In a new Health Affairs post, Rick Gilfillan, MD, and Donald Berwick, MD, rebut unfounded claims by supporters of Medicare Advantage, with compelling evidence that Medicare Advantage needs an overhaul. Medicare Advantage is more costly than traditional Medicare, profits from a faulty risk-adjusted capitated payment model, shows no signs of delivering good quality care, and drives inequities in the health care system.
Medicare Advantage (MA) costs more than traditional Medicare. The additional cost is simply money out of the pockets of taxpayers and people with Medicare to health insurance companies. People with Medicare pay in the form of increased Part B premiums, which cover 25 percent of Part B spending.
“Upcoding” is responsible in large part for excess payments. MA plans add diagnosis codes–increase patients’ “risk profile,” the severity of their condition–to their charts in order to receive higher “risk-adjusted” capitated payments for those patients. There are more than 10,000 codes. Several large corporations help MA plans include additional diagnosis codes in patient profiles. They are often not reflected in the services patients receive but rather are captured through assessments of patients’ health risk during in-home visits. They generate billions in additional revenues for MA plans and limited costs.
Gilfillan and Berwick cite Richard Kronick and F. Michael Chua‘s projection “of a 14 percent uncorrected risk score difference, [suggesting that] the total overpayment approaches 15 percent.” According to MedPAC, the agency charged with overseeing Medicare payments, Medicare Advantage plans on average have 6.9 percent profit margins. And, though technically Medicare Advantage plans cannot allocate more than 15 cents of every dollar they receive from the government to administration and profits, they have ways around that.
Medicare Advantage plans spend less on medical care and profit at a level higher than technically permissible. To look as if they are spending 85 percent of their capitated payments on medical care–to comply with their 85 percent Medical Loss Ratio requirement–and profit more, they allocate 85 cents on the dollar to provider spending. Medicare Advantage plans that own provider companies can simply move the money to those companies, but the providers don’t need to spend the money on medical care. The more the MA plans upcode, the more they allocate to provider costs. Those additional costs are “provider incentive payments,” which the Medicare Advantage plans call medical costs. They have no relation to the amount the Medicare Advantage plans spend on care.
If the providers are employees of the Medicare Advantage plans, then the incentive payments are actually additional revenue to them. Rather, the medical loss ratio goes from 85 percent down to near 70 percent. Put differently, the Medicare Advantage plans get to keep 30 cents of each dollar they receive from the government.
Health inequities and underinsurance in Medicare Advantage: For sure, lower-income individuals are disproportionately enrolled in Medicare Advantage. But, because they have limited means, they are likely to end up in Medicare Advantage plans with no premium and high out-of-pocket costs. They are left underinsured, with out-of-pocket costs that can easily be 10 percent or more of their income. The Commonwealth Fund finds that one in four people with Medicare are underinsured.
Using the Commonwealth Fund formula for underinsurance, about half of people in MA could be underinsured, given that the median income for people with Medicare is under $30,000 and stated out-of-pocket costs in Medicare Advantage are $1,645, on average (though there is no data available to confirm that or to know how many people forgo care rather than spend money out of pocket on it.) Fortunately, some of these people have Medicaid to pick up their costs.
The data show clearly that underinsurance endangers people’s health. Many people will skip or delay needed care. The Kaiser Family Foundation research shows that about half of adults skip or delay care as a result of being underinsured, with higher proportions of people with low incomes, as well as Black and Hispanic adults. One study shows that 12 percent of people with Medicare spend more than 20 percent of their income on out-of-pocket health care costs.
N.B. Gilfillan and Berwick agree with supporters of Medicare Advantage that benefits are better in Medicare Advantage than in traditional Medicare. But, I would argue that it depends how you define benefits. The benefits are better in traditional Medicare if benefits are defined as getting the medically necessary care your doctors recommend from the doctors you choose to see. Medicare Advantage does not offer better benefits than traditional Medicare unless benefits are defined as theoretically covered medically necessary services from network providers and extras, putting administrative and financial barriers to care aside. We know from the HHS OIG that some people in MA plans are frequently denied needed care.
Medicare Advantage is growing, in large part, because it means fewer upfront out-of-pocket costs for enrollees and less upfront hassle figuring out supplemental coverage and a Part D plan that people generally need in traditional Medicare. But, these differences don’t speak to the quality of care or ease of access to care in Medicare Advantage. And, taxpayers are forced to pay Medicare Advantage plans more and people in traditional Medicare have to pay higher Part B premiums so that Medicare Advantage plans can offer these benefits.
