Recent CMA Alerts (for example, here) have discussed how policymakers fail to address the growing inequities between Medicare Advantage (MA) and traditional Medicare that favor MA, and encourage the growing privatization of the Medicare program. These inequities include overpayments to MA plans that unnecessarily drive-up programmatic spending, and further tip the scales away from traditional Medicare.
On the one hand, there is growing acknowledgement of the overpayments by some policymakers. For example, according to an article by Robert King from Fierce Healthcare, Department of Health & Human Services (HHS) Secretary Becerra recently noted that HHS is examining MA risk-adjustment policies, and stated “‘[s]o far from what I understand in the evidence and data, it shows that we spend more per Medicare recipient through MA than through fee-for-service,’” and added “‘[w]e have seen some evidence that in certain areas there seems to be charges that go beyond what would be necessary.’” On the other hand, as described in a recent CMA Alert, HHS and the Centers for Medicare & Medicaid Services (CMS), which runs the Medicare program, have failed to address MA overpayments through the means at their disposal, including recent proposed federal regulations and payment policies.
As discussed below, these overpayments allow MA plans to offer supplemental benefits, which in turn drives up enrollment in MA plans, exacerbating the strain on Medicare’s finances. In addition, a recent article in Health Affairs Forefront described below outlines how a “rapidly diminishing” traditional Medicare raises “broader questions about Medicare’s structure and future that deserve a national discussion we seem reluctant to have.”
A Downward Spiral: MA Overpayments Lead to Enticing Extra Benefits, Which Lead to More Enrollment Which Leads to More Medicare Spending
The Medicare Payment Advisory Commission (MedPAC) continues to sound an alarm regarding the need for policymakers to act on Medicare Advantage overpayments and oversight. For example, in the Executive Summary of their March 2022 “Report to Congress: Medicare Payment Policy”, MedPAC highlights that while nearly all plan sponsor bids are below the cost of traditional Medicare,
[t]hese efficiencies are shared exclusively by the companies sponsoring MA plans and MA enrollees in the form of extra benefits. The taxpayers and Medicare beneficiaries who fund the MA program do not realize any savings from MA plan efficiencies. Instead, Medicare spends 4 percent more on MA than it would spend on FFS [Fee-for-Service, or Traditional] Medicare. The MA program has been expected to reduce Medicare spending since its inception: Under the original incorporation of private plans in Medicare in 1985, payments to private plans were set at 95 percent of FFS payments. However, private plans in the aggregate have never produced savings for Medicare, due to policies governing payment rates to MA plans that the Commission has found to be deeply flawed. [Emphasis added.]
MedPAC goes on to describe that because of extra benefits financed, in part, by such overpayments, “[b]eneficiaries clearly find MA to be an attractive option through which to receive their Medicare benefits, as evidenced by robust trends in year-over-year enrollment growth.” The MedPAC report continues: “However, this does not mean that Medicare should continue to overpay MA plans; in fact, under current policies, as MA enrollment continues to grow, doing so will further worsen Medicare’s fiscal sustainability. It is therefore imperative that the Congress and the Secretary make policy improvements.” [Emphasis added.]
Similarly, a recent article in Health Affairs Forefront, “The Debate On Overpayment In Medicare Advantage: Pulling It Together” (Feb. 24, 2022) by Paul B. Ginsburg and Steven M. Lieberman, analyzes various issues surrounding the current MA payment structure. The article highlights, among other things, that “having the public sector overpay crowds out other governmental services, requires higher taxes, or increases fiscal deficits” and points out how MA sponsors’ supposed efficiencies (based on their bids) can actually work to the detriment of those in traditional Medicare:
Despite MA plans being able to deliver traditional Medicare benefits at an average of 87 percent of what spending would have been in traditional Medicare, MedPAC’s latest estimate is that MA payments exceed what the beneficiaries would have cost in the traditional program by 4 percent. […] A policy that links deliberately overpaying MA plans to the availability of better benefits—by restricting better benefits to MA enrollees—essentially requires Medicare beneficiaries to leave traditional Medicare to share in the added benefits. [Emphasis added.]
An article in American Prospect titled “The Dark History of Medicare Privatization” by Barbara Caress (January 24, 2022), which chronicles some of the history of managed care in Medicare, touches on how MA overpayments lead to more benefits and how the influence of the insurance industry maintains this dynamic. The article states: “The MA profit-making formula is simple: get a large sum of money from the Feds, spend less than traditional Medicare, give some of the excess to beneficiaries, and pocket the difference.” [Emphasis added.]
Contrary to the founding principle that managed care in Medicare will reduce Medicare spending, as noted by MedPAC above, the American Prospect article states that this goal has been all but abandoned:
No one even mentions MA as a cost-containment strategy anymore. The larger and richer the plans have become, the less leverage the feds have to regulate the industry. While the funding still comes from the U.S. Treasury, dispersed under the aegis of Congress, most of the power has passed to the companies. [Emphasis added.]
The Eroding ‘Scaffolding’ of Traditional Medicare
Another recent Health Affairs Forefront article provides a thoughtful – and dire – analysis of the future of the Medicare program as traditional Medicare (TM) “withers” and Medicare Advantage (MA) becomes “dominant.” In “Don’t Look Up? Medicare Advantage’s Trajectory And The Future Of Medicare“, Health Affairs Forefront, March 24, 2022, by J. Michael Williams (DOI: 10.1377/forefront.20220323.773602), the author “attempts a dispassionate policy analysis of three currently debated questions: 1) has MA been successful; 2) should we be concerned about its current trajectory; and, if so, 3) how should we think about a course correction?”
