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Relative Spending and Utilization for Medicare Advantage Plans

By September 24, 2023Commentary

I write about Medicare and Medicare Advantage a fair amount because it is an area I have quite a bit of experience in.  And the Medicare program is at a crossroads in which the rapid growth of Medicare Advantage means that already over 50% of beneficiaries are enrolled in those private plans and the number could increase to as many as 70% in a few years.  Medicare needs to decide if there is any value to a fee-for-service option at this point.  I think not, given the fall better job that MA plans do in regard to managing the cost and quality of beneficiaries’ care.  A new report, sponsored by the industry, compares use of services and costs for MA plans and the fee-for service program.  (Harvard-Innovalon Paper)

The paper uses data that allows tracking of health care use for an individual both before they entered the Medicare program and after, whether in the MA program or fee-for-service arm.  The research adjusted for various factors that might influence spending and covered the years 2015 through 2019.  I can personally attest that the MA plans are very focussed on avoiding inpatient stays and this paper finds that for a similar enrollee population, an MA plan has 50% fewer hospitalizations and 22% fewer ER visits than does the fee-for-service program.  This is more an indictment of the FFS program, because the MA plans are just using standard techniques known for a long time to help manage utilization and cost.  The fact that use and cost of services actually rises for people who go into the FFS program when they join Medicare is further demonstration of the FFS program’s inadequacies.

As you might expect the MA plans provide roughly similar amounts of primary care and other routine care, including use of prescription drugs.  The overall cost per beneficiary is about 12% lower.  Congress should face reality, end the FFS program, have everyone join an MA plan, many of which have network designs that allow pretty free choice of provider and the MA plans generally have much lower cost-sharing and provide extra benefits.  CMS should have stronger controls on what Medicare pays the plans.  The current construct allows the plans to make too much money by benchmarking payments to FFS costs.  Making these changes would save both beneficiaries and Medicare money and improve the care beneficiaries receive.

Join the discussion 2 Comments

  • Robert W. Geist MD says:

    Dear Kevin, those standard means of decreasing utilization are HMO-ACO cartel hidden profiteering from rationing care. The HMO industry has the perverse power to control the benefits they “cover”. [ HMO Act of 1973. US Code chapter 42 sec. 300e (b) (1,2,3,4,5) and (c) 2D. ]. Profiteering from hidden rationing of care is your Medicare MA program means to the “success” you see. MA has a low premium cost thanks to enormous CMS subsidies to attract people into the HMO program–you do not take that into consideration of program cost

    Is there a problem with FFS Medicare the congress passed in 1973? Yes–let me know I will send you a copy of Greg Scandlen’s program for Medicare reform–it is no longer available on line. We have a bill in the MN senate for Medicaid Reform patterned after Scandlen’s program for Medicare–SF2287–it would eliminate the very expensive and huge beaurocracies necessary to Ration care for “cost control”.

    I have read your commentaries for years–they are always excellent. You stumbled for the first time regarding the Medicare MA program.

    Best wishes, Bob

    • Kevin Roche says:

      I will have to disagree, what studies show is that the MA health plans provide more primary care and preventative care and thereby avoid hospitalizations and ER use. Calling that care rationing is just wrong, it is why in fact, the usual indicators of quality of care and adherence to recommended care are far better in the MA plans than the FFS arm, despite the fact that the plans now serve a poorer, less healthy population. The plans seek those populations because there is more of an opportunity to improve care and health and in the process make more money. The plans also are not “subsidized”. They are paid by a formula that is based on FFS benchmarks. I think that should be changed because FFS is so inefficient. they are also incented to hit quality and health metrics–which they do. the notion that they ration care is just dead wrong, I have been involved in multiple plans in management and as a board member and the focus is always active engagment with beneficiaries to improve their health and get them in to see their primary care doctor frequently, get them on appropriate meds, etc. The result is far fewer expensive hospitalizations.

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