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Dual-eligible beneficiaries have higher Medicare spending levels than Medicare-only beneficiaries because of multiple factors, including higher prevalence of health conditions and greater exposure to social risk factors. Poor alignment between the Medicare and Medicaid programs contributes to higher spending levels and worse outcomes for dual-eligible beneficiaries, which motivates efforts to integrate Medicare and Medicaid benefits.
One challenge in aligning these programs is the inconsistent, and sometimes contradictory, payment strategies used in Medicare and Medicaid. State Medicaid programs are federally required to provide a broad range of services, including benefits not covered by Medicare, such as long-term services and supports. Establishing low provider payment rates is a common Medicaid cost containment approach for this comprehensive coverage. Medicare payment rates are historically higher than the Medicaid program, but Medicare is embracing value-based payments that give providers and Medicare Advantage managed care plans financial incentives to provide better health outcomes at lower spending levels. This combination of Medicaid and Medicare payment policies often results in lower payments for providers at point of service, but higher payments for organizations and plans paid under value-based formulas that account for higher spending among dual-eligible beneficiaries.
Reconciling Medicaid’s lower payment rates with Medicare’s shift to value-based payments raises unique challenges for the dual-eligible population. Payment strategies that affect dual-eligible beneficiaries strongly affect health equity, given the composition of the dual-eligible population. Relative to the Medicare-only population, dual-eligible beneficiaries are more likely to be a racial or ethnic minority, be female, live in rural areas, and experience food and housing insecurity. Implementing new strategies to fairly pay providers and plans for treating dual-eligible beneficiaries is deeply consequential for the care and services that beneficiaries receive, thus directly affecting their health and quality of life.
The first part of this brief reviews three examples of how dual-eligible participation affects total Medicare payments for dual-eligible beneficiaries, including Medicaid’s responsibility for Medicare cost sharing. The second part discusses potential strategies for rethinking how to approach payments for dual-eligible beneficiaries.
Many Providers Are Paid Less To Treat Dual-Eligible Beneficiaries Than Medicare-Only Beneficiaries
On a per service basis, providers are often paid less to treat dual-eligible beneficiaries than they would be paid to treat Medicare-only beneficiaries because of “lesser-of” payment policies. Aside from the approximately 15 percent of dual-eligible beneficiaries who only qualify for Medicaid coverage of Medicare premiums, most dual-eligible beneficiaries qualify for Medicaid coverage of Medicare cost-sharing amounts. However, a state Medicaid program can opt to not pay the full Medicare cost-sharing amount if the Medicaid payment rate for a given service is lower than the Medicare payment rate. The Medicaid and CHIP Payment and Access Commission estimated that in 2012, only four states paid full cost sharing for inpatient, outpatient, physician, and skilled nursing facility services. Some, but not all, sectors have alternative pathways for recovering unpaid cost-sharing amounts under bad debt provisions. For example, hospitals are currently reimbursed by the Centers for Medicare and Medicaid Services (CMS) for 65 percent of bad debt.
Lesser-of payment policies are associated with reduced access to primary care for dual-eligible beneficiaries. As of 2018, only seven states paid the full cost-sharing amount for primary care services. Because Medicare has 20 percent coinsurance for physician visits, these lesser-of policies mean that primary care providers can be paid up to 20 percent less to treat dual-eligible beneficiaries at point of service than beneficiaries without Medicaid. The Affordable Care Act used federal funding to temporarily increase Medicaid payment rates for primary care for two years. Although one study suggests that this full coverage of Medicare cost sharing increased primary care use for dual-eligible beneficiaries, other studies found no impact, possibly because the policy was only in effect for a limited time.
Although lesser-of payment policies can also apply to Medicare Advantage cost sharing, there are no federal provisions for reimbursing cost sharing that is unpaid for Medicare Advantage members, and there is less transparency about how states and plans handle copayments for these dual-eligible enrollees. New rules effective in 2023 will require plans to pay providers in full (including what would otherwise be charged to Medicaid as cost sharing) when dual-eligible beneficiaries accrue enough cost-sharing charges to reach plans’ out-of-pocket limits, even if Medicaid did not actually pay the full amount of cost sharing accruing to the out-of-pocket limit. Under this new policy, providers should receive higher overall payments for the dual-eligible population, as Medicare Advantage plans will be responsible for a larger share of spending for beneficiaries with high costs.
Managed Care Plans And Value-based Organizations
Payments to Medicare Advantage plans are determined on the basis of predicted spending (excluding cost sharing) for beneficiaries in traditional Medicare with similar health conditions. CMS estimates predicted spending separately for Medicare-only beneficiaries and dual-eligible beneficiaries (stratified by level of Medicaid benefits). Because dual-eligible beneficiaries have higher average traditional Medicare spending than Medicare-only beneficiaries, capitated payments to Medicare Advantage plans are higher for dual-eligible beneficiaries. Spending targets in value-based payment models, such as accountable care organizations and bundled payments, also allow for higher expected spending among dual-eligible beneficiaries.
