Medicare Advantage in the Spotlight

With the Senate looking for ways to cut costs, Medicare Advantage (MA) is emerging as a key area for potential reform.MA plans are private insurance options under Medicare, where beneficiaries receive coverage instead of the conventional, government-managed program. Medicare pays MA sponsors a monthly fee per person.

Enrollment in MA has surged in recent years. According to the 2024 Medicare trustees report,MA enrollment increased from 16 million people in 2014 to 34 million in 2024,now covering one out of every two beneficiaries.

Why the Growth?

MA plans are attractive becuase they often offer more comprehensive coverage than traditional Medicare without significantly higher premiums. Many enrollees get free prescription drug coverage and much lower cost-sharing for hospital and physician services. They also may receive limited dental and vision care.

Concerns and Criticisms

Despite the popularity of MA plans, concerns exist about potential overpayments.Critics argue that MA plans can only offer added benefits because they are overpaid. Research, including as conducted by the Medicare Payment Advisory Commission (MedPAC), supports this contention.

However, some data suggests MA plans are more efficient at delivering services due to careful claims scrutiny. High MA enrollment is also associated with positive spillover effects in the traditional program.

Proposed Reforms

The goal of MA reforms is to incentivize efficiency and high-quality care without overpaying plans. A reform plan should gradually restructure the MA market for greater efficiency and lower costs.

Key Principles for Reform:

• Competitive Bidding: The current formula combines bids with administratively set benchmarks. The Senate should amend the formula to rely strictly on bidding, phased in over five years to avoid abrupt changes. Payment could be based on the average bid weighted by enrollment.
• Standardized Benefits: competitive bidding should be paired with standardized coverage to allow beneficiaries to easily compare options. The Senate should require the Centers for Medicare & Medicaid Services (CMS) to develop a standard MA offering comparable to traditional Medicare, potentially adding catastrophic protection to the traditional program.Standardized supplemental benefits could also be offered for additional premiums.
• Risk Adjustment: The current system of payment adjustments based on enrollees’ health risks is criticized for relying too heavily on plan-submitted data, leading to potential abuse. The Senate should require CMS to determine a final annual risk score based on submitted information and government refinements for fairer comparisons.
• ACOs as MA Plans: encouraging provider-driven MA plans, such as accountable Care Organizations (ACOs), could foster competition. CMS should work with interested ACOs to develop the necessary functions to become viable MA insurance alternatives.

Potential Savings

The Congressional Budget Office (CBO) estimates the House bill will increase deficits by $3.0 trillion over ten years,including net interest. Medicare reforms could contribute to a more fiscally responsible bill.

If an MA bidding system led to a 10 percent reduction in payments, the savings over a decade would be close to $500 billion.

Reader Question

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Frequently Asked Questions

What is Medicare Advantage?

Medicare Advantage (MA) is a type of Medicare health plan offered by private companies that contract with Medicare to provide Part A and Part B benefits. MA plans may offer extra benefits, like vision, hearing, and dental care.

Why is Medicare Advantage enrollment growing?

MA enrollment is growing because thes plans often offer more comprehensive coverage and lower cost-sharing compared to traditional Medicare.

What are the potential benefits of reforming Medicare Advantage?

reforming Medicare Advantage could lead to significant cost savings for taxpayers while maintaining or improving the quality of care for beneficiaries.

What are some proposed reforms for Medicare Advantage?

Proposed reforms include competitive bidding, standardized benefits, risk adjustment, and encouraging Accountable Care Organizations (ACOs) to participate as MA plans.

How much money could be saved through Medicare Advantage reforms?

If reforms led to a 10 percent reduction in payments, the savings over a decade could be close to $500 billion, according to the Congressional Budget Office.

what is the role of the Centers for Medicare & Medicaid Services (CMS) in Medicare Advantage?

CMS oversees Medicare Advantage plans, sets regulations, and makes payments to the plans. CMS also plays a role in ensuring the quality of care provided by MA plans.