- The government spent $321 more per person for enrollees in the Medicare Advantage program compared to similar beneficiaries in traditional Medicare in 2019, according to a new Kaiser Family Foundation analysis released Tuesday. That gap amounted to an additional $7 billion in spending due to the highly popular, privately run MA program.
- If spending per MA enrollee fell by 2% each year compared to what actuaries currently project, then total Medicare spending would be $82 billion lower than projected between 2021 and 2029, researchers found. That scenario mirrors recommendations from the Medicare Payment Advisory Commission, worried about looming insolvency in the increasingly stressed Medicare program.
- If, however, the growth in per-person spending on MA beneficiaries was held to the same growth rate as spending on those in traditional Medicare, total program spending would be $183 billion lower than projected between 2021 and 2029. The report comes as Washington ramps up efforts to curb MA costs.
One of the overarching goals of the MA program was to manage the costs of care for the senior population to lower overall Medicare spending. However, the program has never generated savings for Medicare, and in fact contributed to rapidly rising spending, research has found.
KFF's new analysis of publicly available data from 2019, the most recent year for which data is available, found MA payments per enrollee were 103% of spending in traditional Medicare that year.
Recent research from MedPAC found that gap has widened slightly, with MA per-enrollee payments pegged at an estimated 104% of those in fee-for-service Medicare.
Proponents of MA point to how the program includes the cost of extra benefits, such as vision and dental, that are funded by rebates and not covered for people in traditional Medicare plans — a major draw for some beneficiaries.
Those additional benefits did likely contribute to rapidly rising MA enrollment, KFF researchers said. MA enrollment reached 22 million in 2019 and 26 million in 2021, swelling from 36% to 42% of all beneficiaries in the overall Medicare program.
But that growth also resulted in snowballing spending in MA, which is projected to rise to $664 billion by 2029, almost double the $348 billion spent this year. About half of that hike is attributable to enrollment growth, while the remaining half is because of growing per-enrollee spending, KFF said.
MA's higher payments — $11,844 per person in MA versus $11,523 in traditional Medicare in 2019 — have led to higher government spending than would have taken place under traditional Medicare, and higher Medicare Part B outpatient premiums paid by all Medicare beneficiaries, researchers found.
KFF chalked the higher spending up to how MA is paid, including how benchmarks for plan payments are set and the risk adjustment process. These measures are intended to compensate for higher risk (and higher cost) enrollees, but aren't quite hitting the mark, according to the report.
The Biden administration is eyeing methods to curb costs. In its 2022 budget, the administration expressed support for reforming payments to private payers to extend the solvency of the Medicare Hospital Insurance Trust Fund, which finances Medicare Part A. Currently, watchdogs project the fund to become insolvent by 2024, two years earlier than previously forecast due to the effects of COVID-19.
And regulators have been putting MA plans under greater scrutiny for their coding practices, which often result in overpayments from Medicare. CMS estimates insurers have overcharged Medicare by almost $30 billion over the past few years.
KFF researchers said their analysis suggests reducing the difference in payments between MA and traditional Medicare would generate savings, but could result in fewer extra benefits for MA enrollees "unless plans are able to lower administrative costs and operate more efficiently."