Without elevated payment rates for dual-eligible beneficiaries, managed care plans and value-based payment providers would have fewer incentives to enroll dual-eligible beneficiaries, thus potentially limiting access to these programs. In fact, participation in Medicare Advantage among dual-eligible beneficiaries has significantly increased in the past decade, reaching 43 percent in 2020. Physician group practices that treated a larger share of dual-eligible beneficiaries were more likely to form a Medicare accountable care organization than practices with fewer dual-eligible beneficiaries.
Dual-Eligible Special Needs Plans, which exclusively treat dual-eligible beneficiaries, have experienced increasing margins during the past five years, meaning that these plans take in revenues that total more than the amount they spend to operate a plan (that is, profit in for-profit plans). The most recent estimates from the Medicare Payment Advisory Commission show that Dual-Eligible Special Needs Plans averaged 10.7 percent in margins in 2020 compared with 6.5 percent for Medicare Advantage plans that are open to all beneficiaries (see exhibit 1). These robust margins suggest that current capitated payment approaches benefit Medicare Advantage plans serving dual-eligible beneficiaries, even though there are limited data about the quality and effectiveness of managed care for dual-eligible beneficiaries.
EXHIBIT 1 Medicare Advantage margin levels
Source: Authors’ analysis from Medicare Payment Advisory Commission reports to Congress for March, 2018–22.
Dual Eligibility Serves As A Proxy For Social Risk Factors In Quality Measurement
Under value-based initiatives that tie financial payments (or penalties) to quality performance, safety-net providers may be at a disadvantage because their patients have more social risk factors that increase the likelihood of poor outcomes. For example, when the Hospital Readmissions Reduction Program launched in 2012, safety-net hospitals were more likely to be penalized than hospitals that treated fewer low-income patients. Medicare Advantage plans can also be rewarded or penalized on the basis of their quality performance results, which prompts debate about how to assess Medicare Advantage plans that treat a disproportionate share of low-income beneficiaries. Such trends raise concerns that providers and plans will avoid treating beneficiaries with multiple social risk factors, including dual-eligible beneficiaries, to avoid negative impacts on quality scores and associated payments.
To avoid penalizing safety-net providers for treating higher-risk populations, CMS has introduced risk adjustment in comparisons of quality. To date, CMS has almost exclusively relied on dual-eligibility status as a proxy for whether providers and plans have a larger share of patients at high risk for poor outcomes because of social risk factors. For example, in 2018 CMS started assigning readmissions rates penalties after grouping hospitals according to the percentage of admissions for dual-eligible beneficiaries, an approach that led to fewer penalties for safety-net hospitals because their performance is now compared with that of other hospitals with similar patient populations. Since 2017 Medicare Advantage star ratings have been adjusted on the basis of the proportion of plan members who are dual eligible or who qualify for Medicare because of disability. However, these approaches also implicitly justify worse outcomes for dual-eligible beneficiaries and dull the incentive for providers and plans to innovate to meet the needs of dual-eligible beneficiaries.
The Future Of Payment Policy For Dual-Eligible Beneficiaries
Taken collectively, these Medicaid and Medicare policies raise concerns about whether current payment strategies enable dual-eligible beneficiaries to access all the services that Medicare finances through its fee-for-service and managed care benefits. Long-standing gaps in coverage for Medicare cost-sharing requirements might limit beneficiaries’ access to clinicians. This problem is compounded by emerging Medicare pay-for-performance strategies that may financially penalize providers in traditional Medicare who see more dual-eligible patients who are at higher risk for poor outcomes. These pay-for-performance issues also affect managed care plans and value-based payment organizations, raising concerns about dual-eligible beneficiaries’ access to these entities. In the case of these organizations, however, concerns about inadequate risk adjustment for quality measures are tempered by higher Medicare Advantage capitated payments and value-based spending targets for dual-eligible beneficiaries that provide an incentive to enroll dual-eligible beneficiaries.
As strategies for integrating Medicare and Medicaid evolve, so should strategies for how Medicare and Medicaid pay for services for dual-eligible beneficiaries. These strategies should provide a more consistent approach toward how both Medicare and Medicaid pay for services.
Medicare Cost-Sharing Requirements And Assistance
Even though the decision to implement a lesser-of payment policy for Medicare cost sharing is a state Medicaid choice, the federal government could take action to increase payment amounts at the point of service for providers treating dual-eligible beneficiaries. Traditional Medicare cost sharing is a sizeable loss for providers if Medicaid does not pay its portion. Because federal lawmakers have failed to update the traditional Medicare cost-sharing requirements since 1965, and with Medicare supplemental insurance financially out of reach for many, Medicare Advantage is becoming the default source for more modern benefits such as annual out-of-pocket limits and fixed, lower copayments for primary care services.
An updated traditional Medicare benefit package could be designed to lower cost sharing for essential services such as primary care, and thereby lower providers’ exposure to unpaid Medicare cost sharing. For dual-eligible beneficiaries enrolled in Medicare Advantage there could be improved transparency about whether higher capitated payment rates to plans for dual-eligible beneficiaries are translating into more competitive payment rates for providers who treat these enrollees and, ultimately, better outcomes for beneficiaries.
