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The Kaiser Family Foundation (KFF) recently released a report entitled “Do People Who Sign Up for Medicare Advantage Plans Have Lower Medicare Spending?” (May 2019). As summarized in the report, “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.” [emphasis added]

The report analyzes differences in Medicare spending by demographics, chronic conditions, and by county (specifically, 20 “relatively large markets”). Key findings include: “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.” Further, “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).” The difference in average spending “increases with the number of chronic conditions … suggest[ing] that potential overpayments may be largest for the Medicare Advantage plans that are serving the sickest beneficiaries.”

The report raises a number of important policy considerations, including:

  • “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” [emphasis added].
  • Studies that examine use of services by individuals in MA plans have generally found that such individuals “use fewer services than those in traditional Medicare” and “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.” In contrast, KFF notes that “[t]his 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.” [emphasis added]
  • 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.” [emphasis added]
  • “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 [emphasis added]. 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.”

Lack of MA Data

In an editorial published by Modern Healthcare entitled “Let’s Open the Books on Medicare Advantage” (May 9, 2019), Merrill Goozner states “Insurers say they’ve earned their soaring enrollments and rising profitability by focusing on care coordination, offering incentives for healthy behavior, and providing targeted interventions for high-cost patients with multiple chronic conditions. The Kaiser study suggested it may actually be due to ‘pre-existing differences in care seeking behavior.’”

Goozner then asks: “Who’s right? One way to tell would be by analyzing whether high utilizers who joined MA saw their claims go down once they were in a private plan. Alas, as the Medicare Payment Advisory Commission discussed in depth at its spring meeting, the data flowing from MA plans to the CMS is completely inadequate for evaluating spending patterns.” He then notes that in order to get better data, “MedPAC recommended the CMS withhold payments to MA plans until they provide complete and accurate encounter data. It also called for using Medicare administrative contractors, which process fee-for-service claims, to collect the MA data if that didn’t work.”

The editorial concludes: “It’s time for full transparency on MA service payments to providers, with the data including both the quantity of services delivered and their prices. If, as some providers allege, MA plans are using their market power to pay less than Medicare rates, the CMS will eventually want to use that information to calculate the annual updates for Medicare Advantage plans.”


More transparency is only a first step.  Evidence is mounting that the Medicare program overpays Medicare Advantage in relation to traditional Medicare. Meaningful government response to address this imbalance, however, is in short supply. Instead, policymakers continue to expand the scope of services that MA plans can provide (in part, using some of these overpayments) without similar coverage expansions in traditional Medicare. At the same time, the current Administration is actively promoting enrollment in MA over traditional Medicare. Policymakers must stop tipping the scales in favor of MA and right this growing imbalance.

May 23, 2019 – D. Lipschutz 

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