Medicare Advantage is costing the U.S. government billions more compared to standard Medicare, according to a new report from a nonpartisan watchdog group.
The Medicare Payment Advisory Commission (MedPAC), an independent congressional agency established in 1997, said in a report released Tuesday that the U.S. made about $12 billion in “excess payments” to private insurers in 2020 for health care delivered through Medicare Advantage, compared to what it would have cost to deliver the same care under standard Medicare.
Medicare Advantage, which has grown significantly over the last 20 years and now covers about 40% of all Medicare participants, allows seniors to purchase private health insurance plans with additional features not included in standard Medicare, such as dental and vision coverage. Major insurers including UnitedHealth, Humana and Aetna are competing to offer plans in the program, but critics have raised concerns about rapidly rising costs.
MedPAC has been warning about the excess costs in the Medicare Advantage system for years. Here’s a summary of what’s driving costs higher from the latest report:
“The Commission has found that payments to MA [Medicare Advantage] plans are inflated as a result of plans maximizing the diagnoses they report for their enrollees in order to gain higher payments, while the underlying risk adjustment model relies on diagnoses collected from claims from fee-for-service (FFS) providers, who lack the same incentives to code diagnoses. MA plans also receive quality bonuses that increase Medicare spending for the majority of MA enrollees, yet the MA quality rating system does not provide meaningful information about plans’ quality of care. MA spending is also driven up by plan benchmarks that are set so high that the Medicare program ends up subsidizing the substantial extra benefits that MA plans offer to their enrollees—benefits that are not available to FFS enrollees.”
With Medicare Advantage expected to cover about half of all Medicare participants by next year, MedPAC says it’s time to start reeling in costs. Medicare Advantage plans “need to face appropriate financial pressure,” the group says, bringing it in line with providers of health care services in the standard Medicare program. “These policy flaws diminish the integrity of the program and generate waste from beneficiary premiums and taxpayer funds.”
