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Medicare Advantage and Traditional Medicare

By December 12, 2012Commentary

Two articles in Health Affairs assess the Medicare Advantage Program, one looking at utilization and spending and one at adverse selection.   (HA Article) (HA Article)  Medicare Advantage has several predecessors and a long and somewhat controversial history.  It functions by beneficiaries enrolling in private plans, which are paid largely by CMS.  The plans often have better benefits than traditional Medicare.  In recent years, growth has been stimulated by favorable payments to the plans, which have drawn criticism.  Sorting out fact from fiction is important to inform policy makers and beneficiaries.  The first study in Health Affairs evaluated the relative utilization of MA plans compared to fee-for-service Medicare.  The researchers created a matching cohort of MA and fee-for-service beneficiaries.  As should be the case, they found utilization was lower in the private plans.  ER visits were about 23-25% lower; inpatient medical days about 20-25% lower and ambulatory use also lower.  By the end of the study period, regular outpatient visits were roughly the same, as were inpatient surgical days.  In general, the utilization appeared to be more appropriate as well, for example, bypass surgery rates were higher and percutaneous procedures lower, in accordance with current evidence-based standards.  Rates of likely inappropriate procedures seemed lower.  This better management of utilization, coupled with generally better quality scores than fee-for-service Medicare, means that the MA plans are likely creating better outcomes, cost and quality, than traditional Medicare.

The second study examined whether the is still significant favorable selection in MA plans.  Historically, MA plans attracted younger and healthier beneficiaries.  This shouldn’t matter, but CMS was not adjusting plan payments for this difference, so they were getting a windfall.  The researchers found that Medicare risk adjustment changes and a new lock-in on Medicare Advantage enrollment have substantially reduced any favorable selection.   Since beneficiaries in most MA plans have better benefits and the plans do a better job than traditional Medicare of ensuring quality care, it is not surprising they have become very popular.  The plans should certainly not be paid more or even as much as traditional Medicare would pay for the same enrollee, and they should be forced to compete directly on cost and quality.  But the real policy question is why all beneficiaries aren’t moved to Medicare Advantage, with premium support or vouchers being means-tested and annual increases limited to inflation.  This would save billions in administrative costs and tens of billions in health care spending.  It would then be similar to Part D, which has cost much less than projected by going the all-private plan route.

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