Medicare Advantage’s Trials and Tribulations

Medicare Advantage, in which private health plans are used to provide Medicare benefits, is having a rough period.  This is largely related to the program reaching the point of covering the majority of Medicare beneficiaries.  Why is the program so popular?  Because it typically reduces or eliminates the Medicare coinsurance and deductibles and adds extra benefits not typically covered by Medicare, all for no or a low additional premium.  Medicare supplemental insurance, by contrast, typically does not offer extra benefits and has higher premiums.  With popularity comes greater scrutiny.

One of the items scrutinized has been how the plans are paid, which deserves a re-look.  Medicare uses a formula tied to what is spent on a typical fee-for-service Medicare beneficiary in the geographic area, modified by what the health status and health conditions of the beneficiary are, plus a bonus for doing well on a number of Medicare “quality” and other outcomes.  Not sure what the dunces at the Centers for Medicare & Medicaid Services were thinking when they put this formula together, but of course any rational health plan is going to do whatever it can to maximize reimbursement under it.  And they do.  So they work extra hard to get their bonuses, while potentially ignoring other factors that are more important for patient health, and they scrutinize the hell out their members’ health, to maximize the health status multiplier.

Since the start of Medicare risk-contracting, the plans have been accused of selective enrollment of healthier people, on little to no evidence.  The truth now, as I know from personal experience, is that the plans look for unhealthy people who likely have been poorly served by the fee-for-service system.  These people both have big payment multipliers attached to them and offer lots of opportunity for improving care and lowering costs.  The plans do an amazing job of making sure patients see primary care doctors and specialists and avoid acute episodes that put them in the hospital.

In any event, no less a stalwart of supposedly good journalism than the Wall Street Journal has suggested that the plans manipulate the payment formula.  What lunacy, of course they “manipulate” the formula, they are doing exactly what the government incents them to do–go find sick people and identify and treat all their health problems, at a cost far lower than they were incurring in the fee-for-service system.  And the plans make a lot of profit doing so.  But this isn’t manipulation, it is responding to the incentives set by the morons in government.

Does the payment formula need to be changed?  Absolutely at this point.  It should be based solely on the demonstrated utilization in the Medicare Advantage plans for a patient with those characteristics, multiplied by Medicare payment rates.  There is enough MA utilization and data now to do that.

Another issue is supposed underpayment of hospitals or other providers, you see these stories constantly about health systems in particular having contract disputes with MA plans.  Here is the deal; those providers if the beneficiary were in FFS Medicare would be getting nothing but what Medicare by fiat says it will pay them.  That should be and is the default amount that MA plans should pay as well.  But these greedy health systems, and that is what they are, want the MA plans to pay them far more than Medicare FFS does.  So next time you see a story about that, ask yourself why they should be paid more.

Finally, there is a recent claim that people who were in an MA plan and went back to traditional Medicare incurred higher spending than they did in MA and than supposedly similar people in the FFS program.  The single-payer flunkies at the Kaiser Family Foundation miss the glaringly obvious explanation.  The FFS program lets doctors and other providers run riot with excess utilization to increase revenue.  There are literally no controls.  So yep, send someone from an MA plan back to FFS and the providers’ eyes light up–here is another shot at running up the bills.  But the KFF folks come up with some more nefarious suggestions, on their own admission with no evidence.  There is a reason why the MA plans have both lower utilization and spending and have higher quality scores than FFS–it is because the plans actually care about managing their members’ health.  (KFF Article)