Does Medicare Advantage Save Money?

Does Medicare Advantage (MA) save money? The answer depends on whom you ask.

• If you are a Medicare beneficiary, the answer is an unequivocal, “Yes!”
• MA insurance and clinical providers are also likely to answer, “Yes.”
• If you are a health policy expert or population health leader, you will likely answer, “No.”

Any prospective Medicare beneficiary, upon turning age 64, will receive mail from multiple insurers advertising their MA plans. The promised benefits are similar across other MA plans: reduced or no copays and added services (such as for vision, dental care, and free health club memberships) that are not available through traditional Medicare fee-for-service programs. Enrollees must seek care from the MA plan’s panel of physicians, but their own physicians often participate in some of the plans, mitigating concerns about restricted choice. 

Complex Medicare patients can benefit from insurer-provided special help with social determinants of health: transportation, care coordination, food, and sometimes housing. MA saves these beneficiaries money, while offering added services to promote health.

MA providers often achieve reductions in the total cost of care, avoiding unnecessary hospitalizations and emergency department visits through better chronic care and prevention. They also reduce unnecessary tests and procedures, a major category of waste. Quality is maintained or improved, even in complex, challenging patients.¹ Gross savings are achieved.

Because MA represents a partnership of for-profit payers with Government to manage funds provided for care, insurers who achieve negotiated benchmarks earn profits. The pot of money entrusted to providers, based on historical costs and the documented complexity of the patient population, also funds these insurer profits (ie, shared savings). Contract negotiations, involving a bidding process and star ratings, are complex. ² 

The payout of profits, along with the costs of added service, result in per capita costs of the Medicare Advantage patient being higher than in traditional fee-for-service. 

“Medicare spent $321 more per person for [MA] enrollees than it would have spent for the same beneficiaries had they been covered under traditional Medicare in 2019,” according to the Kaiser Family Foundation.³ Meanwhile, in 2019, health insurers’ profits exceeded $35 billion, with the growth and rising profits significantly attributed to MA.⁴ MA does not save taxpayers, and our government, money.

Early concerns that insurers may deny appropriate care through MA Plans continue today, although the public and government payers monitor for illegal denials of care. Adverse publicity will hurt recruitment efforts of MA plans that deny care; they risk losing market share through adverse publicity, and risk losing their contract with the Centers for Medicare & Medicaid Services. Another concern is the recent focus on over-coding by some plans. By overstating the complexity of their patients they received higher payments to care for their population. This practice has resulted in some major fines and increasing calls for closer Government oversight of the programs.⁵

MA plans do not provide net savings for the United States. However, they could represent a way to sustain a for-profit component of health care in the face of unsustainable growth in costs. Policies that define and limit unreasonable profits, and reduce fraud and abuse, will ensure that benefit continues to accrue to patients enrolled in MA.

References:

1. Medicare Advantage achieves better health outcome and lower utilization of high-cost services compared to fee-for-service Medicare. News release. Avalere Health; July 11, 2018. Accessed January 21, 2023. https://avalere.com/press-releases/medicare-advantage-achieves-better-health-outcomes-and-lower-utilization-of-high-cost-services-compared-to-fee-for-service-medicare
2. Frank RG, Milhaupt C. USC-Brookings Schaeffer on health policy: Profits, medical loss ratios, and the ownership structure of Medicare Advantage plans. July 13, 2022. Accessed January 21, 2023. https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2022/07/13/profits-medical-loss-ratios-and-the-ownership-structure-of-medicare-advantage-plans/
3. Biniek JE, Cubanski J, Neuman T. Higher and faster growing spending per Medicare Advantage enrollee adds to Medicare’s solvency and affordability challenges. Kaiser Family Foundation. August 17, 2021. Accessed January 21, 2023.  https://www.kff.org/medicare/issue-brief/higher-and-faster-growing-spending-per-medicare-advantage-enrollee-adds-to-medicares-solvency-and-affordability-challenges/
4. Minemayer P. health insurers’ profits topped $35 billion last year: Medicare Advantage is the common thread. Fierce Healthcare. February 24, 2020. Accessed January 21, 2023. https://www.fiercehealthcare.com/payer/big-name-payers-earned-35-7-billion-2019-here-s-one-common-thread-their-reports
5. Sutter Health and Affiliates to Pay $90 Million to Settle False Claims Act Allegations of Mischarging the Medicare Advantage Program. News Release.  US Department of Justice, Office of Public Affairs; August 30, 2021. Accessed January 21, 2023. https://www.justice.gov/opa/pr/sutter-health-and-affiliates-pay-90-million-settle-false-claims-act-allegations-mischarging