Dive Brief:
- Seniors who switch from traditional Medicare into privately-run Medicare Advantage plans already have lower healthcare costs before they join MA, according to a new Kaiser Family Foundation study, which raises doubts about the extent to which MA plans actually lower prices and save the system money.
- People who switched into MA in 2016 spent, on average, $1,253 less in healthcare costs in 2015 than those who remained in Medicare fee-for-service, according to KFF, after adjusting for health risk factors. That's about a 13% difference.
- Even those with chronic and high-cost health conditions had less spending. Seniors with diabetes, asthma and breast or prostate cancer who switched to MA accounted for $1,072, $1,410 and $1,517 less in Medicare costs, respectively, in 2015 than those who remained in FFS in 2016.
Dive Insight:
Proponents of the popular Medicare Advantage plans stress they lower costs and provide a swath of services for America's seniors. However, this new evidence suggests MA plans may be more cost-effective simply because the seniors switching into them were already the cheapest to cover.
The study raises questions about whether MA payment rates are too high. The rates are based on spend for similar people in Medicare fee-for-service because CMS has yet to gather enough data on spend in MA plans.
MA plans, which cover roughly 35% of the seniors in Medicare, say they make money through a combination of cost and care management. This could include only having lower cost providers in their network and incentivizing positive health behaviors. However, critics have maintained profits stem partially from selection bias: seniors who are already lower cost to cover or who are more health conscious choosing MA plans over traditional Medicare, a claim this new data seems to support.
"This question is important because it affects the accuracy of Medicare payments to plan on behalf of 20 million Medicare beneficiaries, and rising," the study authors wrote. If KFF is accurate that CMS is overestimating MA spend, it could mean billions of dollars in overpayment over the next decade, researchers say.
In April, CMS released a final rule hiking MA payment rates by more than 2.5% — almost one percentage point higher than the proposed increase just four months before. CMS payments to MA plans are projected to reach $250 billion in 2019 as the popularity and offerings of the privately-run health insurance grows. Avalere estimated last year that enrollment will jump by almost 12% this year to cover 22.6 million people — or 40% of Medicare beneficiaries.
CMS has also continued to inject added flexibility into regulatory guidelines for MA, allowing the plans to cover social determinants of health benefits like buying produce for beneficiaries to help with their diet or arranging carpet cleanings for asthmatics.
As the debate around expanding Medicare reverberates throughout the health policy space, nailing down accurate payments becomes more important. Although a public payer expansion plan is unlikely in the current political climate, lowering unnecessary Medicare spend and decreasing waste within the healthcare system could garner bipartisan support.
KFF suggests policymakers adjust payments to reflect MA enrollee's previous use of services while in traditional Medicare. Such an adjustment would likely lower overall spend and have the ripple effect of reducing Medicare Part B premiums and deductibles.