For City Retirees, and Taxpayers, Four Questions About Future Health Care
If City Hall and the unions representing most municipal workers aren’t blocked by the courts, about a quarter-million New York City retirees and their dependents will soon say “goodbye” to traditional Medicare coverage.
Here’s the current state of play on this issue: A lawsuit initiated last month by insurance giant Aetna is attempting to stop a planned January 1st transfer of most City government retirees into a “Medicare Advantage Plus” plan – a partnership operated by rival commercial insurance companies EmblemHealth and Empire Blue Cross. Aetna, one of the finalists in bidding for a five-year deal to administer $34 billion in medical care spending, claims the selection process for the contract was unfair and that their plan is the better one.
In announcing the deal with EmblemHealth and Empire Blue Cross, Mayor Bill de Blasio said it “increases both quality and benefits for retirees while also lowering costs for the City and its taxpayers” by an expected $600 million a year.
Too good to be true? At this point, it’s hard to say, although some healthy skepticism from more than a failed competing bidder seems in order.
What is clear is that –unless the courts step in to say otherwise – retirees will have until October 31st to accept Medicare Advantage Plus, or keep their current Medicare and City-paid Medigap coverage at a new annual cost to them of about $2,300 a head. (Medicare Advantage Plus will be premium-free.) And, on the face of it, it also appears that the basket of benefits in the proposed Medicare Advantage Plus plan is very similar to what retirees now receive.
But after that, the questions start. They include:
How many doctors will accept the new plan? The City promises that some 600,000 physicians nationwide will – but hasn’t yet provided any directory of participating physicians, making it impossible to know if doctors will be in-network or not.
What will that mean for patients’ future out-of-pocket costs? Patients will need to find out from their current doctors if they’ll accept payment from the Alliance – the name of the partnership of EmblemHealth and Empire Blue Cross.
That’s a big if, because unlike with traditional Medicare reimbursements, no doctor is obligated to do so. Even though the Alliance is legally required to offer Medicare-equivalent reimbursements and most doctors are likely to accept that as payment, out-of-network doctors aren’t bound to accept any private insurer’s offer as payment in full. That presents the possibility (based on experience with similar plans) of a handful of retirees facing very large, unreimbursed bills.
The Enrollment Guide for Medicare Advantage Plus promises prospective enrollees they can “see any doctor or hospital who accepts Medicare. You’re not tied to a provider network and you pay the same copay or coinsurance percentage whether your provider is in-or out-of-network.” That may not be enough, however, to offset the possible costs of unreimbursed care.
Where are the savings from this arrangement supposed to come from? The answer to that goes to the heart of why Medicare Advantage programs, which now cover about 40 percent of retirees nationwide, exist, and how they function.
Under traditional Medicare, there are no incentives to see some providers instead of, or before, others. You are free to see anyone you choose, visit whenever you think it necessary, and receive all the tests and procedures recommended by a doctor so long as they are on Medicare’s approved list.
By contrast, most commercial insurance and Medicare Advantage plans (and Medicaid) are network-based. Only doctors and hospitals who have agreed to accept discounted rates as payment-in-full are fully reimbursed. (Plans also can include allowances for out-of-network doctors and charge substantially more for using them.) In effect, providers forego higher payment rates in exchange for a guaranteed market share of patients. To reduce costs and improve their bottom line, the plans rely on their network providers to be very judicious when ordering expensive services. They also can impose pre-authorization requirements that, in effect, ration spending (wisely or not), for lab tests, inpatient hospital admissions, physical therapy, home health care, and a long list of other patient services.
This network model embodied in Medicare Advantage was invented some 40 years ago to contain the explosive growth of traditional Medicare spending. (At Medicare’s birth in 1965, Congress’s actuaries expected it to cost $12 billion a year by 1990; the actual 1990 price tag was $110 billion.)
Nevertheless, the theory that such managed care saves money has not (as the graph below illustrates) been borne out. True, the lower medical fees paid by private plans, combined with controls like pre-authorization, lower their costs. Enrolled retirees are encouraged by deductibles and coinsurance to stay in network where the cost of their care to themselves and the plan is less than would have been the case if they were still enrolled in traditional Medicare. One recent report from current and former health plan executives claimed that Medicare Advantage plans spend some 20 percent less on medical care than Medicare does. But in reality, those savings are more than offset by administrative and other costs, and by plan profits.
To most City retirees and their doctors, such details may matter very little – at least at first. Retirees will present a new insurance card at doctors’ reception desks, and the doctors’ billers will submit invoices to a different entity. Most health care providers might not even notice that their fees have been shaved until a year or two after the plan opens.
What happens if projected savings don’t materialize? The City has been promised $600 million in savings each year for five years. But the details of this deal haven’t been finalized, and how those savings will be calculated and guaranteed is unknown.
The Medicare Advantage substitution was promoted by the Municipal Labor Committee (MLC), the umbrella organization representing most unionized City workers. Whatever the outcome of Aetna’s legal challenge to the Alliance deal, the MLC intends to use a Medicare Advantage plan as the vehicle to fulfill a 2019 agreement to reduce City worker health insurance costs; virtually all the savings are being extracted from retiree health benefits.
If those savings don’t pan out or the Alliance companies find that their rosy predictions of plan solvency fall flat, who will pay the bill? The retirees offered fewer choices and, in some cases, more out-of-pocket costs? The City, required to ante up additional premiums to keep the Alliance alive? The unions whose next collective bargaining agreements are clipped by unexpected health insurance costs? Or the insurance companies? Consider the lay of the land if the Aetna challenge fails and the deal as negotiated prevails. EmblemHealth is a non-profit that sometimes breaks even. Empire is owned by Anthem, a large and very profitable insurance company. One may be unable to withstand significant losses, the other may be unwilling.
These questions need answers.