and they also knew that the fee-for-service payment model that is used by fee-for-service Medicare to buy care is hugely, functionally, structurally and inherently flawed. That fee-based Medicare payment model too often directly rewards caregivers and care sites financially for delivering bad care — because the bad care creates more opportunities to generate fees and to create billings and provider wealth because it creates the need for more care.
We would not choose to buy cars in a payment cash flow that doubled the cost of buying the car if it crashed and then more than tripled the payments and the costs for the car if someone died in the crash.
That’s obviously a flawed model for buying cars or anything else — but it is the basic payment model that traditional fee-for-service Medicare uses now to buy care and the people designing our attempts to achieve universal coverage didn't want that payment approach to be our only way of paying for Medicare services or benefits.
The alternative purchasing approach that was created by the Affordable Care Act for Medicare that was built into the program tool kit was to pay a pure capitation amount and to pay no fees to health plans who agreed to provide full coverage and who agreed to provide complete care to the people who enrolled in their capitated plans.
They created and modified Medicare Advantage as a way of buying care by the package and not just by the piece. The capitation amount that is used to fund Medicare Advantage is based on the average cost of providing fee-for-service Medicare in every county and the goal is to spend less money and to have better care by using that funding approach that is anchored on Medicare current cost levels for each county.
When fee-for-service Medicare has people with strokes and asthma attacks, and has people going blind from bad and inadequate management of their blood sugar levels, the average cost of that too-often bad care for all of the fee-for-service Medicare care sites is added up every year for every county to create the baseline data for the revenue stream — and the Medicare Advantage plans get that average amount of Medicare expenses for each person each month, and can use that money to improve and provide care to their members.
The plans all charge discounted amounts from those average Medicare Costs in every county. The plans charge less than the average cost of care for fee-for-service Medicare in each county, and the amounts charged by the plans have been going down at relative levels each year because the approach has been extremely successful for the program.
The Plans Did Better by Far on All Eight Quality Measures
The JAMA research that was just done for Medicare Advantage in December showed that the capitation payment approach is working — and the plans had better quality in the eight measured categories of care, and that the plans also had 40 percent fewer hospital admissions for asthma and a significantly lower mortality rate for their members for the four years that they studied.
The JAMA article explained clearly that the intent, point, and purpose of the Medicare Advantage payment model was for the plans to take the capitation money each month and use it to improve care.
We have the highest amputation rates in the world now for our low-income patients — and the cost of those amputations for all of those fee-for-service Medicare patients and payments is added into the average cost of care that creates the capitation model that is funded every month for the plans.
The payment model has direct relevance and impact on many areas of care. Fee-for-service Medicare has the highest rates of amputations for low-income people — and it is public knowledge that fee-for-service Medicare pays over $100,000 in fees for each amputation.
Billions of dollars are spent on removing people’s legs in a wide range of fee-for-service Medicare settings today. That equivalent amount of money for those amputations is added into the capitation amount that is made available to the plans for their care.
The capitated plans get a fixed payment each month for each member. That fixed payment is a powerful and effective purchasing tool because of the resources it creates and because of the uses and care improvement approaches that the plans can make with the money just by using it wisely and well.
The plans all know that 90 percent of the amputations today for all of those patients are caused by foot ulcers that go bad. The capitated plans also all know that you can reduce and eliminate 40 percent of the foot ulcers for the patients with dry feet and clean socks.
So more than 95 percent of the Medicare Advantage special-needs plans have clean socks on their patients and it is extremely successful. Only a tiny portion of low-income fee-for-service Medicare patients get that same service and those patients have the highest amputation surgery rates in the world.
There are two patterns today for the Medicare fee-for-service patients who have not enrolled in Medicare Advantage. About half of the non-enrollees are in each group. The higher-income Medicare patients tend to buy supplemental insurance coverage and those higher-income patients do often get good care for more money with that often-expensive coverage, but the low-income Medicare patients who are not in Medicare Advantage plans do not get that support from their local and often inadequate and uncoordinated care sites and those amputations do happen for those patients.
Under Covid, the Medicare Advantage plans had team care in place everywhere for their patients and the Medicare Advantage plans had a significantly lower death rate for their hospitalized patients. Low-income fee-for-service patients did not have those supports in place and had significantly inferior and even inequitable care for their Covid infections.
The only major increase in hospital care in the country that happened during the first Covid time frames was a huge increase in amputations done by the fee-for-service Medicare people who have consistently billed more than $100,000 on each of those patients and somehow managed to get them past the Covid screens in place at the hospitals.
It appears that those patterns of care are influenced by the fee-for-service Medicare payment system and amounts of money paid. That is a dangerous and flawed process in a number of settings. We do get great care in many settings, but we also get a significant amount of wrong care outcomes and bad care processes and we pay far too much for inept and ineffective care.