Other options include federalizing Medicaid assistance with premiums and cost sharing to provide full cost-sharing coverage for all services nationally, much like the Part D Low Income Subsidy provides uniform assistance with prescription drug costs. This approach may streamline coordination for cost-sharing coverage among providers, Medicare Advantage plans, and other organizations.
Incentives To Improve Care While Protecting Access
Increasing Medicare Advantage capitated payments and spending targets in value-based models for dual-eligible beneficiaries may ensure that managed care plans and health care organizations are willing to treat dual-eligible beneficiaries, but there is no guarantee that higher payments are being spent on higher-quality services. At the same time, risk-adjusting quality measures for dual-eligibility status may protect dual-eligible beneficiaries’ access to care in a value-based payment system, but carries the risk of merely protecting their access to lower-quality services compared with those received by other Medicare beneficiaries.
A more strategic approach to payments for dual-eligible beneficiaries could address both these issues. Jonathan Jaffery and Dana Safran have suggested that instead of risk-adjusting quality outcomes for social risk factors, Medicare could risk-adjust payments to give providers who treat more patients with social risk factors more resources while holding them to the same performance standards as other providers. In the case of Medicare Advantage and value-based organizations, this approach would require pairing the existing higher payments with expectations for improved outcomes for dual-eligible beneficiaries. For other provider performance incentives such as the Hospital Readmission Reduction Program, this strategy would require adjusting payments to hospitals up front for social risk factors instead of retrospectively accounting for social risk factors when assessing penalties.
Further, measures tied to financial incentives in value-based models should capture the most critical outcomes for dual-eligible beneficiaries. For example, work by the National Quality Forum and others has identified significant gaps in measures of the quality of home and community-based services, a key issue for programs that integrate Medicare and Medicaid benefits. Some new measures have been developed since that time, including person-centered assessment and care plans, but significant gaps remain for measures in domains such as community inclusion and choice and control.
Markers Of Social Risk
Because it is easy to measure in existing data sources, dual-eligible status has become the most convenient option for adjusting spending and quality measures to account for differences in social risk factors. However, dual eligibility is an imperfect proxy that could mislabel some Medicare beneficiaries as being at high risk for poor outcomes and greater spending while underestimating whether other non-dual-eligible beneficiaries are at high risk as a result of social risk factors. In assessing the need for social risk adjustment, the National Academies of Sciences, Engineering, and Medicine highlighted other factors such as education, language, and housing adequacy that could more accurately identify which beneficiaries face significant barriers to high-quality health care.
If Medicare developed additional measures for identifying beneficiaries at high risk for poor outcomes and greater spending because of social risk factors, this approach would also address three issues that arise from solely relying on dual eligibility for risk adjustment. First, about half of low-income Medicare beneficiaries who are eligible for Medicaid assistance with premiums or cost sharing are not enrolled in Medicaid. Medicare payment policies do not recognize this eligible, but not enrolled, population when relying on dual-eligibility participation for risk adjustment. Second, even with minimum federal standards for Medicaid coverage for Medicare beneficiaries, there are significant state-level differences in eligibility rules and application processing that create differences in dual-eligible participation and level of Medicaid benefits across states. For example, risk adjusting readmission rates and Medicare Advantage plan payments for full Medicaid coverage may disproportionately benefit hospitals and plans in states with more generous Medicaid eligibility rules. Finally, dual-eligible beneficiaries have diverse economic backgrounds. About 80 percent of dual-eligible beneficiaries qualify for Medicaid because of low income, but the remaining beneficiaries qualify on the basis of medical expenses and long-term care needs, including beneficiaries with a lifetime of higher earnings who had exhausted their savings paying for nursing home services. With additional measures of social risk, it would be more feasible to determine whether dual-eligible beneficiaries across states or across eligibility pathways are directly comparable in terms of their likelihood of poor outcomes and greater spending.
The new Realizing Equity, Access, and Community Health (REACH) model proposed for accountable care organizations includes some promising components for developing other measures to use in addition to dual-eligible status. Organizations participating in the model will be required to collect information on social risk factors among their patient populations. A new risk-adjustment approach will increase payments for providers who treat more at-risk populations on the basis of a metric that combines area-level deprivation index scores and the percentage of accountable care organization patients who are dually eligible.
Conclusion
Establishing value-based payments in Medicare as a cost-savings strategy, where risk-adjusted payments are tied to better efficiency and better outcomes, is difficult when providers who treat dual-eligible beneficiaries already start off with lower payment rates because of Medicaid’s limited coverage of Medicare cost sharing. The lack of alignment between Medicare and Medicaid benefits manifests in the contradiction of paying plans and value-based payment organizations more on a per person basis to cover dual-eligible beneficiaries, but paying providers less on a per service basis to treat dual-eligible beneficiaries. When designing strategies that “adjust” quality incentives for dual-eligible status, policy makers should consider the full range of Medicare and Medicaid payment rules that affect coverage for dual-eligible beneficiaries to avoid perpetuating health inequities.
Acknowledgment
All briefs go through peer review before publication.
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