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GAO on Medicare Advantage Rates

By March 30, 2011Commentary

The Medicare Advantage program, under which seniors enroll in a private health plan to provide their Medicare services, has been politically controversial, with Republicans generally liking its private features and Democrats feeling it undermines the public fee-for-service program and pays the plans too much.  The General Accounting Office was asked to do an assessment of the program and issued a report, focusing in particular on the payments to the health plans in the MA program in comparison to fee-for-service costs.   (GAO Report) In 2010, over 11 million beneficiaries were enrolled in MA, with the plans being paid over $115 billion by CMS.

The amounts paid by CMS are related to a benchmark set by county and FFS Medicare spending in the county.  Historically, MA plans in high-spending Medicare FFS areas tend to get higher MA payments, but the reform law has provisions designed to limit or reverse this.  The GAO compared the plan bids to FFS spending and looked at factors associated with the relationship between bids and level of FFS spending.  Overall, the MA plans bid about 98% of the amount of FFS spending.

HMOs were the only MA plan type with below FFS bids.  MA plans with the majority of their enrollment in high FFS areas were most likely to have below FFS bids.  In general, it appeared that where there was more concentration of enrollment among fewer MA plans, the bids were higher in comparison to FFS spending.  The largest MA sponsors nationally tended to have bids higher than the FFS level. But market concentration had a weak correlation compared to other factors.  Projected profits, about 4-5%, were the same for all plan types in all areas.  The results of the report are consistent with common sense, but they do suggest that there is room to put pressure on the MA plans to deliver more cost-effective services.  It is a complete mystery why CMS and Congress don’t adopt a purely competitive bidding method, whereby the lowest bid is what all the plans get paid.  Oh wait, it is not really a mystery, all those campaign contributions and lobbyists from the health plans probably explain it pretty well.

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