First, Williams outlines how MA’s “rapid growth” based in part on “its exploitation of a manipulable risk-adjustment system […] has allowed MA to appropriate growing, unintended subsidies at a time when the Medicare Part A trust fund is projected to be depleted in four years.” Echoing some of the themes outlined above, he notes that “[d]ebate has pitted concerns about fiscal sustainability and corporate influence against the value and popularity of benefits, which are politically challenging to contract once expanded.” Further, “growth may beget growth as MA becomes normalized as a beneficiary choice and Medigap markets contract.”
Without taking a position on whether an “MA-for-all model” is the right path for Medicare, the Health Affairs author notes that absent significant intervention by policymakers, the overall program can be undermined:
Stepping back, the prospect of a rapidly diminishing TM [Traditional Medicare] raises other, broader questions about Medicare’s structure and future that deserve a national discussion we seem reluctant to have. No longer a mere annex to the TM edifice, MA is a massive wing, but it remains attached by statute, dependent on TM for its operation. If the purpose of subsidizing MA is to engineer a de facto restructuring of benefits and financing in Medicare, a codifying act of Congress will be needed soon to make the objectives explicit, establish a new basis for MA payments that is independent of TM, and set a sustainable course. However, the expected gains that would motivate an explicit move toward MA as the dominant, if not only, form of Medicare have been muddied by subsidies, and any deliberate restructuring must also consider the value of a viable TM as a competitor and constraint. [Emphasis added.]
The article further notes that,
short of comprehensive reform by Congress, CMS may find it challenging to build value in Medicare over this decade if TM’s scaffolding erodes. Much can be done under CMS’s existing authorities to promote efficiency and equity, but, under Medicare’s present configuration, that requires preservation of TM. Without substantive legislative reform on the horizon, regulatory policy will thus need to keep the long view in mind, lest several years of inertia set in motion an unalterable course to a lesser outcome.
Comparing subsidies and benchmarks, as well as beneficiary participation, between MA plans and Accountable Care Organizations (ACOs), the article notes that “[e]ssentially, conditions were set for MA to win, so it won.” [Emphasis added.] Similarly, “to the extent we care about evidence-based health policy, we should prefer a horse race that isn’t rigged. It may be the case that a MA-for-all restructuring of Medicare is sound policy, but ideally MA could be put to the test against a legitimate competitor and without a head start.”
The author declares that “today’s Medicare is not structured to support a dominant MA program.” [Emphasis added.] This is because:
By statute, MA is entirely dependent on TM for establishing its payment rates. As MA grows, local [fee-for-service] spending will no longer provide a reliable external benchmark. This is not a distant problem but an impending one. Already, some large urban counties are nearing or eclipsing 70 percent MA enrollment. While the ensuing selection pattern is hard to predict, it stands to reason that residual holdouts in TM will be those with higher demand for unrestricted provider networks and higher incomes, and thus higher utilization—and that those with lower demand who currently forgo supplemental insurance will increasingly take up zero-dollar-premium MA plans. If so, MA benchmarks could rise further above enrollee costs, acting to accelerate MA growth.
Further, for various reasons, the author notes that “the Medigap market could destabilize, if not collapse, in high-MA states” which would not only “accelerate MA growth, but it would also greatly weaken TM as a competitor, as TM benefits without Medigap are limited.”
In outlining a needed “course correction” for the current trajectory of Medicare, the author suggests that there are two potential legislative paths, one focusing on MA (with certain TM changes), which we don’t explore in this CMA Alert, and another path, which the Center for Medicare Advocacy prefers. This approach:
would strengthen TM by updating the benefits package and restructure MA to eliminate subsidies; establish a basis for setting and controlling MA payments when MA grows beyond some threshold in a region (e.g., indexing them to GDP growth); and ensure competition in such regions. MA benchmarks would not necessarily fall substantially under this option, as TM spending would rise as a consequence of the additional benefits. […] Presumably, the cost of leveling up TM would be financed in part by eliminating MA overpayments related to coding intensity, but could also be financed in part by constraining MA spending growth to an external index should MA continue to grow. In concert, CMS and CMMI could continue to strengthen their portfolio of alternative payment models. This path would make TM a more viable program and competitor, establish an even playing field for MA to improve upon TM, and introduce explicit checks on spending growth and consolidation.
Given that congressional action is unlikely in the short term, the Health Affairs article outlines what CMS can do, namely, “preserve and strengthen TM enough to make it and, by extension, MA perform as well as possible until more definitive reform can occur.” CMS can “claw back more of the payments that plans receive as a result of greater coding intensity in MA” and “begin to progressively reduce [the coding subsidy] while monitoring benefits.” The author notes that “[d]oing so faces strong political headwinds to the extent that payment cuts amount to benefit cuts, but evidence of partial pass-throughs and lower incremental value of benefits in MA should ease this concern.”
The traditional Medicare program – our nation’s bedrock social insurance program – is endangered. As noted in a recent article by Max Richtman, President and CEO of National Committee to Preserve Social Security and Medicare titled Will Privatization Force Traditional Medicare Out of Business? (Common Dreams, March 25, 2022), “[t]he primary focus of Medicare should be patients’ health and well-being, not corporate profits. Medicare Advantage has not lived up to its core promise to deliver comparable care for less money—while benefitting from government overpayments and billing schemes like “upcoding”
The Center for Medicare Advocacy urges policymakers to address the growing imbalance between Medicare Advantage and traditional Medicare. Time is of the essence. The wasteful, private Medicare train is speeding out of the station. Without action, the bedrock Medicare program will have been allowed to wither on the vine.
March 31, 2022 – D. Lipschutz
* In 1995, then-Speaker Newt Gingrich, while touting a “free-market plan” for health care, discussed getting “rid of” the government-run Medicare program, which he believed would “wither on the vine.” See. e.g., New York Times, (July 1995), https://www.nytimes.com/1996/07/20/us/politics-gingrich-on-medicare.html.