On June 13, 2023, the USC Schaeffer Center for Health Policy & Economics published a white paper titled “Medicare Advantage Enrolls Lower-Spending People, Leading to Large Overpayments” by Steven M. Lieberman, Samuel Valdez, PhD and Paul Ginsburg, PhD; also see corresponding press release “Overpayments to Medicare Advantage Plans Could Exceed $75 Billion in 2023, USC Schaeffer Center Research Finds” (June 13, 2023) and related Health Affairs Forefront article titled “Favorable Selection Ups The Ante On Medicare Advantage Payment Reform”.
In short, as noted in the press release, the analysis “warns that overpayments to Medicare Advantage plans now exceed 20% or $75 billion annually, underscoring the urgent need for reform.” [Emphasis added.] The paper highlights that those who switch from traditional Medicare to MA “have lower spending than those with similar health risks who remain,” which is a “pattern of favorable selection [that] more than doubles prior overpayment estimates made by the Medicare Payment Advisory Commission (MedPAC).” According to the paper, MedPAC’s estimates that MA plans will be overpaid by $27 billion (or 6%) in 2023 does not include this pattern of favorable selection.
The fact that “Medicare Advantage beneficiaries had significantly lower expenditures than those remaining in traditional Medicare with similar risk factors” combined with how the Centers for Medicare & Medicaid Services (CMS) sets MA payments based on claims data for those remaining in traditional Medicare lead the authors to conclude that,
“[w[ithout reform […] overpayments to Medicare Advantage plans will only increase, costing tens of billions in federal healthcare spending and threatening the long-term viability of the Medicare program.”
The authors propose two key strategies to improve the accuracy of MA rate setting: “[r]eform the current payment approach linking plan rates to average spending by traditional Medicare beneficiaries;” or “[a]bandon the current approach and institute competitive bidding by Medicare Advantage plans.”
Overpayments to MA plans must end soon – before more beneficiaries are harmed and more damage is done to the Medicare program.
June 22, 2023 – D. Lipschutz