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Medicare Advantage costs taxpayers more than traditional Medicare

Written by Diane Archer

If you look at the data, the private health insurance industry has not succeeded at innovating to rein in Medicare spending through the Medicare Advantage program. A new paper on the Health Affairs blog finds that accountable care organizations (ACO’s), which operate in traditional Medicare’s Shared Savings Program deliver good care at lower cost than the Medicare Advantage program.

The authors find that the federal government reins in costs by one to two percent through ACOs in the Medicare Shared Savings Program (MSSP) initiative. More than 10 million people with Medicare are enrolled in the MSSP. The ACOs do a better job at reining in costs than Medicare Advantage plans.

The government pays Medicare Advantage plans a benchmark 98 percent of what it spends in traditional Medicare and then some. That amount excludes overpayments for Medicare Advantage plan enrollees who are in better health than Medicare Advantage plans claim and bonus payments to Medicare Advantage plans. Bonus payments bring Medicare Advantage payments up to one percent above traditional Medicare. Overpayments to Medicare Advantage plans represent another two to five and a half percent in payments.

In addition, a Kaiser study found that people who leave traditional Medicare to join a Medicare Advantage plan spend 13.4 percent less than the average person in traditional Medicare, adjusting for health risk. The study suggests that the federal government is likely overpaying Medicare Advantage plans because it assumes their enrollees have the same overall health care costs as people in traditional Medicare when the evidence suggests that they have lower health care costs.

All in, the authors conclude that Medicare Advantage plans cost the federal government more on average than traditional Medicare. Medicare Advantage plans receive between two and five and a half percent more in payments per enrollee than traditional Medicare.

Medicare Accountable Care Organizations saved traditional Medicare between one and two percent. The ACOs also have higher quality scores than traditional Medicare for people not enrolled in ACOs. They believe ACO successes on the quality front should improve medical practice patterns throughout the health care system.

The authors suggest that Accountable Care Organizations are not appropriately rewarded relative to Medicare Advantage plans for their successes. They propose level competition between traditional Medicare and Medicare Advantage. They argue for better risk adjustment based on Medicare Advantage “encounter” data (data on services delivered to enrollees) so as not to unfairly reward Medicare Advantage plans and penalize traditional Medicare. Unfortunately, Medicare Advantage plans have yet to provide CMS with accurate and thorough data about the care they provide to their enrollees undermining the possibility of better risk adjustment.

Here’s more from Just Care:

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