The Advantage of Medicare Advantage

Statement

"Outside of its legitimate function, government does nothing as well or economically as the private sector," Ronald Reagan once stated. One of the things the private sector does best is healthcare. To date, one of the best public-private partnerships illustrating this point is the Medicare Advantage program.

However, the Administration announced Monday that a special type of Medicare Advantage plan -- an Employer Group Waiver Plan -- will receive significant cuts next year.

In the Medicare Advantage program, the federal government contracts with private insurers who offer seniors a choice of plans that provides standard Medicare benefits and supplementary benefits.

The program remains popular with seniors who can choose a plan to meet their needs. One reason is that traditional fee-for-service Medicare does not offer seniors maximum out-of-pocket protection. Traditional Medicare's hodge-podge of deductible and coinsurance provides beneficiaries neither predictability nor protection from catastrophic financial risk if they suffer from a long-term illness. By contrast, Medicare Advantage provides catastrophic protection, so seniors can have peace of mind to know they will not face a financial crisis if they have a costly health care episode.

Medicare Advantage is designed to incentivize prevention and wellness. Here's how it works: Medicare Advantage plans receive a set payment amount every month for each beneficiary. The amount they receive is adjusted, based on underlying clinical complexity of an individual enrollee's medical needs.

At the same time, plans are empowered with flexibility to design clinical interventions and care coordination strategies to best serve the health care needs of seniors enrolled in the plan. This approach aligns provider incentives well, since it is in the interest of each provider participating in a Medicare Advantage plan to help keep their enrollees healthy and well.

Medicare Advantage is also a good deal for taxpayers. Currently, insurance companies bidding to provide Medicare Advantage plans to seniors are offering Medicare benefits below the cost of fee-for-service Medicare.

Medicare Advantage has proved to be popular, with enrollment steadily growing every year. It accounts for about 30% of all Medicare enrollees.

One particularly attractive way for beneficiaries to receive Medicare Advantage plans is called an Employer Group Waiver Plan. Employers, such as labor unions, private employers, and state and local governments, offer these plans to retirees as a post-retirement benefit, and over 200,569 Pennsylvanians use them. Nationwide, one out of five Medicare Advantage enrollees also choose these plans.

But the Administration announced on Monday 2.5% cuts to this program over the next two years. According to one independent analysis, that shakes out to cost about $250 more per person, in out-of-pocket costs.

Medicare Advantage has a successful history of focusing on prevention and early detection of chronic diseases. A 2013 study showed that, on average, Medicare Advantage enrollees have shorter hospital stays than traditional enrollees, and they also have a lower usage of emergency services along with hip and knee replacements.

The benefits of the program do not only extend to beneficiaries though-- they apply to healthcare providers, too. On average, in 2013, the hospital stays of Medicare Advantage enrollees cost hospitals less than the stays of traditional Medicare patients.

The positive effects of Medicare Advantage have been significant enough that they have even had a positive spill-over effect into the traditional program, leading to a decrease in hospitalizations overall.

While Congress and the next Administration must take further steps to shore up the Medicare program, Medicare officials also have a duty to be thoughtful and responsible in proposing policy changes and explaining how they will impact beneficiaries who rely on the program.

Unfortunately, Medicare officials have so far ignored serious questions from Congress about the cuts which will take place next year. The Medicare agency only released its estimate of the impact of the coming cuts after they announced them--and they have yet to tell Congress how many seniors they think will face higher cost-sharing or lose their choice of a plan as a result of these cuts.

Medicare Advantage provides a good example of how the Federal government can finance care while harnessing private market choice and competition to lower costs, increase choices, and improve quality of care.

Moving forward, we need to build on the successes of the Medicare Advantage program to help protect seniors who depend on Medicare, not tear it down.

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