No good data on quality of care in Medicare Advantage: Traditional Medicare has a broad quality improvement agenda, far broader than Medicare Advantage, which tends to focus most on primary care and patient experience. One example is the traditional Medicare Partnership for Patients initiative which helped reduce hospital-acquired conditions and reduced spending. In sharp contrast, there are virtually no reports on Medicare Advantage initiatives to improve care in hospitals or other care facilities. In fact, research shows Medicare Advantage plans tend to include in their networks more lower-quality nursing homes and home health providers and fewer high-quality hospitals than traditional Medicare.
Integrated or coordinated care is no more the norm in Medicare Advantage than in traditional Medicare. Most Medicare Advantage plans have in-network physicians who also treat people in traditional Medicare. Care coordination exists in traditional Medicare for people with complex conditions through accountable care organizations. The extent to which care coordination exists in Medicare Advantage for high-cost patients is unclear. What is clear is that the Accountable Care Organizations generated almost $4 billion in net Medicare savings in the last eight years, while the Medicare Advantage plans have cost Medicare $75 billion extra.
Notwithstanding overpayments to Medicare Advantage plans, Gilfillan and Berwick say they offer “no demonstrable clinical benefit to patients.” MedPAC underscores “the flaws in the 5-star system and the QBP [quality bonus payment] and the continuing erosion of the reliability of data on the quality of MA plans …. The current state of quality reporting is such that the Commission’s yearly updates can no longer provide an accurate description of the quality of care in MA. The Commission’s March 2019 report to the Congress contains a detailed discussion of the difficulty of evaluating the quality of care within the MA sector and changes in MA quality from one year to the next.”
Assessing quality in Medicare Advantage remains a challenge today as MedPAC made clear at a January 2022, meeting. Medicare Advantage data is incomplete and can be inaccurate. There is no way to show better health outcomes in Medicare Advantage. A recent analysis of the five-star rating system finds that there’s no data to conclude that the five-star rating system improved quality of care in Medicare Advantage.
If you look at data on hospital stays and emergency room visits, in 2018, Medicare Advantage appears to have greater inpatient use and emergency room visits than traditional Medicare.
In a review of the Medicare Advantage studies, Navathe and colleagues find “the evidence on readmission rates, mortality, experience of care, and racial/ethnic disparities did not show a trend of better performance in MA plans than traditional Medicare, despite the higher payments to MA plans.”
Gilfillan and Berwick believe that the Medicare Advantage capitated payment model allows Medicare Advantage plans to extract 15 percent (at a minimum) from the government on the total cost of care. The value of capitation, in their view, comes from reshaping care delivery, capitating payments to providers, as Kaiser does with the Permanente Medical Group. UnitedHealthcare and the other large for-profit insurers do not use that model but, generally, a fee-for-service model, to pay providers.
Medicare Advantage plans spend less on care. They spend, on average, 30 percent less than traditional Medicare. They spend significantly less for nursing home and rehab services, paying for shorter stays, and for home care, paying for fewer visits. They also tend to avoid high-quality and specialty hospitals. (NB: There is no meaningful data as to whether this benefits or endangers the health and well-being of enrollees, but it would stand to reason it leads to poorer health outcomes.) Gilfillan and Berwick adjust the spending number down “for mortality differences” reducing it to 9 percent.
Direct contracting in traditional Medicare, an experiment that puts insurer and private equity middlemen in charge of coordinating care for a capitated fee, gives insures and private equity firms another chance to take money from the system. More than half of the 99 direct contracting or “REACH” entities are investor-controlled. (They have never proved themselves to add value in Medicare Advantage.) Gilfillan and Berwick say that they should not be allowed in traditional Medicare. At the very least, the direct contracting experiment should be limited in scope. It is already at nearly two million enrollees.
In short, Medicare Advantage fragments coverage and financing, and adds complexity and additional costs across the health care industry, especially for physicians and other health care providers. Medicare Advantage’s administrative superstructure is expensive and “distorts the actual delivery of care.” Administrative costs and profits for everyone in the health system are estimated at 25 percent, for which Medicare Advantage is largely responsible.“We are not getting much” out of that. “The opacity that comes from the privatization of public payment confounds objective, scientific analysis.”
Berwick and Gilfillan call for improving the traditional Medicare benefit package, with some care coordination to address overuse, and health care providers focused on improving health outcomes. Insurers should receive a fee to help administer a good benefit plan that manages care, not a capitated payment. Most big insurers do not have the ability or mission to build good healthcare delivery systems.
Here’s more from Just Care:
- Government is not warning people about Medicare Advantage plans that could endanger their lives
- Biden administration bent on privatizing traditional Medicare
- Well-kept secrets of Medicare Advantage plans
- How Connecticut Eliminated Capitated Managed Care in Medicaid
- Four things to think about when choosing between traditional Medicare and Medicare Advantage plans
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