How Medicare, Medicaid, and CHIP Guide the Health Payer Industry
Public coverage programs like Medicare, Medicaid, and CHIP are leading the way in value-based care payment models.
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- Medicare, Medicaid, and CHIP, the three major public insurance programs overseen by CMS, often set the tone for the large private health payer industry. CMS is using all three programs to actively encourage the movement towards value-based care in an effort to reduce costs and raise quality, and many private insurers are taking their cues from their partners in the industry.
Private payers are focusing on how the Medicare program has been changing in recent years to align more closely with value-based care reimbursement, but what are some of the major differences between the three programs? Who can benefit from them, what is covered under their plans, and how have they evolved over time?
Breaking down Medicare coverage options
Medicare covers hospital and hospice care, outpatient services, and prescription drugs for patients 65 and older, with some exceptions for younger patients with certain conditions.
Currently, there are 55,504,005 Medicare beneficiaries across the United States, the Henry J. Kaiser Family Foundation states. Wyoming, North Dakota, and Alaska have the highest number of Medicare beneficiaries.
Medicare Part A covers hospital or hospice insurance. This includes treatment, testing, and overnight stays. According to the Medicare.gov website, the absolute maximum that Medicare Part A will cover is 90 days of hospital inpatient care.
During the first 60 days, Medicare will cover the entirety of a hospital stay, except for a $1,288 deductible. From 61 to 90 days, Medicare requires a $322 copayment per day.
Medicare Part B coverage includes mostly outpatient medical services but also insures patients who are in a hospital under an unadmitted observation status, according to The National Law Review. Part B covers chiropractic care, laboratory and diagnostic testing, visiting nurse, flu and pneumonia vaccines, ambulance transportation, blood transfusion, renal dialysis, chemotherapy, and other outpatient hospital procedures. Medicare Part B is also responsible for durable medical equipment such as wheelchairs or walkers.
Medicare Part D covers the costs of prescription drugs, and went into law in 2006 as part of the Medicare Modernization Act. Seniors in need of this type of coverage must enroll in a stand-alone prescription drug coverage plan. Health plans are able to choose which drugs to cover under Medicare Part D, which means some drugs may not be covered for seniors.
The Medicare program also offers Medicare Advantage plans, which provide patients with more personalized and customized coverage.
For example, if a Medicare Advantage plan pays less than anticipated for skilled nursing care, the savings can be passed onto the customer by reducing copayments during their next doctor visit.
Medicare Advantage plans cover the same type of services seen in Medicare Parts A and B while ensuring that patients have an out-of-pocket spending limit not found in the traditional Medicare plans. However, beneficiaries are also limited to more narrow networks of providers when choosing Medicare Advantage plans, according to a CMS policy announcement.
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Medicare’s focus on value-based care
Medicare is quickly moving towards alternative payment models with a goal of exchanging fee-for-service payments for value-based care reimbursement. The goal is to have 50 percent of Medicare spending transitioned to alternative payment models by the end of 2018.
In recent years, the federal agency has been pursuing bundled payment strategies in order to cut spending. This entails reimbursing providers for an episode of care instead of each, individual service performed. In 2013, CMS created the Medicare Bundled Payment for Care Improvement (BPCI) program, which offers bundled reimbursement for medical care that begins with an acute-care hospital admission.
In April 2016, CMS established the Comprehensive Care for Joint Replacement model, which reimburses hospitals, skilled nursing facilities, and outpatient centers for orthopedic surgeries and rehabilitation care among Medicare beneficiaries.
Healthcare providers who spend more funds on treating a patient than available in the bundle will essentially be penalized by becoming responsible for paying the excess costs. CMS is also penalizing providers financially if their hospital readmission rates within a 30-day timespan are too high.
Private payers are following in the footsteps of CMS and investing in value-based care reimbursement and alternative payment models. Aetna, for instance, has implemented risk-sharing accountable care organizations.
“We believe transforming health care will help reduce waste, improve quality, improve member/patient satisfaction, and improve overall employee health and productivity,” Amy Oldenburg, Vice President of Network and Product Strategy Accountable Care Solutions at Aetna, told HealthPayerIntelligence.com.
“So we see this as well worth the commitment and investment of time and resources to get there. Through our approach to move providers and hospitals toward full, product-based risk-sharing ACOs and helping them transform the way they do business, we know we can help build a healthier world.”
The national commercial payer Cigna has also been influenced by CMS and has been pursuing value-based care reimbursement since 2008, explains Mark Slitt, Spokesman and Public Relations Manager at Cigna.
“Cigna has been a leader in value-based care reimbursement since 2008 and we are well on the way to having value-based reimbursements represent the majority of our arrangements with providers by 2018,” said Slitt.
“This is fundamentally changing the relationship between payers and providers by making the relationship much more collaborative. There is now much more focus on working together to improve quality and affordability so that the customers/patients we jointly serve have better outcomes and enjoy a better experience.”
