The high costs of Medicare Advantage and how to address them

Taxpayers and people with Medicare are overpaying big time for Medicare Advantage, the corporate health plans that offer Medicare benefits. In a letter to the New York Times, Richard Kronick, a former government official, explains that the administration has the power to address Medicare Advantage’s high costs and reduce the heavy financial load Medicare is bearing. The Centers of Medicare and Medicaid Services (“CMS”) needs to adjust the way it pays Medicare Advantage plans.

Right now, CMS pays MA plans a flat fee per enrollee and that fee is adjusted up, based on the diagnosis codes of each enrollee, thereby incentivizing the Medicare Advantage (MA) plans to identify as many diagnosis codes as possible for each enrollee.

Kronick estimates that, if CMS does not fix its method for calculating payments to Medicare Advantage plans, overpayments to Medicare Advantage will be more than $600 billion in the next nine years. Some Medicare Advantage plans are engaging in fraud and inappropriately adding diagnosis codes to patient records. But, stopping their behavior, were it possible, won’t fix the overpayments. Because of the way the government pays them, all Medicare Advantage plans are adding as many appropriate diagnosis codes to patient records as possible–so that they will be paid more–even when for patients who might not need or receive any additional services.

Kronick suggests that CMS payments to Medicare Advantage could be adjusted to be more in line with Traditional Medicare, instead of about four percent more. His fix would correct one piece of the problem with payments to Medicare Advantage plans. But, the big problem lies with the government paying Medicare Advantage plans a fixed amount per enrollee unrelated to the cost of covering their health care services. So long as Medicare Advantage plans profit more when they deny or withhold care, they are likely to deny or withhold care or send enrollees to low cost providers as much as they can.

If the government wants to ensure Medicare Advantage plans well-serve the needs of people with costly conditions, it must pay them based on the cost of services they cover. On top of that, Medicare Advantage plans should receive a care management fee. To contain costs, the total payment amount should be capped.

Here’s what you need to think about when it comes to costs in Medicare Advantage:

Medicare Advantage (MA) often costs less than Traditional Medicare and supplemental coverage for people who use relatively few health care services. But, people in MA plans cannot buy supplemental coverage to pick up deductibles, copays and other out-of-pocket costs. These out-of-pocket costs can total as much as $7,550 a year for in-network care alone.

Medicare Advantage costs more than Traditional Medicare for:

Taxpayers: The government has always paid more for MA than Traditional Medicare. MA is projected to cost $600 billion more over the next nine years.
Everyone with Medicare: People in Traditional Medicare as well as in MA pay higher Medicare Part B premiums because of MA’s higher costs.
People with complex care needs: People in MA often face financial barriers, including copays and deductibles, which can force them to forgo critical care. Out-of-pocket costs in Medicare Advantage could be as high as $7,550 a year, a lot more than Traditional Medicare with supplemental coverage. In Traditional Medicare, people with supplemental insurance have few if any out-of-pocket costs. Supplemental insurance typically costs around $2,500 a year.

Medicare Advantage causes stress and anxiety for people with complex care needs that they do not face in traditional Medicare. They disenroll from MA at disproportionately high rates.

People face administrative barriers to care, including prior authorization requirements, which can delay care inappropriately, jeopardizing people’s health.
They experience inappropriate care denials, that can jeopardize their health.
Their care is usually only covered from a limited provider network, and they are more likely to receive care from lower quality hospitals, skilled nursing facilities and home health agencies than people in Traditional Medicare.

Medicare Advantage offers less value than Traditional Medicare. The available data suggests that people in MA, overall, receive about the same quality care as people in Traditional Medicare. But, the cost of MA is significantly higher. Higher costs and similar quality mean lower value in MA.

Fixed payments to Medicare Advantage wastes taxpayer dollars. MA receives around $12,000 a year on average per enrollee, including the 50 percent of enrollees with few health care needs who cost Traditional Medicare an average of $875 a year, wasting taxpayer dollars.

Medicare Advantage imposes additional untold costs. Many insurers offering MA have long histories of engaging in fraud against the government. Because they operate largely in secret, much of their behavior goes undetected, at unknown cost to people’s health and well-being.

Medicare Advantage plans have never released reliable cost data. In a recent report, their consultants state that estimates of MA costs are “inherently uncertain.”

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