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Private Medicare Advantage insurers sign up Medicare patients who have lower spending

May 7, 2019

Topics: Quote of the Day

By Gretchen Jacobson, Tricia Neuman, and Anthony Damico
Kaiser Family Foundation Issue Brief, May 2019

People on Medicare can choose coverage from either traditional Medicare or Medicare Advantage plans, typically trading off broad access to providers for potentially lower premiums and out-of-pocket costs. Beneficiaries who choose Medicare Advantage may differ from those in traditional Medicare in both measurable and unmeasurable ways, which may influence their use of services and spending. Yet, Medicare payments to Medicare Advantage plans per enrollee are based on average spending among beneficiaries in traditional Medicare.

This analysis looks at whether beneficiaries who choose to enroll in Medicare Advantage plans have lower spending, on average – before they enroll in Medicare Advantage plans – than similar people who remain in traditional Medicare. We compare average traditional Medicare spending and use of services in 2015 among beneficiaries who switched to Medicare Advantage plans in 2016 with those who remained in traditional Medicare that year, after adjusting for health risk. We adjust Medicare spending values for health conditions and other factors, with a model similar to the CMS HCC Risk Adjustment Model that is used to adjust payments to Medicare Advantage plans.

Key Findings

  • People who switched from traditional Medicare to Medicare Advantage in 2016 spent $1,253 less in 2015, on average, than beneficiaries who remained in traditional Medicare, after adjusting for health risk.
  • Even among traditional Medicare beneficiaries with specific health conditions, those who shifted to Medicare Advantage in 2016 had lower average spending in 2015, including people with diabetes ($1,072), asthma ($1,410), and breast or prostate cancer ($1,517).

Even after risk adjustment, the results indicate that beneficiaries who choose Medicare Advantage have lower Medicare spending – before they enroll in Medicare Advantage plans – than similar beneficiaries who remain in traditional Medicare, suggesting that basing payments to plans on the spending of those in traditional Medicare may systematically overestimate expected costs of Medicare Advantage enrollees.

Overview

Medicare payments to Medicare HMOs and PPOs, known as Medicare Advantage plans, have always been based on Medicare spending by similar people in traditional Medicare, partly because Medicare has never had accurate, complete data on the use of services or health care spending for beneficiaries in Medicare Advantage plans. The assumption has been that adjusting payments to plans for health status and other factors accounts for differences between beneficiaries in traditional Medicare and those in Medicare Advantage plans. Profits are assumed to be due to plans reducing spending by either managing fees (e.g., by having lower-cost hospitals in their network) or changing patterns of care (e.g., reducing hospital readmissions), rather than to favorable selection. Nonetheless, selection bias has been an ongoing concern and the subject of many studies over the years, with mixed evidence of favorable selection. This question is important because it affects the accuracy of Medicare payments to plans on behalf of 20 million Medicare beneficiaries, and rising.

This is the first known analysis to examine whether beneficiaries who choose to enroll in Medicare Advantage plans have lower spending and use fewer services – before enrolling in Medicare Advantage – than similar people in traditional Medicare. If Medicare Advantage enrollees use fewer services and have lower Medicare spending before they enroll in Medicare Advantage plans, compared to similar beneficiaries in traditional Medicare, then basing payments to Medicare Advantage plans on the Medicare spending for similar beneficiaries in traditional Medicare would overestimate the expected costs of Medicare Advantage enrollees and overpay plans by billions of dollars over the next decade. Studies that have looked at differences in the use of services and Medicare spending for Medicare Advantage enrollees compared to beneficiaries in traditional Medicare that did not account for actual prior differences may have overestimated the extent to which plans are reducing enrollees’ spending or use of services.

Discussion

This analysis examines whether beneficiaries who choose to enroll in Medicare Advantage plans have lower spending and use fewer services – before enrolling in Medicare Advantage – than similar people in traditional Medicare. The study found that beneficiaries who chose to enroll in a Medicare Advantage plan in 2016 had average expenditures in traditional Medicare (in 2015) that were $1,253 less, on average, than similar beneficiaries who remained in traditional Medicare. Similar differences in spending were found across all demographics and chronic conditions, even after adjusting for health risk factors. The results suggest that favorable self-selection into Medicare Advantage plans is occurring, even among traditional Medicare beneficiaries with similar health conditions. The findings raise questions as to why beneficiaries who are higher utilizers are less likely to go into Medicare Advantage and instead remain in traditional Medicare.

Other studies have examined services used by people while they were enrolled in Medicare Advantage plans, based on limited data, and have generally found that beneficiaries in Medicare Advantage plans use fewer services than those in traditional Medicare. Notably, the authors of these studies almost universally attribute differences in service utilization to care management by the plans – rather than to pre-existing differences in care seeking behavior and use of health services. This study suggests that differences in health care use, and spending, are evident before beneficiaries decided to enroll in Medicare Advantage plans or remain in traditional Medicare, raising questions about the extent to which plans are actually lowering spending or managing care.

It is not clear whether the differences in spending observed in this study increase, decrease, or persist over time as beneficiaries age, which has implications for whether a similar difference in spending could be assumed for all Medicare Advantage enrollees. Likewise, it is not clear how this difference in spending will change as the share of counties with the majority of beneficiaries in Medicare Advantage plans grows. This missing information could have important implications for Medicare spending. Potential overpayments could amount to billions in excess Medicare spending over a ten-year period if the observed differences in spending hold up as beneficiaries age and Medicare Advantage enrollment continues to rise. To illustrate, if the difference in average Medicare spending ($1,253) applied to just 10 percent of all Medicare Advantage enrollees in 2016, or 1.8 million enrollees, it would amount to more than $2 billion in excess spending in one year alone.

Policymakers could consider adjusting payments to reflect Medicare Advantage enrollees’ prior use of health care services, which could lower total Medicare spending and in turn reduce Medicare Part B premiums and deductibles for all beneficiaries. With more than 20 million enrollees in Medicare Advantage plans and Medicare payments to plans projected to reach $250 billion in 2019, the stakes are high for making payments to plans as accurate as possible.

https://www.kff.org…


Comment:

By Don McCanne, M.D.

It has long been contended that private Medicare Advantage plans have been able to reduce spending and thus increase profits by managing fees and by changing patterns of care (managed care). But this study indicates that Medicare Advantage patients already had had lower spending when they were enrolled in the traditional Medicare program and thus suggests that “favorable self-selection into Medicare Advantage plans is occurring.” Since Medicare Advantage payments are based on average spending in the traditional program, the Medicare Advantage plans are being overpaid for these patients with lower health care costs.

There are many reasons that private Medicare Advantage plans are a worse choice, even though marketing techniques have made them popular. Administrative costs are higher in the private plans. Choice of health care professionals is less because of the networks used by the private plans as opposed to the unlimited choices in the traditional Medicare program. Also administrative chicanery has been used by the government to increase payment rates for the private plans in an effort to move toward privatization of Medicare. Now we see that apparently healthier patients with fewer needs are enrolling in the private plans yet they are being paid as if they are comparable to the average health status of those in the traditional program. Once again, the taxpayer is being ripped off in order to support the private insurers that offer the Medicare Advantage plans.

Ironically, the single payer Medicare for All model provides superior benefits with much greater choices in care than does the private Medicare Advantage model. Yet politicians and the insurance industry have convinced the public that they are getting a better deal through the private insurers. As one famous politician said, “It’s complicated.” But it is not that complicated to understand when you see that private insurers benefit and taxpayers lose.

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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