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Mark Miller: Remaking Retirement

Big Changes May Be Coming to Traditional Medicare

Accountable care organizations may replace the fee-for-service model. Here's why that's concerning.

When you first sign up for Medicare, there's an important choice to make: traditional or Advantage?

Traditional Medicare (also often called Original Medicare) is the old-fashioned fee-for-service program: You visit a healthcare provider and the provider submits the bill to Medicare. Medicare Advantage, on the other hand, is the commercially offered managed-care alternative, which offers an all-in-one solution in exchange for certain trade-offs. Medicare Advantage plans give you incentive to use healthcare providers in their networks, and they can make decisions that affect how and where you'll receive care.

Those trade-offs are important and they can be difficult to understand. But at least those enrolling in Medicare get to choose between the two options.

The distinctions between the two options will soon begin to blur, however, if a plan to change traditional Medicare goes forward.

The Centers for Medicare & Medicaid Services, or CMS, recently announced the next phase of its plan to transform traditional fee-for-service Medicare. Critics argue that the planned changes amount to a dramatic expansion of privatization. Supporters counter that the new approach will improve traditional Medicare by creating financial incentives for providers to coordinate patient care and focus on overall improvements in patient health.

Either way, if you are enrolled in traditional Medicare, or expect that you will be in the future, there's one especially eye-opening aspect of this plan: CMS plans to enroll everyone in this new model by the end of this decade--and as early as next year, in some cases--without prior consent. 

Medicare's new strategy comes at a time when millions of retirees have already opted out of traditional Medicare over the past two decades to join Advantage plans. These plans already serve 42% of Medicare enrollees, and they are on track to account for roughly half of enrollment by the end of this decade.

The new model for traditional fee-for-service Medicare sounds like yet another form of managed care. Here, Medicare enters into contracts with healthcare provider groups that receive a flat annual payment to provide care for enrollees in the traditional program.

Up until this point, Medicare called the healthcare contractors involved in this experiment "Direct Contracting Entities," but starting next year they will be known as "ACO Reach." That's a two-part acronym standing for accountable care organization and "realizing equity, access, and community health"--a CMS strategy for creating equitable access to healthcare across the country.

The concept of ACOs is not new, and many healthcare experts say they have the potential to improve healthcare by incentivizing healthcare providers to work together as teams. And greater equity in healthcare delivery is a laudable goal. But this particular version of ACOs is drawing criticism from some health policy experts who view it as unwarranted--and unwise--further privatization of Medicare. 

What Change to Original Medicare Means for Beneficiaries

Being aligned with an ACO would not change the basic set of Medicare benefits enrollees are entitled to by law--but that's also the case with Medicare Advantage. The concern here is how those services are delivered and who is delivering them.

Defenders note that ACOs are healthcare organizations--typically, a large physician practice group--not insurance companies. But the question here is about the ownership of these ACOs. There's been a surge of investment in ACO groups by private equity firms and insurance companies, leading some experts to suggest that there is a "Medicare Gold Rush." Investors are banking on the projected growth in Medicare enrollment resulting from the nation's aging population and rising healthcare spending. Much of the investment activity is coming from special-purpose acquisition companies, or SPACs, private equity firms and health insurance companies already dominant in the Advantage business.

These businesses are investing to make a profit, of course. That is done through a "capitation" model: The ACO (or Advantage plan) receives a set dollar amount per patient annually, no matter how much healthcare that patient utilizes. Profit is generated through managed-care techniques, which can include limiting access to services deemed unnecessary and using financial incentives to encourage use of in-network providers. That, in turn, limits patient choice.

Traditional Medicare is the gold standard of coverage: It allows beneficiaries to visit nearly any healthcare provider in the United States, a feature that has become extremely hard to find in any health insurance plan and one that may be a matter of life and death if you receive a diagnosis of a serious illness and want to seek out care from a top-rated specialist or facility that may not be in your managed-care network.

Critics of Medicare Advantage point to research documenting problems with denial of care. A 2018 report by investigators in the U.S. Department of Health and Human Services found a "widespread and persistent" pattern of inappropriate denial of patient claims. The report also concluded that the Advantage capitation payment model may be incentivizing plans "to deny preauthorization of services for beneficiaries, and payments to providers, in order to increase profits."

In theory, competition among health plans paid by capitation can lead to improvements in the quality and efficiency of care--and save money for the federal government. But studies have concluded that Advantage plans are receiving billions of dollars in overpayments because of the way they are permitted to charge Medicare for sicker patients in their care. One recent study estimated that Medicare overpaid Advantage plans by more than $106 billion from 2010 through 2019 because of improper risk adjustments.

Medpac, an independent congressional agency charged with advising lawmakers on Medicare, has consistently found that Medicare pays more for beneficiaries enrolled in Medicare Advantage compared with similar beneficiaries enrolled in the fee-for-service program.

Overpayment questions have become urgent as Medicare faces growing financial pressures. The Part A trust fund (hospitalization) is projected to be depleted in 2026; at that point, it would have sufficient revenue from current tax receipts to pay 91% of projected benefit costs, according to Medicare's trustees.

The question now is, why would it make sense to introduce yet another element of privatization to Medicare? 

How Existing Beneficiaries Could Be Enrolled

If your primary care provider participates in an ACO, you could automatically be "aligned" with it. That occurs through a review of claims history by the CMS. You'd receive a letter informing you that your healthcare provider is part of an ACO; opting out would require shifting to a doctor who is not part of an ACO. For many beneficiaries, that would be a damaging disruption in care and actually difficult to do in rural parts of the country where healthcare provider choices are limited.

A Done Deal?

Medicare officials are on the record stating that all traditional Medicare beneficiaries will be in ACOs by 2030.

But in January, more than 50 Democratic members of Congress urged the Biden administration to end the ACO experiment. Physicians for a National Health Program and other advocates for single-payer healthcare also are working to stop the program before it begins.

And in March, more than 250 organizations representing seniors, people with disabilities, consumers, and health professionals sent a letter to Health and Human Services Secretary Xavier Becerra, calling for an end to Medicare privatization experiments.

I've been surprised that Medicare's ACO plan has not yet captured more attention in the media and with political leaders, but this fits with a general lack of public debate about the steady growth of Medicare's privatization.

CMS officials note that the Affordable Care Act empowers it to approve innovative healthcare models like ACOs, as long as such changes will improve the quality of care to patients and potentially reduce costs. But there is good reason to question whether ACOs would actually achieve those goals.

The ACO model has important implications for the future of one of our most important social insurance programs. It shouldn't be implemented without a robust discussion--and without the approval of Congress.

Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to The New York Times and WealthManagement.com. He publishes a weekly newsletter on news and trends in the field at RetirementRevised. The views expressed in this column do not necessarily reflect the views of Morningstar.