One way to lengthen the financial solvency of program while improving health outcomes.
The new Medicare Trustees report is a mix of good and bad news.
The good news is the modest improvement in Medicare's long-term financial outlook -- with the hospital insurance trust fund now expected to run out of funds in 2026, rather than 2024, as predicted last year. The program has been operating in the red since 2008. The bad news is: The financial outlook is still bleak.
Concern about the size and cost of Medicare is understandable. With 10,000 or so baby boomers due to reach age 65 every day for the next 18 years, Medicare enrollment is exploding, and based on our projections, by 2023 -- 10 years from now -- should reach 66 million, up from 50.3.
The need to find better ways to deliver quality health care to seniors at a reasonable cost is obvious.
What's interesting is that an effective way to do this already exists: the Medicare Advantage program, which some in Washington are seeking to curtail.
Unfortunately, the full benefits of this model are often overlooked. But they shouldn't be because Medicare Advantage is a win-win, controlling costs and saving lives.
While most Medicare patients receive medical services on a traditional fee-for-service basis, with costs reimbursed directly by Medicare, more than 13 million, or 27% of the total, are enrolled in Medicare Advantage plans provided by insurers. The Congressional Budget Office expects the number to increase to 21 million by 2023. Since 2005, Medicare Advantage enrollment has more than doubled; last year alone, it increased by 10%.
It is now widely accepted that Medicare Advantage plans, which include health maintenance organizations (HMOs), preferred provider organizations (PPOs) and "capitated" health networks -- can provide the same care at lower cost than traditional fee-for-service Medicare.
But the fact that patients in Medicare Advantage enjoy better health outcomes -- despite the fact that these patients are typically older, less well-off financially, and have more medical problems -- has largely gone unnoticed.
While this may sound too good to be true, it is true. Indeed, we recently compared claims data for some 3 million Medicare patients. Our sample included claims data for 1.3 million fee-for-service patients; 1.1 million PPO enrollees; 355,000 individuals belonging to a non-capitated HMO; and 290,000 individuals enrolled in a capitated HMO. These latter organizations -- such as JenCare and HealthCare Partners, which treat patients at dozens of locations in Florida and California -- receive a flat fee, or capitation, for each patient. The organization is then responsible for providing or paying for all medical care their patients need. Their incentive, therefore, is to keep patients healthy.
To ensure accuracy, we risk-adjusted the data and even used matched population samples, so we could compare individuals of the same age, sex, socioeconomic background and with the same medical conditions.
We focused our analysis on three critical measures of health-care quality: single-year mortality rates, recovery from acute medical conditions requiring hospitalization, and long-term health. We also tracked four specific chronic diseases: coronary artery disease, obstructive pulmonary disease, kidney disease and diabetes.
What we found, to the surprise of many, was that patients in the more managed programs had lower mortality rates and enjoyed better health and fewer complications than traditional fee-for-service patients.
Single-year mortality rates, for example, fell from 6.8% in the fee-for-service sample to 1.8% in the managed delivery models. The lowest rates and the best performance were seen in the capitated plan. The death rates declined quickly, within the first year of enrollment.
Medicare Advantage patients also had shorter average hospital stays -- and fewer readmissions. Compared to the fee-for-service sample, the capitated HMO sample had hospital stays that averaged 19% shorter.
One of the greatest advantages of Medicare Advantage seems to be the emphasis on healthier living and preventive care -- especially the management of chronic conditions. For example, diabetes patients in the fee-for-service sample had 111 amputations per 10,000 patients; those in capitated HMO plans averaged about three amputations per 10,000 patients.
While most Medicare Advantage enrollees probably choose these plans because of the low costs, averaging just $35 per month last year, according to the Kaiser Family Foundation, the larger benefit is better health care.
Health care is a huge and contentious issue that is likely to become more so as the Affordable Care Act is rolled out. Policy makers and medical experts will continue to look for new models for the delivery of quality care at affordable prices.
As they do, they shouldn't ignore the success story that already exists. They should try to replicate it.
Daniel Gorlin is a principal at The Boston Consulting Group (BCG) specializing in health-care reform. Jon Kaplan is a BCG senior partner specializing in health-care finance and co-author of the recent report, "Alternative Payer Models Show Improved Health-Care Value." Both are based in Chicago.