Protect Your Medicare Advantage from Bureaucratic Risks
TL/DR –
The Medicare Advantage (MA) program in the US, which allows enrollees to access private health plans, is under scrutiny due to increased spending and systemic weaknesses, according to a report discussed by the Medicare Payment Advisory Commission (MedPAC), a panel that advises Congress. Despite the program’s popularity and success, concerns have been raised about its complex payment process, flawed risk adjustment system, and the possibility of insurers manipulating the system to raise government payments. MedPAC commissioners are debating whether to introduce further standardization of MA benefits, which some warn would disrupt the market, increase premiums and costs for enrollees, and potentially lead to further insurance market consolidation.
Medicare Advantage: A Popular but Flawed Healthcare System
Medicare Advantage (MA), a system of competitive private plans, stands as America’s best hope for Medicare reform despite its flaws. Recently, the Medicare Payment Advisory Commission (MedPAC), a panel advising Congress, exposed MA’s susceptibility to bureaucratic interference, threatening its market-driven success.
A status report on the program showed an average of 41 private health plan options available to over 99% of Medicare enrollees. As per a Heritage Foundation report, MA’s rapid enrollment growth is attributed to its diverse benefit offerings, financial protection against catastrophic illness, and lower costs.
However, the same report revealed an alarming 23% increase in MA spending, exceeding traditional Medicare. This is due to increased enrollment and higher coding for health risks in the risk adjustment system. Despite this, MedPAC reported that MA could offer traditional Medicare benefits at a cost significantly lower than the traditional system.
Issues with Medicare Advantage
Notwithstanding its success, MA possesses two specific weaknesses: a complex health plan payment process and a flawed risk adjustment system. These drawbacks undermine price competition and lead to higher government payments to health plans due to inaccurate beneficiary health risk accounting.
Despite these shortcomings, several commissioners lean towards a regulatory rather than competitive approach to resolve MA’s problems. They propose further standardizing Medicare Advantage benefits, a move that would make MA more like traditional Medicare, curtailing competition.
Consequences of Benefit Standardization
The proposal to standardize MA benefits is seen as a potential pitfall. Commissioner Brian Miller called it “poison disguised as candy.” Health insurance actuary Kenny Kan warned that such standardization could result in massive market disruption, leading to increased premiums, more cost-sharing, and fewer supplemental benefits.
Government benefit standardization could also contribute to insurance market consolidation, increasing bureaucratic power and reach. Current policies, not market forces, are the problem. Congress can directly remedy MA’s issues through payment and risk adjustment reforms. These reforms can reduce costs, prevent insurer “gaming,” and strengthen the MA program by enhancing free market forces of choice and competition.
Changing Medicare Landscape
The Medicare landscape is rapidly evolving. Traditional Medicare is losing favor among beneficiaries, while MA is expanding exponentially. From January 1, 2020, to January 1, 2024, MA enrollment increased by 37.5%.
While MedPAC has made several positive recommendations in the past, future success is not guaranteed. Policymakers should stay alert to the regulatory decisions of the Centers for Medicare and Medicaid Services (CMS) and proposals within MedPAC, as these could significantly impact American seniors.
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