This week, the Kaiser Family Foundation (KFF) released a report entitled “Higher and Faster Growing Spending Per Medicare Advantage Enrollee Adds to Medicare’s Solvency and Affordability Challenges” (August 2021).
As noted in the Report:
“Medicare spending is higher and growing faster per person for beneficiaries in Medicare Advantage than in traditional Medicare. As enrollment in Medicare Advantage continues to grow, these trends have important implications for total Medicare spending, and costs incurred by beneficiaries.”
The Report outlines its findings as follows:
- Medicare spending for Medicare Advantage enrollees was $321 higher per person in 2019 than if enrollees had instead been covered by traditional Medicare. The Medicare Advantage spending amount includes the cost of extra benefits, funded by rebates, not available to traditional Medicare beneficiaries.
- The higher Medicare spending per Medicare Advantage enrollee, compared to spending for similar beneficiaries under traditional Medicare, contributed an estimated $7 billion in additional spending in 2019.
- Growth in Medicare Advantage enrollment explains half of the projected increase in total Medicare Advantage spending between 2021 and 2029 and half is attributable to growth in Medicare payments per Medicare Advantage enrollee, after accounting for inflation.
- If spending per Medicare Advantage enrollee was 2% less each year than projected by the Medicare actuaries, similar to the projected impact of a recommendation made by MedPAC, total Medicare spending would be $82 billion lower between 2021 and 2029.
- If Medicare payments per Medicare Advantage enrollee grew at the same rate as is projected for spending per person in traditional Medicare (4.4% vs 5.3%), total Medicare spending would be $183 billion lower between 2021 and 2029.”
The conclusion to the Report notes that “Historically, one goal of the Medicare Advantage program was to leverage the efficiencies of managed care to reduce Medicare spending. However, the program has never generated savings relative to traditional Medicare. In fact, the opposite is true.” While higher payments have led to coverage of some limited extra benefits for plan enrollees, “the higher payments have also led to higher Medicare spending than would have occurred under traditional Medicare and higher Medicare Part B premiums paid by all beneficiaries, including those in traditional Medicare.”
We quote the final paragraph of the report’s conclusion in full:
“Over the next decade, Medicare Advantage enrollment is expected to continue to grow. As more Medicare beneficiaries enroll in private plans, differences in Medicare payments across Medicare Advantage and traditional Medicare will lead to even higher Medicare spending, and more generous benefits for beneficiaries in Medicare Advantage than traditional Medicare. That higher spending increases Part B premiums paid by all Medicare beneficiaries, including those who are not in a Medicare Advantage plan, and contribute to the financing challenges facing the Medicare HI Trust Fund. Further, these projections raise questions of equity between Medicare Advantage and traditional Medicare because the faster growth in spending per Medicare Advantage enrollee, compared to traditional Medicare beneficiaries, is in part due to rising rebates to private plans, which cover the cost of benefits not available to traditional Medicare beneficiaries. Although taking steps to address the fiscal challenges facing Medicare are not front and center in current Medicare policy discussions, policymakers may soon be on the lookout for options to achieve Medicare savings to fund other spending priorities or extend the solvency of the Medicare HI Trust Fund. This analysis suggests that reducing the difference in payments between Medicare Advantage and traditional Medicare would generate savings, with the potential for reductions in extra benefits for Medicare Advantage enrollees.