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The role of Medicaid for low-income beneficiaries
Younger patients cannot generally rely on Medicare, but low-income patients and families may be eligible for state Medicaid coverage. The eligibility requirements for Medicaid include people with disabilities, the elderly, children and families, pregnant women, and some low-income individuals, according to the Department of Health & Human Services (HHS).
After the passage of the Affordable Care Act, the total monthly Medicaid and CHIP enrollment reached 72,810,267 beneficiaries, the Kaiser Family Foundation reports.
The Medicaid program was expected to expand across the entire nation when the Patient Protection and Affordable Care Act was passed, but a case brought before the Supreme Court derailed some of this progress.
While the Supreme Court upheld the constitutionality of the ACA in 2012, Medicaid expansion remained optional for individual states. More than a dozen states have declined to expand the program despite the fact that the vast majority of funding would be supplied by the federal government.
In 2014, around half of the nation’s states expanded their Medicaid programs to cover more low-income families making below 133 percent of the Federal Poverty Level (FPL), but 19 states are still declining to take part in these expansion efforts. More than 3 million Americans have been left in a coverage gap due to the states that haven’t expanded Medicaid.
The private payer market is dependent on Medicaid expansion for a number of reasons. A report from the Centers on Budget and Policy Priorities outlines how states that have not proceeded with Medicaid expansion could destabilize the commercial insurance market and increase premium rates. Health payers also benefit from Medicaid expansion when they offer Medicaid managed care plans as well as private market plans.
By not expanding Medicaid, enrollees are likely to move back and forth between private insurance and Medicaid whenever they may be eligible. These are often higher-cost enrollees since they are generally low-income and tend to delay care or skip preventive services. As such, private payers end up with higher costs when states decline to expand Medicaid.
The future of the Medicaid program will depend on regulatory revisions to the Affordable Care Act and whether the additional 19 states proceed with expanding their Medicaid coverage.
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Children’s Health Insurance Program
In the 1990s, the Children’s Health Insurance Program (CHIP) started to provide low-cost coverage for children in low-income families that do not qualify for Medicaid. The CHIP program is a combined partnership between state governments and the federal government, much like Medicaid coverage. CHIP pays for a wide number of medical services, but the scope depends on each state’s coverage.
Some of these services may include dentist visits, cleanings and fillings, eye exams and glasses prescriptions, doctor visits and check-ups, prescription drugs, vaccinations, mental healthcare, specialist visits, lab tests, X-rays, hospital care, and medical supplies.
The Henry J. Kaiser Family Foundation reports that children enrolled in CHIP coverage have better access to primary doctors and clinical services, but there are still gaps in access to dental care and specialty care. These gaps may need to be reduced to truly strengthen the CHIP program. Nonetheless, children who have CHIP coverage tend to perform better in school and gain greater economic productivity later in life.
In 2009, President Barack Obama signed the Children’s Health Insurance Reauthorization Act (CHIPRA) into law, which extended coverage for CHIP coverage and expanded the program as a whole. For instance, an option to cover pregnant women through CHIP was created along with greater outreach support to enroll children in CHIP and Medicaid coverage.
In 2015, the Medicare Access & CHIP Reauthorization Act (MACRA) was passed into law, which eliminated the Sustainable Growth Rate formula, created more stimulus for value-based care reimbursement, and positioned multiple quality reporting programs under one umbrella.
MACRA also extended funding for CHIP into the 2017 year. The future of the program will likely depend on additional authorizations to extend funding and legislative actions that could expand the program on a more long-term basis.
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How public payers are leading the way to value-based care
Public health coverage programs and private, commercial payers are all transitioning to value-based care reimbursement and leaving fee-for-service payment models behind.
Humana's Vice President of Payment Innovation Chip Howard
Private payers like Humana have also jumped on the bandwagon of value-based care reimbursement, according to Chip Howard, Vice President of Payment Innovation.
“We are partnering with providers to move from the volume-based, fee-for-service world to a model where physicians are going to be rewarded for producing better outcomes, higher quality, and lowest cost,” Howard said.
“There are obvious challenges that come with making such a big transition. A couple of challenges include infrastructure, data, and reporting that, frankly, were not needed in the fee-for-service world. Providers absolutely have to have that to be successful in the value-based world.”
“First and foremost, producing a robust set of reports and data for the providers to be able to show them there are opportunities for quality improvement, outcome improvement and cost efficiencies,” he continued. “That would be the number one solution that I would outline as trying to meet that challenge.”
Private health payers have followed the lead of CMS and taken part in various value-based healthcare delivery reforms such as the adoption of accountable care organizations (ACOs). One study published in The American Journal of Managed Care shows that there are more public ACO contracts, but commercial contracts tend to have more downside risk and upfront payments included.
Commercial payers are often greatly influenced by CMS and its public coverage programs. It’s likely that the direction Medicare, Medicaid, and CHIP coverage takes toward implementing value-based care reimbursement will impact the policies implemented at private health insurance companies.
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