It’s legitimate to ask if we would choose to buy a car from any source if the arrangement was that we had to pay three times as much if the car actually killed you, and we knew that there are no quality measures and goals if no one would look at how that happened or would have any quality oversight of the process.
Dollars matter. Financial factors structure, set up and channel much of care. Fee-based care sites do what they are paid to do almost everywhere and they don’t generally improve care where improving care creates a negative string of cash to the site.
We have known the right things to do for diabetic patients for decades and those right things — like managing blood sugar and managing foot ulcers in consistent ways, and intervening early in congestive heart failure care patterns and in asthma care before crisis happen — don’t happen far too often in low-income care sites and they happen perfectly and consistently for every capitated health plan, because capitation rewards better care and doesn’t make hundreds of thousands of dollars for care sites when care fails.
We Need to Incent and Reward Continuously Improving Care with Capitation Buying Care
The people building the benefit approach for the Medicare program knew that those incentives drove care in both directions and they decided that we should have those financial structures and financial incentives work on our behalf and not against our best interests — and they knew that capitation can do exactly that if you build the right model and create the right expectations and manage the process skillfully and well.
For Medicare, the solution is to be a buyer and not just a payer for care. Medicare Advantage was set up to purchase care as a buyer and not just blindly pay for care by the piece using the old approaches, processes and perverse financial rewards.
The program designers created financial rewards for better care at multiple levels in the plans for Medicare Advantage. That Medicare Advantage payment model encourages and rewards and actually funds care engineering processes that look much like the kinds of re-engineering and process improvement strategies that happen very skillfully and intentionally in every other industry that isn’t penalized when they improve their products, and who are intentionally and directly rewarded when the product produced by the business gets better.
One of the very real, current and fully intentional spillover benefits of that process improvement financial model for Medicare Advantage is the designers knew and believed that the benefits would extend automatically to other patients being seen by each set of caregivers. The sheer practical logistics of care delivery is that when you manage both foot ulcers and blood sugar well for any diabetic patient, you are very likely as a care site to use that same set of tools and get that same benefit package for other patients seen by that doctor and care site.
Medicare Advantage five-star performance levels in the plans have improved drastically over the past couple of years, from the original point where only a very few plans achieved that highest star rating and status in the first years, to the point where over 90 percent of Medicare Advantage members can now enroll in four- or five-star plans.
Ninety Percent Is a Very Important Number Today for American Health Care
Ninety percent is actually a very relevant and important number to the overall American health care system at this moment in time and we should be using that consistency at that very high level in understanding the current Medicare Advantage impact on our entire system of financing and delivering care.
Ninety percent of American businesses today are self-insured. Ninety percent of those self-insured companies hire third-party administrators to run their self-insured plans. Ninety percent of the third-party administrators are also actually the owners and the operators of Medicare Advantage plans. So we have reached the point where the overlap between the plans and the self-insured care approaches used today to provide health care benefits for American employers is effectively 90 percent.
Our labor unions who provide retirement health care for their employees have run their own trust-fund processes for decades but they are now heavily included in that same 90 percent alignment reality and pattern because they use Medicare Advantage for their members.
Obamacare set up an easy path for those trust funds to get better care for less money by enrolling the union beneficiaries in Medicare Advantage plans. More than 90 percent of those retiree programs have done that, and we now have more than 5 million union trust-fund members in the Medicare Advantage plans in linkages that most policy people, academics and health care media people don’t know about or even suspect.
To add to that momentum, those same organizations who run Medicare Advantage programs and self-insurance administration also tend to be the ones who run the 90 percent of the competitive health plans in the state insurance exchanges.
That total set of linkages means that we have reached the point in our care processes where care enhancements done for Medicare Advantage because of the star system and the capitation payment model now reach the vast majority of people with health insurance in the country. To complete the picture, we are now at the point where the Medicare Advantage plans work with, and often are, the plans who run our Medicaid programs in most states.
The Affordable Care Act is succeeding in being a catalyst and a tool for community relevant care improvement exactly as the people who designed it hoped would happen if the capitation triggered those enhancements in those settings — and care is getting better in many American settings as a result of those linkages.
The total payment model is a based on bids that the plans do each year that are tied to the average cost of fee-for-service Medicare in every county.
The bids fall below the average cost of fee-for-service Medicare by about 17 percent each year — and so nothing that's done by any plan once those bids are set can make the total cost increase for Medicare.
The plans might have disproportionate payments relative to other plans based on the coding system used by each plan — but as long as the total bids are lower than the average fee-for-service bid, that isn’t an expense for the government. It’s only a difference in payment between plans.
The Medicare Trustees in their annual report always predict that Medicare will become insolvent within a relatively few years. When fee-for-service Medicare was the only cash flow, that trust did shrink every year and insolvency dates in the relatively near future made sense.
With Medicare Advantage now more than half of the membership and with Medicare Advantage bids running 17 percent below the average cost of Medicare, we now have Medicare making money — because the average revenue for Medicare each year increases by about 8 percent, and the average increases in costs for fee-or-service Medicare are about 9 percent, but the average costs for Medicare Advantage increase by 4 percent or less each year.
