National Institute on Health Policy
Medicare Modernization Act of 2003 – An Upper Midwest Policy Paper
Medicare Act Will Profoundly Change Health Care in the Upper Midwest

 In less then twelve months the Medicare Modernization Act (MMA) is due take effect and its impact on health care in the Upper Midwest will be profound.  The MMA, in the long run, “will actually reduce coverage options for beneficiaries, add complexity to the selection of plan options and provide little or no real coverage improvements for beneficiaries.”    These are the conclusions of a policy paper just released by The National Institute on Health Policy (NIHP), a unique partnership of the University of Minnesota and the University of St. Thomas.   While congressional efforts originally focused on producing a long-awaited prescription drug benefit for the elderly, the final act is a much broader piece of legislation that introduces new concepts that significantly change the nature of the program as it exists today.   

 For providers, MMA is a mixed bag (e.g., improved payments to selected hospitals, expansion of the Critical Access Hospital Program, no resolution of physician payment formulas, etc.).  For existing Medicare plan providers, such as Medigap (i.e., Blue Cross/Blue Shield), cost contracts (i.e., Medica) and locally run Medicare+Choice plans (i.e., HealthPartners and U-Care Minnesota), the MMA undermines plan viability.  New multi-state, government subsidized regional PPO plans will compete directly against local non-profit health plans while popular Medigap plans are left to wither.  Finally, and most importantly, MMA does not address the fundamental payment inequity for the Upper Midwest while simultaneously eroding the integrity of existing program options.

1)  Increasing Medicare Geographic Inequities  

 At least initially, the MMA is making worse the Medicare funding and benefit inequities that cause Minnesota’s seniors to pay more and have less choices and less benefits than seniors in many other parts of the country. The bottom line is that seniors in the Upper Midwest will continue to pay much more, while seniors and health plans in other parts of the country will see better benefits.

·   Beneficiaries across the country saw their Medicare B premiums increase by 17 percent this month.   But at the same time, seniors enrolled in Medicare Advantage plans elsewhere in the country, particularly in high-reimbursed counties like Dade County in Florida, will find Medicare funding some or all of the entire Medicare B premium.

·   The new Act is supposed to use the power of competition between health and prescription drug plans to lower costs and improve consumer choice. This is being accomplished by dividing the country into 26 Medicare health plan payment regions. Minnesota and Iowa have been assigned to be part of the largest geographic region in the country, encompassing seven Upper Midwest states.  We will also be unique in that 91% of the counties in our region the lowest possible Medicare reimbursement.   That said, it would be surprising if many national plans chose to participate in our region and any benefits provided are apt to be the most meager in the country.

2)  Onerous Low-income Provisions
The New Medicare Drug Part D benefit has important provisions for low-income seniors (defined as those under 135 percent and 150 percent of poverty). Yet the liquid asset limitations of $6,000 and $10,000 for eligibility will eliminate coverage for most low-income elders in need.

·        It is anticipated with these low-income and asset limitations along with the complicated application process that these provisions will help very few beneficiaries.
·        Given the lack of significant enrollment in the current Medicare-approved drug discount card program, which has no asset limitations and does offer significant low income provisions, the Minnesota Senior Federation estimates that the act’s low-income provisions of next year’s benefits will assist less than 6% of beneficiaries in Minnesota.

 NIHP report concludes, “The policy decision to not use the federal government as the price-setter to control prescription drug costs is at the center of a major political and philosophical disagreement.

·        Proponents of this position argue that the federal government should not play the role of price-setter due to the magnitude of the Medicare program. 

·        However, the government has failed to articulate how prescription drugs differ from other services or benefits that the government continues to set prices for, including hospitals, physicians, skilled nursing facilities, home healthcare, and durable medical equipment (DME), etc.”

·        “As prescription drugs continue to be a driver of increasing costs in the health care system, the decision to not use the power of the federal government to set prices for drugs could adversely impact all other service providers whose payments are set by the government,” the NIHP policy report concludes. Already, Congress is considering cutting hospital and physicians payments, in part because of the lack of prescription drug cost controls.

4)   Negative Impact On Those Currently With Prescription Drug Coverage Benefits

Employer Paid Drug Coverage: While Medicare Part D has $71 billion in tax incentives for employers to continue to provide prescription drug coverage, it also has significant incentives for employers to reduce benefits for retirees by shifting the cost of any benefits that exceed the new Part D benefits to retirees. The Act encourages employers to shift more costs to retirees, - saving employers billions of dollars while shifting these costs onto retirees. 
             US Department of Health and Human Services estimates that at least one-third of those currently receiving employer paid prescription drug coverage will see it reduced or eliminated in 2006. 

Seniors Paying for Prescription Drug Coverage: The new law jeopardizes seniors currently paying for better coverage (including MN Blue Cross -Senior Gold) as the act prohibits the sale of better Medigap coverage then is provided by Medicare Part “D” or converge that is not deemed to “   “ be after January 1, 2006.

Minnesota law requires that HMOs are non-profit. Yet, this new approach was designed to attract large, for-profit plans into the newly configured Medicare market.  - We believe that Minnesota grown, non-profit plans bring value to Medicare members and to the state by providing member-centered care and that much of this will be lost with the introduction of for-profit plans, which are accountable to their shareholders, not their beneficiaries and the community in which they operate.

While much of the Medicare Modernization Act makes important and needed changes in Medicare, unless changes are made in these areas, profound and negative changes will be inflicted on seniors, providers and health plans in the Upper Midwest.

The complete NIHP report can be found at