By Joe Albanese
(From the Washington Examiner) Politicians usually avoid proposing changes to Medicare in an election year, but the program’s rising costs and expected insolvency within the next five to 10 years will demand attention in the next presidential term.
The question will be how to reduce spending while preserving benefits for seniors. The best approach is to build on the success of Medicare Advantage (MA).
In traditional Medicare, the government decides what services it will cover and the price it will pay. In MA, seniors choose private coverage options where plans make more of those decisions in a competitive market. Most seniors who choose MA do so because it offers them better value.
Advantage of Patient Choice
MA enrollees tend to have more preventive care visits, fewer hospital admissions with shorter stays, and lower health care spending. Since MA plans deliver better health outcomes and more coordinated care, their average cost of covering core Medicare benefits is much lower—about 17 percent below traditional Medicare.
Plans pass part of these savings to taxpayers and the rest to enrollees in the form of lower expenses or extra benefits that are not covered by traditional Medicare, such as dental, vision, and hearing coverage. While MA plans cap out-of-pocket spending, many traditional Medicare enrollees must purchase expensive Medigap plans to receive comparable benefits.
MA’s growth means that more seniors have access to its advantages. Patient choice is transforming the entire Medicare program in a way that bureaucrats have been unable to do.
But there are opportunities to improve MA that will allow it to drive even more innovation for more people. To do that, it is necessary to address concerns that overall MA spending is higher than traditional Medicare despite MA’s success in lowering healthcare expenses. This will require refinements to MA’s structure and overdue reforms to traditional Medicare.
Building on Success
A recent paper by Paragon Health Institute offers such a package of recommendations that strengthens MA while saving taxpayers an estimated $250 billion over a decade. There are four key policies.
First, where MA options are strongest, reduce the government’s base payment rate to plans so it does not exceed traditional Medicare costs, as currently happens in half of the country. Other technical fixes should make these payments even more accurate.
Second, eliminate MA quality bonuses. Researchers have found that government performance metrics do not predict quality well, and instead cause plans and doctors to focus more on box-checking exercises than improving healthcare.
Third, improve risk coding. Plans currently receive higher reimbursement for sicker enrollees, a necessary feature so plans do not avoid costlier patients. But plans identify diagnosis codes with greater intensity than traditional Medicare. Congress should address this with more targeted payment adjustments and increased monitoring of diagnostic documentation.
Finally, Congress should increase parity between MA and traditional Medicare. The lack of cost controls in traditional Medicare and counterproductive MA regulations make it impossible for the two programs to compete on equal footing. For example, Congress should address problems with Medigap to control spending and ease switching between MA and Medigap. Additionally, it should direct seniors to choose coverage rather than receive traditional Medicare by default.
Fixing What’s Wrong
If supporters of MA do not address the program’s shortcomings, its opponents will. Many researchers and regulators are staunchly opposed to private plans in Medicare and have recently ramped up attacks on MA.
This same story played out with Medicare Part D: by allowing seniors to access prescription drug benefits through private plans, Part D kept overall drug costs lower than expected. But rising prices for certain treatments and patient exposure to catastrophic expenses were problems that became a rallying cry.
When Democrats won the presidency and both houses of Congress, they significantly expanded regulations on the program through the Inflation Reduction Act. These policies will likely raise seniors’ Part D premiums, limit their coverage options, and suffocate drug development over time.
Policymakers can avoid this same fate for MA. The right changes can save money, improve quality, and give seniors more choices in Medicare. On the other hand, failing to offer positive solutions could erase these gains for millions of seniors and return them to the same government-driven approach that has failed time and time again.
Joe Albanese (jalbanese@paragoninstitute.org) is a senior policy analyst at Paragon Health Institute. A version of this article appeared in the Washington Examiner on February 28, 2024. Reprinted with permission.