Medicare makes a profit at 4 percent on all of those members with that annual 4 percent capitation and cost increase number anchoring the process.
The profit has had the Medicare Trust Fund increase to more than $400 billion for the current report.
Medicare is now a profit center for the government because of Medicare Advantage.
And Medicare Advantage takes care of the highest need patients.
The fastest growing segment of Medicare Advantage are the 5 million plan members who are called "dual eligible" members because they have joint membership in Medicaid and Medicare.
Those low-income people have massive health care needs, and many of those patients are getting team care for the first time in their lives. More than 60 percent of the African American members and 70 percent of the Hispanic Medicare members have joined plans, and nothing in their decision process is relevant to upcoding anything because the care needs of the patients are so significant and immediate and not a function of coding anything.
The Hispanic and African American and low-income Medicare members join Medicare Advantage in large percentages in very direct response to the fact that the traditional Medicare benefits are so inferior and so expensive for members. And when your average net worth as is under $20,000, you have a different appreciation for those Medicare Advantage vision, hearing, dental, and in-home care benefits than the higher income Medicare fee-for-service members who have net worth ranging from $100,000 to $200,000, and who get their eyeglasses from commercial markets at much higher prices.
Traditional Medicare is expensive — and it currently costs each member over $5000 in out of pocket expenses and it runs thousands of dollars more than the costs for Medicare Advantage members each year.
The Medicare Advantage plans use the capitation cash flow well and the plans have lower costs and much more complete benefits, and the Medicare Advantage plans are obviously a much better and more competent use of the Medicare dollar than fee-for-service Medicare payment approaches.
We Need to Continuously Improve and Reengineer Care Now
We need to re-engineer care as a country to better use computers and data bases and connectivity tools and artificial intelligence for our diagnosis and our care plans — and we can actually make that better care happen by having it be part of our informed and intentional and strategic purchasing process for Medicare Advantage from this point forward.
We should be on the cusp of a golden age for care. The financial and economic reality is that only capitation-based payment approaches can create golden care because fee-for-service payment approaches for Medicare actually damage, penalize and even explicitly and directly forbid some of the needed improvements and the electronic connectivity tools that we should all be having and using for our care.
We know from the new JAMA study that Medicare Advantage did better on all eight quality measures and helped reduce the death rate by over 40 percent over the four years that they studied the care and is actually the anchor for some serious care improvement agendas-particularly for the lowest-income people who were eligible for both Medicare and Medicaid — using the capitation resource to reengineer care.
The dual eligible study done by CMS last year also said that the plans were extremely successful and valuable in that work — and that study reported with solid data that the Medicare Advantage survival rate for their dual eligible enrollees was actually 97 percent for the year studied.
We're now in a quandary about several major areas of our total health care coverage umbrella and infrastructure.
The Medicaid program is in place and delivering much better care than it used to.
Funding is uncertain, but the program is highly popular with its communities and members, so that should create some momentum in that direction for the states.
We should create a clear vision for how much care improvement we can do when we have a commitment to continuous quality improvement and when we have the resources and leverage to use the golden age of medical technology we are entering into in optimal ways to improve care for both Medicare and Medicaid.
There’s no possible way for traditional fee-for-service Medicare to achieve any of those goals, and we need to get the people who defend it with such passion to stop undermining Medicare Advantage agendas with the clear goal of replacing them with that rigid, inflexible, inadequate, and perversely incented payment approach that damages so many people today, and to accept continuous improvement as their strategy, goal, commitment, tactical context, and core competency for the decade ahead.
Medicare Advantage plans bid below the average cost of fee-for-service Medicare in every county — and those are real numbers that have created a $400 billion surplus for the Medicare Trust Fund that's absolutely game changing for America.
The Medicare trustees have more than two decades of predicting at their annual report time that fee-for-service costs would bankrupt the entire program within a decade at the outside, and we now have Medicare Advantage with a majority of the enrollees and significant profits being made by the fact that the annual Medicare revenue increase of 7 percent is now profitable when Medicare Advantage costs have increased for a decade at 4 percent or less each year.
Medicare Advantage now is profitable and adds to the Medicare that now runs in excess of $200 billion.
That $200 billion surplus is game changing for Medicare.
We won’t have future political battles about funding Medicare because all of the people who predicted with great confidence that Medicare was heading for insolvency are now completely wrong because Medicare Advantage now has over half of the enrollment and it's making money.
The political battles over Medicaid will be affected to the point that the people who run and own the Medicare Advantage plans are the same people who run the Medicaid plans — and funding approaches that are reached will have an easy set of tools for implementation.
Those same plans administer 90 percent of the self-insured employer programs and plans.
We have a lot of pieces in place that we can use once we figure out who should benefit from coverage here.
This could be a very interesting year.