Promoting Greater Value for Enrollees in Medicare Advantage and Drug Plans

By Jonathan Blum, Acting Principal Deputy Administrator and Director, Center for Medicare

Posted February 15, 2013

New limits on overhead and profits for health plans in Medicare Advantage and Medicare drug plans will increase value for the over 14 million seniors and persons with disabilities enrolled in Medicare Advantage and over 35 million Medicare beneficiaries in drug plans offered by private insurance companies.  This step is part of the Affordable Care Act’s efforts to ensure that consumers get the most health care for their dollars.  Last year, we issued a rule to make sure that insurance companies generally spend at least 80 percent of the premiums paid by consumers in private health plans on health care or activities that improve health care quality, instead of paying for administrative costs or overhead.  Today’s proposal for people with Medicare is similar to last year’s rule benefiting consumers in the private health insurance market.

Seniors and individuals with disabilities will get more value and be more likely to stay healthy as plans invest more in their health care.  Specifically, beginning in 2014, Medicare health and drug plans will be required to meet a minimum medical loss ratio; they must spend at least 85 percent of revenue on clinical services, prescription drugs, quality improvements, and/or direct benefits to beneficiaries in the form of reduced Medicare premiums.  The higher the medical loss ratio, the more a health plan is spending on health care services and quality improvement activities and less the health plan is spending on non-health related items.

The medical loss ratio policy will spur Medicare plans to become more efficient in their operations.  Medicare plans not already meeting the medical loss ratio can either reduce administrative costs, profits, or increase benefits to meet the minimum medical loss ratio.

The Affordable Care Act requires that if a Medicare plan’s medical loss ratio is below 85 percent, the plan must return the amount by which the plan’s medical loss ratio is below this minimum.

The proposal will also enhance transparence for prospective enrollees.  When comparing their options and making choices, people with Medicare and their caregivers will be able to consider information about a plan’s medical loss ratio, along with quality ratings, coverage, premiums and other factors that influence their health care decisions.

With careful use of taxpayers’ dollars on health care services and improvements, the Affordable Care Act will create greater value for seniors and persons with disabilities enrolled in Medicare plans by helping them stay healthy.  And with additional information about health plan spending and quality, people with Medicare are better equipped than ever before to make informed health care choices.

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