A new study finds that the migration of people from traditional Medicare to the Medicare Advantage program over the last decade has saved the federal government $144 billion.
The study arrives at a time when critics have stepped up their claims that Medicare Advantage (MA) plans are over-billing Medicare and causing a waste of taxpayer money.
The study was conducted by Elevance, a private insurer with an obvious financial interest in the topic. However, the researchers make their data sources apparent and their results are available for scrutiny by others.
The Elevance study builds on a finding by other, more limited investigations: What happens in the MA system indirectly affects what happens to patients in traditional Medicare. In a typical MA plan, doctors are encouraged to practice integrated, coordinated care—sharing medical records and following agreed-upon treatment plans, for example. This results in more efficient care. Yet these very same doctors also treat traditional Medicare patients. So, methods they employ to practice cost-effective care for one set of patients are more likely to be repeated in the treatment of other patients.
Other studies have found that where there is a large presence of MA patients in an area, there tend to be spillover effects. Protocols used by MA plans tend to be become more widespread—affecting all Medicare patients.
The Elevance study measures this effect nationwide. It is a first-time comparison of spending on MA patients and traditional Medicare patients in the same counties, across the entire country. The finding: larger enrollment in MA plans leads to lower spending on all Medicare patients. Specifically, a 10% increase in market share by MA plans leads to an average decrease in spending on all Medicare beneficiaries of between $105 and $127 per person, per year.
Savings for Seniors
More than half of all seniors in Medicare get their health insurance from a private MA plan. Because these plans typically provide comprehensive coverage, enrollees avoid paying for “medigap” insurance that other seniors acquire to p lug the holes in traditional Medicare.
That’s one reason why the average senior in an MA plan is saving $2,541 a year in out-of-pocket costs. Participants also get extra benefits that traditional Medicare enrollees don’t get, including dental, eye, and hearing care.
Since the program was originally a bipartisan creation, you would think that politicians in both parties would openly brag about the program and claim credit for it. Yet in recent years, many on the left have become increasingly hostile.
The Biden administration has slashed payments to MA plans over the past two years, causing som e MA plans to leave the market altogether and others to reduce the benefits they offer. The administration has also been a ruthless regulator. Based on a “secret shopper” report, the administration fined one company $190 million for falling to answer a phone call in less than 8 seconds!
Are MA plans overpaid?
The Medicare Payment Advisory Commission (MedPAC) claims that MA plans are paid 20% more than Medicare pays for patients with similar health conditions in traditional Medicare. They admit that MA patients get more benefits than regular Medicare patients But, they argue that giving MA enrollees benefits that traditional Medicare enrollees don’t get is not a good use of taxpayer money.
One problem with MedPAC’s analysis is that traditional Medicare enrollees are not a homogeneous population. Some are also in employer plans. Some are also in Medicaid. They have different levels of out-of-pocket exposure. In failing to thoroughly adjust for these differences, MedPAC did not make a true apples-to-apples comparison between Medicare spending on enrollees in traditional Medicare and on MA enrollees.
A more rigorous study by Milliman corrected for these problems and found that the government saves money when people leave traditional Medicare and enroll in a Medicare Advantage plan. The savings equal $576 per enrollee per year. This is consistent with the Elevance results, independent of spillover effects.
Upcoding
One reason why the Medicare Advantage program works so much better than the (Obamacare) exchange is individualized risk adjustment. That means that MA plans get paid based on the health condition of their enrollees. If a patient is very sick, the government will pay the plan more. These payments are designed to make the healthy and the sick equally attractive to an insurer.
As a result, MA plans have a financial incentive to find and report every health condition that generates a more generous payment from Medicare. “Upcoding” occurs when the plans report conditions that might not be reported by doctors practicing in traditional Medicare.
Critics claim that MA companies are overly zealous—perhaps even reporting phantom conditions. This is one of the suspicions behind the claim that MA plans are overpaid.
An investigation by The Wall Street Journal (in collaboration with Medicare) found that in a singl e year, Medicare paid insurers $50 billion for diseases no doctor ever treated.
However, doctors and hospitals treating traditional Medicare patients also have a financial incentive to overbill Medicare. According to the Centers for Medicare and Medicaid Services, there are a higher percent of coding errors in traditional Medicare and they cost taxpayers twice as much money ($31.2 billion versus $16.6 billion in 2023).
Efficiency
The Better Medicare Alliance (an industry-funded organization), reports that MA plans deliver 13% lower inpatient hospitalization costs, 49% lower acute care hospital stays, and a 43% lower rate of avoidable hospitalizations. This is despite the fact that MA enrollees have lower incomes, less education and are more likely to be from a minority population.
The comparison is even better for people enrolled in both Medicare and Medicaid—thought to be the most vulnerable population. Among this group, being in an MA plan means a 14.2% lower likelihood of a hospital stay, a 72.6% higher likelihood of receiving a colorectal cancer screening, and a 52.5% higher likelihood of having a breast cancer screening.
The Medicare Advantage program has shown that competition in the marketplace is superior to government-run health insurance—in raising quality and lowering costs.
