Medicare Advantage (MA) plans cost enrollees 7 percent less than traditional fee-for-service (FSS) plans, show higher rates of consumer satisfaction, and can save money for the Centers for Medicare and Medicaid Services (CMS), a new study finds.
MA is the private option in Medicare. Enrollees sign up with a private company for Medicare coverage, and the private company manages the care for a reimbursement fee based on the enrollee’s risk profile.
Apples to Apples
The study, released September 21 by America’s Health Insurance Plans (AHIP), the trade group for health insurance providers, was conducted in response to a March 2022 report by MedPAC that said MA plans cost 2 percent more than FSS plans. The MedPAC report failed to factor in the mandatory maximum out-of-pocket (MOOP) requirement for MA plans, according to AHIP.
The study found if FSS plans were required to implement a MOOP, those plans would cost CMS 3.5 percent more. Accounting for the extra benefits and services MA plans offer, such as grocery delivery, vision, dental care, and zero-premium prescription coverage, MA costs 7 percent less than FSS plans, the report states.
“These savings are one more demonstration of how MA delivers better services, better access to care, and better value,” AHIP stated in a news release.
The study also found 94 percent of seniors in MA expressed satisfaction with their plan, compared with 84 percent in FSS, and that MA outperforms traditional Medicare on 16 different clinical quality measures.
Attractive to Those in Need
AHIP’s comparison shows the superiority of MA, says John C. Goodman, president of the Goodman Institute and co-publisher of Health Care News.
“In addition to the cost comparison, it is worth noting that seniors save $2,000 or so by not having to buy Medigap insurance,” said Goodman. “And they get much better drug coverage.”
MA has been a positive outlier in health care, says Goodman.
“Medicare Advantage is the only place in the entire health care system where health plans specialize in various chronic conditions and advertise to attract patients with those conditions,” Goodman wrote in a Forbes commentary on July 13. “By contrast, there is no employer in the entire country that seeks to attract employees who have diabetes, heart disease, or cancer. Plans in the Obamacare exchanges also appear to have no interest in high-cost enrollees. To the contrary, these plans, along with most employer plans, seem designed to attract the healthy and avoid the sick.”
Interest in Success
The MA model also avoids some of the drug cost pitfalls in Medicare Part D, the drug plan FSS Medicare enrollees must purchase separately for drug coverage, says Goodman. The separate plan can work against sick enrollees with big drug bills.
“In Medicare Advantage, people are paying one premium to only one insurer, who is responsible for all costs,” wrote Goodman in a September 22 article posted on the Goodman Institute’s webpage. “That means the insurer has a non-conflicted, integrated interest in keeping patients healthy and in minimizing costs.
“Because of a highly sophisticated risk adjustment system, these plans have just as much economic incentive to attract the sick as they have to attract the healthy,” wrote Goodman.
Attention to Real Costs
The study tries to make a fair cost comparison in a market known for distortions, not the least of which is the third-party payment system in which the consumer is abstracted from the cost and providers shift costs.
“Charges—billed prices—do not reflect actual costs,” said Linda Gorman, director of health care policy at the Independence Institute. “Reimbursement rates from the government programs do not reflect actual costs, either. One needs to focus on transaction prices to the extent that they are available.”
The controversy over which approach is more expensive is partly driven by a desire to control care, says Gorman.
“A lot of it presumably derives from the absolute determination that some groups have to prove that organizationally integrated care is better,” said Gorman. “No one likes to be wrong.”
The study may overestimate the advantages of MA, says Gorman.
“Like so many studies of Medicare Advantage versus fee-for-service Medicare, it does not consider whether there are group differences in the people who choose to enroll in each type of plan,” says Gorman. “Nor does it discuss the known incentives to inflate the health risk of Medicare Advantage patients. Without adjustment for risk, we really cannot say much about relative cost.”
Back to Cash
Although having two Medicare models can be a good way to create checks and balances, the best approach would be to get back to a free-market health system, not just for seniors but for everybody, says Gorman.
“A good start would be going back to encouraging cash payment for routine expenses and revamping coverage so that true insurance policies are again available,” said Gorman. “This would allow families to better control their financial losses if they are hit with a serious disease.
“Government programs should stop wasting money on healthy people,” said Gorman. “Subsidies should be transparent. They should be in cash and focused on medically indigent patients who have seriously expensive diseases or on the hospitals that treat them.”
Having the government hire private plans to organize care is a further waste of money, says Gorman.
“In traditional private practice, competent physicians developed informal networks of specialists they trusted to do right by their patients,” said Gorman. “The informal networks functioned pretty well and didn’t have all the administrative overhead.”
AnneMarie Schieber (email@example.com) is the managing editor of Health Care News.
“Value of Medicare Advantage Compared with Original Medicare,” America’s Health Insurance Plans, September 21, 2022: https://www.ahip.org/resources/value-of-medicare-advantage-compared-with-original-medicare
“The New York Times Wrote a Hit Piece on Medicare Advantage: John Goodman,” The Heartland Daily Podcast, October 13, 2022.