Medicare Advantage Raises Costs: MedPAC Refutes AHIP Claims

June 23, 2021

For the record: MedPAC’s response to AHIP’s recent “Correcting the Record” blog post.
March 3, 2021
By MedPAC Staff

“A recent blog post (“Correcting the Record”) from America’s Health Insurance Plans (AHIP) provides an inaccurate description of how the Medicare Payment Advisory Commission (MedPAC) compares spending in the Medicare Advantage (MA) program to Medicare fee-for-service (FFS) spending. The blog questions MedPAC’s long-standing assessment that, when properly compared, Medicare spends more overall for enrollees in Medicare Advantage than the program would have spent for similar beneficiaries enrolled in traditional FFS Medicare.[1]  . . .

Since 2004, our MA status report has presented a comparison of MA and FFS spending levels. This comparison aims to make an apples-to-apples comparison by accounting for a variety of differences between the two programs, such as:

• the health status of MA and FFS enrollees,
• the geographic distribution of MA and FFS enrollees,
• Medicare spending for hospice services and graduate medical education (both direct and indirect), and
• the tendency of MA plans to submit more diagnosis codes for their enrollees, which causes the risk scores for MA enrollees to be higher than the risk scores for similar FFS enrollees. . . .

When such adjustments are made, it is clear that Medicare spending for MA beneficiaries exceeds that for comparable FFS beneficiaries.  . . . we find that, since 2004, MA spending has consistently been higher than FFS spending, although the difference between them has varied over time (Figure 1).

Figure 1.  Medicare has paid more to MA plans than FFS Medicare spending would have been for the same enrollees, 2004–2021

Comment by David Himmelstein and Steffie Woolhandler

Private insurers garnered $278 billion from Medicare in 2019, a figure expected to rise steeply in the years ahead.  Their overhead averages 18% of their total premiums – equivalent to about $50 billion in 2019 alone.  In contrast, the overhead of traditional Medicare is only 2.3%.

MedPAC – the official Medicare advisory panel – has long estimated that private Medicare Advantage (MA) plans raise Medicare’s costs because the plans selectively recruit (and receive premiums for) healthier than average seniors who would cost Medicare little if they stayed in traditional Medicare; selectively disenroll the expensively ill; and “upcode” to make their enrollees look sicker than they actually are, boosting their premiums.

America’s Health Insurance Plans (AHIP) – the private insurers’ trade group – recently issued a report disputing MedPAC’s figures, and claiming that the MA program is actually a money saver.  The MedPAC’s staff’s rejoinder makes it clear that AHIP is dead wrong.

The MA program enriches private insurers but impoverishes the federal treasury.  It’s high time we ended it.  A Medicare for All reform must exclude MA, and the enormous waste it imposes on our health care system.