With millions of elderly individuals in the United States dependent on Medicare for medical coverage, it is critical that the program be both effective and economically viable—for individuals and for the US government. The Department of Health Care Policy was recently awarded an NIH Program Project Grant for a comprehensive study of the role of private plans in Medicare—or Part C, also known as Medicare Advantage. Submitted by HCP faculty member Joseph P. Newhouse, PhD, the $7.5 million grant funds five interrelated projects over five years.
Part A of Medicare primarily covers hospitalizations, and Part B enables subscribers to buy optional coverage that pays for doctors’ visits; roughly 95 percent of eligible individuals do so. Part D, which covers drugs, is voluntary and requires a premium like Part B. Parts A, B, and D comprise “traditional Medicare.”
But even with the available optional coverage, Medicare recipients may have to pay deductibles and co-pays out of pocket or buy private supplementary insurance to cover them. Part C was established in the 1980s to enable health care organizations and insurers to provide alternate coverage (subsidized by Medicare) in the form of an HMO. Subscribers see doctors within the health plan’s network and receive treatments according to plan rules without paying for supplementary insurance because cost sharing is typically much lower. Historically, however, Part C has never attracted the bulk of Medicare beneficiaries. Today, only 24 percent of those eligible participate in Part C, which is an all-time high. Why is participation so low? Is Part C cost-effective? How does it affect care? Is it a good value for the consumer?
Surprisingly, there are few data to answer these questions, yet there is much debate over Medicare Part C. The HCP project’s aim is to bring facts to bear about how these private plans affect choices for beneficiaries and for providers. The intent is to shed light on the debate and, ultimately, inform policy.
HCP faculty member Richard G. Frank, PhD, is leading Project 1, which studies consumer choice. How do consumers choose between Part C and traditional Medicare? Prior research has shown that consumers do not make optimal choices in the face of too many and too complicated choices. Frank’s research examines whether these factors are an issue with the choices offered by Medicare.
HCP‘s Michael E. Chernew, PhD, leads project 2, focusing on how health plans choose to participate in Part C as a function of Medicare reimbursement. In the past, when Medicare reduced its reimbursement rates, plans left the system, with negative effects on consumers; when it raised the reimbursement rates, plans entered. How do reimbursement rates relate to insurer participation? To plan performance? This work will give insight into these issues.
While Newhouse is the core administrator of the project, his own research is part of project 3, which includes two studies that compare Part C with traditional Medicare. The first compares the quality and cost of Part C with traditional Medicare, using certain outcomes to measure aspects of quality. This study is being led by HCP faculty member John Z. Ayanian, MD, MPP. Newhouse is leading the second part, involving Medicare reimbursements to Part C plans that are based in part on the patient’s health. Medicare pays higher reimbursements to health plans if they enroll beneficiaries with certain health conditions. But these adjustments are set using data from traditional Medicare and may not match up well with actual experience in Part C. Looking at cost data, Newhouse is studying how well these adjustments perform and what, if any, distortion in care occurs because of this policy.
Project 4, led by Katherine Baicker, PhD, a professor at the Harvard School of Public Health, looks at how Medicare Part C affects parts A and B. Does the extent of enrollment in Part C in a local market affect how care in traditional Medicare is delivered? This project helps build an understanding of the impact of the patient’s choice of health plan on treatment. Chernew and HCP faculty members Mary Beth Landrum, PhD, and Thomas G. McGuire, PhD, will also work on this project.
Project 5 involves economic theory and is being led by McGuire. This work will occur in parallel with Projects 1 through 4 and will inform, build upon, and complement them. McGuire will construct theoretical models of the current state of Part C to derive, where possible, empirical predictions for the other projects; conversely, this study’s analyses of optimal Medicare regulation and payment will rely on the findings from the other projects.
“With increasing activities involving health care reform and alternative financing and delivery mechanisms, it is critical to determine what types of health plans provide the most value at the least cost,” HCP Head Barbara J. McNeil, MD, PhD, said about the grant. “We are delighted that HCP has been selected to play such an important leadership role in this area.”
