New analysis highlights the need for reform in the private program as it continues to grow in enrollment.
Overpayments to Medicare Advantage (MA) plans could exceed $75 billion this year, nearly tripling estimates by the Medicare Payment Advisory Commission (MedPAC), according to research by the USC Schaeffer Center for Health Policy & Economics.
The overpayments are due to favorable selection of MA plans, with MA rates paid to plans based on spending by fee-for-service beneficiaries. Researchers found that millions of beneficiaries in traditional Medicare who have switched to MA have lower spending than those with similar health risks who stayed.
MedPAC estimated that MA plans would be overpaid by $27 billion in 2023, mostly due to coding intensity of enrollee health conditions combined with bonus payments related to quality. That estimation did not factor in favorable selection of MA plans.
USC Schaeffer Center researchers pointed to 46.9% (11.3 million) of MA enrollees switching from traditional Medicare from 2006-2019, with 29.5% (7.1 million) switching to MA from 2015-2019 alone. The private program's growth necessitates more reform, the researchers stated.
"The skewed distribution of expenditures and the consistent trend of beneficiaries with below-average spending choosing Medicare Advantage plans have significant financial implications and are adding to the fiscal strain on the Medicare system," Steven Lieberman, a nonresident senior fellow at the USC Schaeffer Center, said in a press release.
"Reform options must strive to improve the relationship between FFS expenditures and Medicare Advantage payments. Another option is to delink Medicare Advantage payments from FFS as the current rate-setting system grows increasingly unreliable and problematic."
To improve rate setting, researchers suggest two reforms. The first is to alter the current payment approach linking plan rates to average spending by traditional Medicare beneficiaries, which could include new data reporting requirements for MA plans and measures to cut down on aggressive coding.
The second reform suggested is to institute competitive bidding MA plans, which would allow market forces to determine what MA plans are paid, capturing efficiency gains for taxpayers.
Researchers conclude that without reform, MA plans will continue to be the beneficiary of overpayments, threatening the Medicare program in the long term.
"Regardless of which approach is chosen, policymakers should proceed with a solution to shore up the fiscal solvency of the Medicare Trust Fund and the impact on overall federal budget deficits," said Paul Ginsburg, senior fellow at the USC Schaeffer Center and professor of the practice at the USC Price School of Public Policy.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
Researchers at the USC Schaeffer Center for Health Policy & Economics calculate that Medicare Advantage plans could see upwards of $75 billion in overpayments this year.
That estimate builds on the $27 billion estimate by the Medicare Payment Advisory Commission by taking into account favorable selection of MA plans as more and more enrollees continue to switch from traditional Medicare.
Reforming how MA plans are paid would address overpayments and maintain the viability of Medicare as a whole.