The advantages of Medicare Advantage

April 16, 2012

Medicare Advantage (MA) beneficiaries received more benefits and had lower costs than their counterparts in traditional Medicare, but not all seniors enrolled in MA plans see the same level of benefits and savings.

An analysis of data on Medicare private plan payment by Avalere Health, which was recently released by the Centers for Medicare & Medicaid Services (CMS), found that beneficiaries enrolled a Medicare Advantage (MA) plan received on average more than $70 in additional benefits and reduced cost sharing in 2010 at no charge to them. However, the analysis also suggests there is significant geographic variation in the amount of rebates that MA plans receive from the federal government to reduce cost sharing and add benefits at no charge to beneficiaries.

Beneficiaries in some areas of the country, like Florida and Louisiana, get more additional benefits, at no cost, by enrolling in MA plans than beneficiaries in areas such as Wyoming and Montana. In some states rebates were more than $100 per member per month (PMPM), while plans in other states receive, on average, less than $20 PMPM. Florida had the highest average rebate amount at $154 PMPM. Wyoming and Alaska had the lowest average rebates with $13 and $0 PMPM, respectively.

Although MA plan benchmarks were not directly tied to underlying Medicare costs in 2010, there is a relationship between benchmark levels and Medicare fee-for-service (FFS) costs, according to Avalere Health. The variation in average rebates by state can partially be explained by variation in underlying FFS Medicare costs. In areas where FFS Medicare costs tend to be higher, health plans can often perform more efficiently than Medicare and are able to bid in a way that may be lower than benchmarks.

Avalere also found that health maintenance organizations (HMO) were more likely to receive higher rebates, and thus offer more supplemental benefits to enrollees, than were local preferred provider organizations (PPOs) or regional PPOs.

The Patient Protection and Affordable Care Act (PPACA) reduced MA plan payments by lowering the payment benchmarks that plans bid against and reducing the share of the savings that plans receive as a rebate when they bid below the benchmark. The PPACA payment reductions began in 2012 and will be fully implemented by 2017.

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