Medicare Advantage, Racing Along, Hits Some Speed Bumps

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Article
MHE PublicationMHE May 2024
Volume 34
Issue 5

Enrollment has soared, but a relatively modest 2025 rate increase and changes to the Star rating system may lead plans to cut back on with their benefit offerings.

Medicare Advantage (MA) plans have overtaken traditional Medicare as the most popular type of coverage for seniors, but critics contend that the plans, many of them run and sold by large health insurance companies, are being overpaid by the government, and delay and deny needed care. As a result, a number of hospitals have stopped accepting MA plans and some lawmakers are calling for a crackdown on the plans.

Andrea Ducas

Andrea Ducas

Having the federal government pay more for care for those in Medicare Advantage plans than in traditional Medicare might be justified if MA plans delivered higher-quality care, “but that’s not the case,” contends Andrea Ducas, vice president of health policy at the Center for American Progress. “The results are mixed.”

Last year, 51% of the eligible Medicare population, or 30.8 million people, enrolled in a Medicare Advantage plan, according to KFF, a healthcare policy research group. Such plans accounted for 54%, or $454 billion, of total Medicare spending. Enrollment in Medicare Advantage plans has soared over the years, rising by 337% between 2006 and 2022, according to KFF, while enrollment in traditional Medicare has dipped by almost 3%. Medicare beneficiaries tend to be drawn to MA plans by their lower or lack of premiums and richer offering of extra benefits, such as coverage for vision and dental care.

The appeal of MA

Medicare Advantage was created in 2003. Proponents argued that allowing private insurers to manage care much the way they manage the care of people covered by their employer’s insurance could mean better, more coordinated services at lower cost for those 65 years and older, says Ducas. Plus, traditional Medicare “is a confusing program,” notes Ducas. It includes Part A, which provides hospital insurance; Part B, which covers physician services; and Part D, which provides drug coverage. Beneficiaries can go to any healthcare provider that takes Medicare. One big drawback, though, is that there is no out-of-pocket limit. Many people mitigate that risk by buying Medicare supplement insurance — commonly called Medigap coverage — to help cover costs.

The appeal of Medicare Advantage is understandable. The premiums are low or zero. Dental, vision and fitness benefits are common. Drug coverage is typically included. CMS uses a complicated formulary that pays the insurers selling the plans a fixed monthly amount for each beneficiary they cover.

The MA plan initially argued, “We can deliver this benefit much more effectively and you can pay us less than fee for service,” says Mark Miller, executive vice president of health care at Arnold Ventures and former executive director of the Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare issues. “It was a pretty attractive pitch,” Miller says. “Someone was taking responsibility for the whole patient.”

But over time, payments to the companies selling the plans climbed and now some say they are overpaid for their services. The extra benefits that MA plans offer “you, as a taxpayer, and me, are subsidizing,” Miller argues. “The extra benefits are supposed to be financed by efficiencies.”

In a letter to CMS earlier this year, Sen. Elizabeth Warren, a Massachusetts Democrat, and Rep. Pramila Jayapal, a Democrat from Washington state, criticized overpayments to MA insurers. The lawmakers cited MedPAC estimates that MA plans receive 6% more per enrollee than it would cost to cover them in traditional Medicare, yet MA plans spend up to 25% less on healthcare per enrollee.

Pushing back

Health insurers have pushed back against the overpayment narrative. AHIP, the health insurers’ trade association, disputed the MedPAC findings. Mike Tuffin, MBA, the organization’s president and chief executive officer, said in press release that the cost estimates “double down on speculative assumptions about Medicare Advantage and overlook basic facts about who Medicare Advantage serves and the value the program provides.” He said MA beneficiaries “are counting on stability in their costs and benefits (and) policymakers should seek to strengthen and build on the value of the program — not undermine it.” AHIP also issued a two-page report in March 2024 challenging the MedPAC report. The AHIP’s rebuttal report says MA plans are enrolling people with greater healthcare needs and more low-income individuals, older beneficiaries and minorities; that ongoing reforms will impact MA payments; and that MA plans outperform traditional Medicare in areas such as preventive care and hospital readmissions and better health outcomes for patients with certain conditions. AHIP also said the MedPAC review fails to consider the extra benefits MA plans offer and lower out-of-pocket costs.

Meanwhile, Humana, UnitedHealth Group and other insurers that sell MA plans saw their stock prices fall in early April 2024 when the Biden administration announced that the rate increase for the MA plans would be, on average, 3.7% next year. Some experts say that increase actually amounts to a 0.16% rate reduction once inflation and other costs are
factored in.

McKinsey & Company, the consulting firm, said in a March 13, 2024, article titled “The future of Medicare Advantage” that the plans “sustained economic pressures” with higher inpatient and outpatient care utilization, most likely tied to care delays because of COVID-19, increasing the medical loss ratio. CMS is also making changes to its Stars program that will emphasize clinical and pharmacy metrics and add a health equity index.

Cara Repasky

Cara Repasky

McKinsey also said the market may be saturated with a growing number of plan options so benefit design may change from “a buffet to a curated menu.” The economic pressures are likely to cause MA insurers to “rethink their products and pricing,” says Cara Repasky, a McKinsey partner who leads the firm’s Medicare work and is a co-author of the March article. She added, though, “We remain bullish on the segment.” Although MA plans offer generous benefits, insurers often don’t closely track how much they are being utilized, says Repasky, who expects some to see some scaling back of benefits.

Her colleague, Dan Jamieson, says he expects insurers to reassess their plans on a county-level basis, with some markets getting richer plans and others, leaner plans. The problem now is that “there are too many options for members,” with many beneficiaries having 35 or 40 choices, he said.

Some payers have come under fire for denying needed care for patients, which is seen as a way for insurers to save money. Congress has already begun putting prior authorization under scrutiny, and in their letter,Warren and Jayapal urged CMS to “crack down on private insurers that unlawfully deny care.” A survey by the Commonwealth Fund found that 22% of MA members reported care delays because of the need for insurer approval compared with 13% of those with traditional Medicare. And 12% of MA members said they couldn’t afford care due to copayments and deductibles, compared with 7% of traditional Medicare members.

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