W
ORK
F i n a l R e p o r t o f S t u d y P a n e l
o n M e d i c a r e a n d M a r k e t s
N o v e m b e r 2 0 0 3
The Role of
Private Health Plans in
M e d i c a r e :
Lessons From the Past,
Looking to the Future T
he National Academy of Social Insurance (NASI) is a nonprofit, nonpartisan organi-
zation made up of the nations leading experts on social insurance. Its mission is to
promote understanding and informed policymaking on social insurance and related
programs through research, public education, training, and the open exchange of ideas.
Social insurance encompasses broad-based systems for insuring workers and their families
against economic insecurity caused by loss of income from work and the cost of health care.
NASIs scope covers social insurance such as Social Security, Medicare, workers compensa-
tion, unemployment insurance, and related public assistance and private employee benefits.
The Academy convenes steering committees and study panels that are charged with conduct-
ing research, issuing findings and, in some cases, reaching recommendations based on their
analyses. Members of these groups are selected for their recognized expertise and with due
consideration for the balance of disciplines and perspectives appropriate to the project.
The views expressed in this report do not represent an official position of the National
Academy of Social Insurance, which does not take positions on policy issues, or its funders.
The report, in accordance with procedures of the Academy, has been reviewed by a commit-
tee of the Board for completeness, accuracy, clarity, and objectivity.
The Academy wishes to thank the Robert Wood Johnson Foundation for its generous
support of this project.
© 2003 National Academy of Social Insurance
ISBN# 1-884902-40-5
Suggested Citation:
King, Kathleen M. and Mark Schlesinger, (eds.), Final Report of the Study Panel on Medicare
and MarketsThe Role of Private Health Plans in Medicare: Lessons from the Past, Looking to
the Future (Washington, D.C: National Academy of Social Insurance, September 2003). M
AKING
M
EDICARE
R
ESTRUCTURING
W
ORK
F i n a l R e p o r t o f S t u d y P a n e l
o n M e d i c a r e a n d M a r k e t s
N o v e m b e r 2 0 0 3
The Role of
Private Health Plans in
M e d i c a r e :
Lessons From the Past,
Looking to the Future N a t i o n a l A c a d e m y o f S o c i a l I n s u r a n c e
Kathleen M. King
Study Director and Director of Health Security Policy
Virginia Reno
Vice President of Research
Reginald D. Williams, II
Research Assistant
Contractors
Naderah Pourat, Ph.D.
University of California at Los Angeles
Project Staff T h e R o l e o f P r i v a t e H e a l t h P l a n s i n M e d i c a r e
National Academy of Social Insurance
The Study Panel on Medicare and Markets
Mark Schlesinger
,* Chair
Yale and Rutgers Universities
Alfred Chiplin, Jr.
*
Center for Medicare Advocacy
Deborah Chollet
*
Mathematica Policy Research, Inc.
Robert Crane
*
Kaiser Permanente,
Institute for Health Policy
Brian Dowd
University of Minnesota
Carroll Estes
*
University of California,
San Francisco
Rashi Fein
*
Harvard University
Ann Barry Flood
Dartmouth University
Barbara Gagel
Independent Consultant
Mark Pauly
*
University of Pennsylvania
Mark Peterson
University of California,
Los Angeles
Gary Young
Boston University
*NASI member N a t i o n a l A c a d e m y o f S o c i a l I n s u r a n c e
Acknowledgements
The National Academy of Social Insurance and its study panel on Medicare and Markets grate-
fully acknowledge the assistance of a number of individuals for their help on this report. We
received assistance from several staff members at the Centers for Medicare and Medicaid
Services, including Nancy Delew, Michael McMullan, Edward Sekscenski, and Robert Streimer.
In particular, we are grateful to Carlos Zarabozo for his tireless participation throughout the
panel process, including providing the panel with data and for his careful review of several drafts
of the report. The study panel also benefited from presentations by Curtis Florence, Marsha
Gold, Marian Gornick, Beth Stevens, and Ken Thorpe. We are also thankful to Henry Aaron,
Chairman of NASI and Robert Reischauer, Chair, NASI Medicare Steering Committee for their
advice and counsel throughout the project. We would like to express our appreciation to David
Colby, our project officer at the Robert Wood Johnson Foundation for his support during the
project. Finally, we would like to express our appreciation to Jill Bernstein and Beth Docteur,
former members of the NASI staff, and to Reginald Williams, health policy research assistant at
NASI for his contributions to the research and careful preparation of the report. Any errors
remain those of the authors. Th e R o l e o f P r iva t e H e a l t h P l a n s i n M e d i c a r e
Contents
Chapter 1: Introduction .................................................................................................... 1
Clarifying the Scope of Our Inquiry ....................................................................... 2
Objectives of this Report ........................................................................................ 3
The Place of this Report in the Broader Debate Over Medicare Reform ................. 6
Chapter 2: The History of Private Health Plans in Medicare ............................................. 7
An Era of Gradual Expansion ................................................................................. 7
The Balanced Budget Act of 1995: A Template for Future Market Reforms ........... 15
The Balanced Budget Act of 1997 ........................................................................ 16
Reality Falls Short of Expectations ........................................................................ 21
The Balanced Budget Refinement Act of 1999 ..................................................... 22
The Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000 ....................................................................... 23
The Current Status of Medicare+Choice ............................................................... 26
The Bush Administrations Medicare Reform Proposal .......................................... 40
Evaluating the Past, Considering the Future: Findings of the Study Panel .............. 40
Chapter 3: Private Health Plans and the Conventional Goals of Medicare ...................... 53
The Goal of Financial Security ............................................................................. 53
The Goal of (Plan) Choice .................................................................................... 66
The Goal of Access to Health Care ...................................................................... 73
The Goal of Cost Containment ............................................................................. 76
Findings and Recommendations: Markets, Private Health Plans, and
Medicares Traditional Goals ..................................................................... 90
Chapter 4: Private Health Plans and Quality and Disparities .......................................... 99
Private Health Plans and Improving The Quality of Care for Beneficiaries ............ 99
Quality Shortfalls in Medicare ............................................................................. 99
Problems Stemming from the Complex Health Care Needs of Medicare
Beneficiaries ........................................................................................... 102
The Emergence of Quality Improvement as a Goal for the Program ................... 105
The Impact of Private Health Plans on Medicare Quality ................................... 114
Private Health Plans and Disparities in Health Care Experienced by Medicare
Beneficiaries ........................................................................................... 114
Disparities Among Beneficiaries in Original Medicare ....................................... 118
CMS Efforts to Reduce Disparities ..................................................................... 124
The Impact of Private Health Plans on Disparities .............................................. 124
Findings and Recommendations ........................................................................ 128
Chapter 5: Beyond the Individual Beneficiary: Medicares Impact on Health Politics
and the Health Care System .................................................................... 135
The Consequences of Private Plan Participation for Medicare Political Future .... 136
Studying the Effects of Private Plans on Beneficiaries Attitudes
Towards Medicare .................................................................................. 140 N a t i o n a l A c a d e m y o f S o c i a l I n s u r a n c e
The Consequences of Private Health Plan Involvement for the Collateral
Functions of the Medicare Program ........................................................ 147
The Implications of Private Plans for Medicares Collateral Activities ................. 148
Findings and Recommendations ........................................................................ 150
Chapter 6: Toward a More Dynamic Perspective on the Medicare Program .................. 153
Different Strengths and Weaknesses in Each Part of the Program ........................ 155
Assessing Three Different Approaches to Maintaining Accountability ..............