Studies: Medicare Advantage increases costs, not care

WASHINGTON – Two studies published last week in the journal Health Affairs show that Medicare Advantage plans, which now cover about 10.1 million people, or about a quarter of Medicare beneficiaries, increase the cost of coverage without necessarily improving care.
Traditional Medicare operates on a fee-for-service model, with the government paying directly for hospital stays, doctors’ visits, etc. Medicare Advantage, on the other hand, goes through private insurers, who are paid by the government to manage care for beneficiaries.
The idea behind Medicare Advantage was that insurers would have a financial incentive to be efficient, and that to compete for members, they’d also have to improve quality. However, over time, payments to insurers have grown, and Medicare Advantage has been facing growing criticism, especially from Democrats on Capitol Hill.
President-elect Barack Obama and Democratic Congressional leaders are said to be eying cuts to Medicare Advantage; in a debate on Oct. 15, Obama said the higher payments to such plans are “just a giveaway” to private insurers.
In the first of the Health Affairs studies, Marsha Gold, a senior fellow at Mathematica Policy Research, notes that the higher payments have caused the market to grow, and one in three Medicare beneficiaries with Part D (prescription drug benefits) is now in an Advantage plan.
An analysis of the reasons for this growth, however, suggests “a troubling report card,” she says, because while the Medicare Modernization Act expanded choice and the private-sector role, it also “added to Medicare’s complexity and costs and has created potential inequities, without apparent improvements in quality.”
Nearly half of new Advantage enrollees, 48 percent, go into fee-for-service plans that mimic traditional Medicare and don’t adequately coordinate care, Gold wrote, and while HMOs still dominate the Advantage marketplace, with 70 percent of enrollment, that’s down from 84 percent before the Medicare Modernization Act.
“Well-established HMOs said that they have been able to retain their current enrollees but are finding it challenging to attract new ones, particularly those not aging into MA from former group coverage,” Gold wrote.
Moreover, Gold found, while Medicare’s structure provides financial incentives for insurers to compete to enroll beneficiaries, it doesn’t hold them accountable enough.
“However the debate ends,” she concluded, “a stronger system of performance monitoring and accountability is needed to meet Medicare’s essential fiduciary requirements and oversight responsibilities.”
In the second study, Medicare Payment Advisory Commission analysts Carlos Zarabozo and Scott Harrison note that because the government pays private plans, on average, 13 percent more than what it would for the same beneficiaries in traditional Medicare, Advantage plans have increased the cost of the Medicare program.
“The higher payment rates have financed what is essentially a Medicare benefit expansion for Medicare Advantage enrollees, without producing any overall savings for the Medicare program, and with increased costs borne by all beneficiaries and taxpayers,” they wrote.
HMOs were paid, on average, 12 percent more than they would have been paid for traditional Medicare beneficiaries, the study found, while payments to private fee-for-service plans were 17 percent greater than what Medicare beneficiaries could have commanded.
Both studies are available online at content.healthaffairs.org.