Medicare Advantage plans have been more costly than traditional Medicare to the Medicare program
E.Roehm, M.D. March 2017
Medicare options to participants include the government run traditional Medicare program (original Medicare with the option of a supplemental Medigap policy) covering 69% of Medicare enrollees. The other major Medicare option is a Medicare Advantage plan through a private insurer, usually providing managed care through a health maintenance organization (HMO) or preferred provider organization (PPO). Medicare Advantage plans cover approximately 31% of Medicare beneficiaries. The availability of multiple options allows Medicare participants to more optimally find the type of care best suited to their needs.
Initially, Medicare Advantage plans were much more expensive for providing care than traditional Medicare.
From 1985 to 2012, the cost of Medicare Advantage and its predecessors cost Medicare $282 billion beyond the cost of care of the same types of patients in traditional Medicare. In 2012 alone, the overpayment to private insurers providing Medicare Advantage plans was $34 billion dollars in excess of the costs of traditional fee-for-service Medicare for similar patients.
Legislation in the Affordable Care Act (Obamacare) substantially reduced the excessive payments to Medicare Advantage plans. According to the Medicare 2016 Trustees’ Report to Congress, it now costs 2% more for the Medicare program to cover a similar patient in Medicare Advantage Plan than in the government run original Medicare programs. The Medicare Payment Advisory Commission (MedPAC) provided information that suggests that Medicare Advantage Plans are currently 2.6%-3.6% more expensive than traditional Medicare. There are additional considerations suggesting that even MedPAC’s figures underestimate the excess cost to the Medicare program by Medicare Advantage Plans compared to traditional Medicare.
Nevertheless, current spending is greatly reduced due to legislation in the Affordable Care Act. Not maintaining the current reduction in the overpayment to Medicare Advantage plans as specified in the Affordable Care Act will cost the Medicare program $350 billion over the next 10 years. To illustrate how important this amount of money is to the Medicare program, it serves to note that the entire Medicare Hospital Insurance Trust Fund at the end of 2015 was $194 billion.
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