Issue Brief Shows People in Medicare Advantage Plans Spend Less on Medicare

A new issue brief from the Kaiser Family Foundation indicates that people with Medicare who choose Medicare Advantage (MA) plans have lower Medicare spending and use fewer services relative to their peers with Original Medicare, even before they enroll in MA.

By comparing average Medicare (Part A and Part B) spending and use of services for people with Original Medicare who switched to an MA plan in 2016 with those who did not, the report finds that those who switched spent 13% less ($1,253, on average) in 2015 than those who stayed in Original Medicare. When Part D spending is included, this difference grows to 15%. Similar differences in spending were found across all demographics and chronic conditions, even after adjusting for health risk factors.

These results have significant policy implications. They not only suggest that favorable self-selection into MA plans is occurring—again raising questions as to why higher utilizers of care are less likely to choose MA—but also demonstrate the possible need for significant reforms within the MA payment system.

Currently, Medicare payments to MA plans are based on Medicare spending by similar people in Original Medicare. However, if MA enrollees use fewer services and have lower Medicare spending relative to this group before they enroll in MA, then this payment structure is deeply flawed—resulting in excessive overestimations of MA enrollee costs and unsustainable overpayments to MA plans.

The potential consequences of such systemic inaccuracies are staggering. If the observed trends continue, overpayments could cause billions of dollars in excess Medicare spending over a ten-year period. For example, if the average Medicare spending difference ($1,253) were applied to just 10% of all MA enrollees in 2016 (1.8 million people) it would amount to more than $2 billion in excess spending in that one year alone.

The Medicare Rights Center urges policymakers to ensure the accuracy of Medicare payments to plans on behalf of current and future MA beneficiaries. With more than 20 million people with Medicare enrolled in MA and Medicare payments to plans projected to reach $250 billion in 2019, the time for further exploration and solutions is now.

Read the KFF brief.