For decades, policymakers have debated how much to reimburse private Medicare Advantage (MA) plans for serving seniors. Currently, the federal government pays MA plans, which cover about 30 percent of Medicare beneficiaries, more per beneficiary than traditional Medicare for providing the same services. Provisions in the Affordable Care Act (ACA) aimed at equalizing MA and traditional Medicare payments, were estimated to save $156 billion over 10 years. However, there are other factors that may offset the impact of these ACA provisions. For example, the Centers for Medicare and Medicaid Services has in recent years actually increased MA plan reimbursement rates because of issues related to risk adjustment and the implementation of quality incentives.
Proponents of equalizing payments, including the National Committee to Preserve Social Security and Medicare, believe that it is unfair for taxpayers to subsidize extra payments to private health insurers that benefit only one group of Medicare beneficiaries. The nonpartisan Medicare Payment Advisory Commission (MedPAC) also recommended eliminating the overpayments to MA. Opponents, such as private health insurers, argue that equalizing MA payments will force plans to reduce seniors’ benefits, increase out-of-pocket costs and limit access to health providers.
The National Committee supports maintaining the phase out of MA overpayments under the ACA for several reasons:
- MA plans are being overpaid at the expense of taxpayers and most seniors. Overpaying MA plans is unfair to taxpayers and to beneficiaries enrolled in traditional Medicare. Prior to the ACA, the federal government paid MA plans up to 14 percent more than traditional Medicare for identical services, costing taxpayers about $1,000 extra per beneficiary. The additional funds allowed MA plans to attract customers by offering benefits not included under traditional Medicare, such as gym memberships. MA plans currently receive, on average, five percent more than traditional Medicare to cover enrollees. Under the ACA, this amount will decline gradually until payments between MA and traditional Medicare are about the same.
- MA overpayments are benefitting private health insurers more than seniors. University of Pennsylvania Wharton School researchers found that 80 percent of MA overpayments went to additional profits for insurance companies, and items such as advertising to attract more customers. Only about one-fifth of MA overpayments went toward lowering beneficiary premiums, providing better care or adding services.
- MA plans are expanding and getting stronger. Despite claims that the ACA reductions to MA plans would hurt beneficiaries, this has not occurred. Since passage of the ACA, MA premiums are lower, enrollment is higher and consumer protections are improving. The average MA premium has declined by almost 50 percent and enrollment has doubled. MA plans are also stronger because of new beneficiary protections under the ACA, including limiting the amount that MA plans can spend on administrative costs, insurance company profits and other non-health care items, to 15 percent of their Medicare payments. In addition, MA plans are prohibited from charging enrollees more than traditional Medicare for specialized services, such as chemotherapy administration and skilled nursing home care.
MA beneficiaries are not losing health coverage options. Some seniors are concerned that MA payment reductions could result in losing access to their health plan or doctors. In some cases, this could happen. Unlike traditional Medicare, MA plans are run by private companies, which allows them to stop serving seniors, drop doctors, or raise beneficiary premiums at any time. However, if this does occur, seniors can enroll in another MA plan (there were 3,148 plan options in 2020) or in traditional Medicare[LS1] . Note that beneficiaries are not always guaranteed the right to buy supplemental insurance known as “Medigap” that fills in coverage gaps in traditional Medicare. Note also, when choosing a private plan you must consider total-out-of-pocket costs, and not just premiums when evaluating your likely costs under a plan. Low premiums could mask other high costs under a plan. In some states, Medigap insurers are required to sell Medigap to beneficiaries at any time. In other states Medigap insurers are only required to sell beneficiaries Medigap insurance under certain circumstances.
NATIONAL COMMITTEE POSITION
The National Committee supports maintaining the ACA policy to level the playing field between MA plans and traditional Medicare payments. The federal government should not pay MA plans more than traditional Medicare for providing the same services, especially at a time when policymakers are trying to reign in rising health care costs. We support improvements to MA plans that protect beneficiaries but they must be equitable to seniors in the traditional program. The policy to align MA and traditional Medicare payments is fair and helps all Medicare beneficiaries by extending the program’s long-term solvency. It should remain in place.