Medicare Advantage’s additional value is driving savings in the traditional program
I wrote about this Elevance Health study as part of my Healthcare Labyrinth Newsfeed but I was so excited about it I wanted to add to it in a blog.
Capitol Hill is being dominated with headlines about gross overpayments to Medicare Advantage (MA). Estimates from various opponents, including congressional policy arm MedPAC and academics, put overpayments in the $80 billion range, with some now over $100 billion a year. As you know I dismiss these as fanciful. While some level of overpayment exists and needs to be reformed, some of the calculated overpayments are deliberate policy decisions by Congress and the fact that MA plans simply code better under the rules (even taking away the outliers and potential fraud).
MA more efficient
But often missed is that MA is far more efficient than the traditional and antiquated fee-for-service (FFS) program. That MA bids show private managed care can deliver the base Medicare benefit at 80 cents on the dollar on average, and at an even greater discount in some regions of the country, is proof in and of itself.
The MA spillover on traditional Medicare
Well, in comes the Elevance study showing a derivative value from MA penetration. It says the growth in MA leads to lower overall Medicare spending. The study found that Medicare spending was $431 billion less from 2010 to 2020 than the Congressional Budget Office (CBO) predicted. Even with risk-adjustment payments factored in, $116 billion in savings remained. And the magnitude of such overpayments is certainly debatable.
Now, some would argue that could simply be wrong estimates from the CBO. But the difference was on a per enrollee spending basis during the timeframe. Researchers found that a 10% higher MA penetration in a county points to a 1.9% decrease in Medicare spending, correlating to a $204 decrease in per person spending. This resulted in up to $144 billion cumulative savings from 2012 to 2021. MA enrollee spending was $500 less per person than traditional Medicare enrollees.
What appears to be happening is that as MA grew throughout the period, managed care principles in MA appear to have influenced spending in the traditional FFS program. Managed care is paid on a capitated basis by the federal government. It is at risk if it does not control costs and in part drive quality. While FFS or transaction payments are a part of the MA program, more and more MA plans are putting risk on providers in many forms, from light capitation to full global risk. This has a major impact on provider behavior. While the FFS program is beginning to go the route of value-based payments which look like capitation and risk (and could be leading to some lower spending), the truth is the FFS program remains a heavily transaction-based system. Providers bill for each service. The more they bill, the more they make.
But with the growth in MA, it appears that providers’ FFS behavior is being impacted. As providers see more and more MA managed care lives that focus on cost control and quality, these providers change their behavior everywhere. I would argue not all of them, but at least some or many of them. This is what the Elevance Health study researchers call a “spillover effect.” I call it the “halo effect” of managed care. It is important to note that this is not just on the cost control front, but also on MA’s drive to better manage care and improve quality. In addition, MA tends to better impact social determinant barriers to health through various interventions.
The lower spending trend due to MA growth is most noticeable in midwestern and southern counties, but weaker in northwest and western counties. Part of this makes sense. For example, the Dartmouth Atlas, which tracks Medicare expenditures around the nation and documents differences, finds huge variation in Medicare costs across regions. In one area, per capita Medicare costs can be more than double others.
Conclusion
Again, changes in some reimbursement and risk adjustment reform may be needed, but the study counters the gross exaggeration of MA opponents that somehow the MA program is simply a play for companies to make money with no concomitant benefits to enrollees or the program. This, as well as key Better Medicare Alliance studies showing better outcomes, should be the playbook to defend MA.
#medicareadvantage #medicare
— Marc S. Ryan
