- Overpayments to Medicare Advantage plans could reach more than $75 billion this year — almost triple prior estimates — highlighting the need for payment reform to avoid overtaxing the Medicare system, according to researchers from the USC Schaeffer Center for Health Policy and Economics.
- That’s a result of favorable selection, as millions of beneficiaries who switch from traditional fee-for-service Medicare to MA have lower spending than the beneficiaries who stay, researchers said.
- USC Schaeffer argued for two potential ways to improve rate setting: unlinking MA payments from fee-for-service spending or enacting a system for competitive bidding by MA plans.
More seniors are choosing MA plans, where private insurers contract with the government to manage their care. Watchdogs have long rung alarm bells over high levels of overpayment in the program, which could threaten its long-term viability — and that overpayment is even higher than previously thought, according to the new report.
USC Schaeffer found MA plans were overpaid by 14.4% in 2020 due to the favorable selection of lower-spending beneficiaries alone. Previously, congressional advisory group MedPac had estimated plans were overpaid by 6% for more aggressive coding and quality bonuses, but didn’t take that favorable selection into account.
Combining the favorable selection phenomenon with coding intensity and other factors, total MA overpayments land at 20%, researchers said.
MA enrollment has exploded over the past decade, and half of eligible beneficiaries are now enrolled in private plans. USC researchers argued the plans’ popularity are one reason why reform is needed.
“The skewed distribution of expenditures and the consistent trend of beneficiaries with below-average spending choosing Medicare Advantage plans have significant financial implications and are adding to the fiscal strain on the Medicare system,” Steven Lieberman, a nonresident senior fellow at the USC Schaeffer Center, said in a statement. “Reform options must strive to improve the relationship between FFS expenditures and Medicare Advantage payments.”