Answering questions about Medicare Advantage

from The Incidental Economist at http://bit.ly/2vNvr8a on August 9, 2017 at 03:18PM

Readers asked some questions about my most recent piece on Medicare Advantage. Here they are, with my answers.

1. Isn’t it true that the government pays Medicare Advantage plans a lot less today than they did in 2010, the year of focus of the study you wrote about?

Almost! According to government statistics, in 2010, Medicare Advantage plans received payments from the Medicare program equivalent to 113 percent of what it would cost a similar beneficiary to be covered by the traditional program. In 2017, that figure is 100 percent, but grows to 104 percent if you more accurately account for differences in the health of Medicare Advantage enrollees and traditional Medicare beneficiaries.

2. If the government is now paying the same (or almost the same) for an enrollee in Medicare Advantage as for a traditional Medicare beneficiary, what’s the problem?

Well, some believe that we should be taking advantage of market efficiency to save the government money, which was part of the original motivation for including private plan alternatives in Medicare. One key point of my piece was to compare what Medicare Advantage plans receive from the government to what it costs the plans to provide care, including marketing, administration, and profit as well. On that basis, in 2010, the plans received 8.5 percent more in government revenue than their costs. In 2017, that figure is 11 percent. What this means, as I wrote, is that Medicare Advantage plans are more efficient at managing care than the traditional program, but that taxpayers aren’t benefiting from that efficiency as much as they could be.

3. Where does that extra money go?

Medicare Advantage plans are supposed to use the additional revenue to enhance their benefits — either by providing coverage for things traditional Medicare does not cover (e.g., eyeglasses and hearing aids) or by reducing cost sharing. There is no doubt plans do this, as I wrote in my piece. And this is of tremendous benefit to enrollees, particularly lower income ones that cannot afford a supplemental plan to fill in the gaps in traditional Medicare.

A post on the Health Affairs blog documents in greater detail the kinds of additional benefits Medicare Advantage plans provide, beyond what’s covered by traditional Medicare. Just over half get basic dental benefits, three-quarters get eye exam coverage, just under half get a hearing aid benefit, and about one-third get help paying for gym memberships. The vast majority of Medicare Advantage enrollees that get these benefits, and others, do so with no additional premium.

But there is some doubt that plans provide additional benefits like these as efficiently as they could. Because the Medicare Advantage market is not as competitive as it might be, studies have shown that plans may pay more for benefits than they should, and enrollees receive less value from them than their costs. However, it’s also the case that the Affordable Care Act limits Medicare Advantage spending on things like marketing, management, and profit to 15 percent of revenue.

4. Isn’t it true that sicker patients tend to leave Medicare Advantage?

Yes. This is something I wrote about in another Upshot post. Because Medicare Advantage plans have networks, enrollees are not covered for just any doctor they wish. Medicare Advantage plans may also impose other restrictions on care, like requiring prior authorization for some services. For sicker patients, such practices impose a heavier burden, because they need more care and see more doctors. Some of those patients choose to leave Medicare Advantage and return to the traditional Medicare program, which has an open network and does not attempt to manage care.

5. So, given all this, what is the value of Medicare Advantage?

Medicare Advantage plans have been found to be of higher quality than traditional Medicare. They also reduce wasteful use of health care by managing care, something the traditional program doesn’t do at all. Finally, they fill in gaps in coverage and cost sharing of the traditional program. They’re able to do so when the traditional program is not because changing traditional Medicare would require legislation, and it’s hard to achieve political consensus on anything in health care these days.

The bottom line is that Medicare Advantage plans offer choices that some beneficiaries value. They can deliver the Medicare benefit more efficiently and with higher quality. Yet, taxpayers do pay more to plans than they could, given plans’ own costs. Paying less might mean plans leave the market and that enrollees get less. There are always tradeoffs.

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