Donald Trump and Kamala Harris understandably avoid talking about Medicare costs, knowing that 67 million beneficiaries are famously wary of any meddling in the program — and highly likely to vote. But both parties also know that eliminating overpayments in privately run Medicare Advantage plans could help fund tax cuts or other spending or reduce the deficit. No matter who wins the presidency, changes are likely coming. There is just too much money at stake.
Reforming Medicare Advantage, which is being overpaid by more than $80 billion — or 22% —this year, can lower federal costs while preserving its additional benefits and its cap on out-of-pocket expenses. Private insurance plans were supposed to save Medicare money by emphasizing primary care, prevention, and reducing low-value services. Instead, the federal government pays Advantage plans an average of $2,329 more per beneficiary than what spending would have been in Traditional Medicare.
The profits of insurance plans that run Advantage programs are now more than double what private insurers make per enrollee in the employer-based market. By offering richer benefits and lower beneficiary costs — such as drug coverage for zero in monthly premiums — they have attracted 55% of beneficiaries eligible for Advantage, up from 34% in 2015.
From both our academic positions and as advisers to federal policymakers, we have seen how Medicare Advantage has lived up to its name for millions of retirees. But now it requires a thorough, competition-based overhaul. As part of that revamp, beneficiaries who get frustrated by insurer restrictions in Medicare Advantage need help to return to Traditional Medicare if they wish.
Medicare Advantage plans blew past Traditional Medicare in numbers and cost for two main reasons:
First, the government pays Advantage plans a flat fee based on the average cost per patient in Traditional Medicare, but Advantage plans consistently enroll beneficiaries with below-average cost; the difference — “favorable selection” — will add $35 billion in overpayments in 2024.
Second, the government increases the flat monthly payments for Advantage enrollees with certain serious illnesses, but Advantage plans “game the system” to make patients appear sicker than they are. This practice, known as “upcoding,” will result in $50 billion in overpayments in 2024.
Meanwhile, Advantage beneficiaries who might be dissatisfied due to restricted availability of providers or needing prior authorization before receiving services run into what is known as the Medigap trap if they try to switch back to Traditional Medicare.
Traditional Medicare has no cap on out-of-pocket expenses, so almost all beneficiaries not receiving extra benefits from Medicaid or former employers need to purchase supplemental insurance, called “Medigap.” That coverage is offered by private insurers and is guaranteed to be available when a beneficiary first signs up for Traditional Medicare. But the guarantee evaporates for beneficiaries who joined Advantage plans and later want Traditional Medicare. Medigap insurers expect that Advantage “switchers” likely need more expensive care, and thus they make coverage for them either prohibitively expensive or deny it outright.
Dissatisfied Advantage members could try to switch to a different Advantage plan, but meaningful choice is impeded not only by the overwhelming number of plans — 43 for the average beneficiary — but also by the lack of standardization. Limited availability of information prevents beneficiaries from easily comparing plan quality, provider networks, and costs — fundamental details needed for making informed decisions.
Several changes can right the ship:
- Payments to Medicare Advantage plans from the Medicare program should be delinked from Traditional Medicare costs to address overpayments and open the door to greater competition.
- Medicare should beef up oversight of Medicare Advantage practices to minimize “upcoding” and reform how Medicare adjusts Advantage plan payments to reflect expected beneficiary costs.
- Medicare Advantage plans should be standardized, with each insurer offering a “basic” plan but also able to offer an “enhanced” option. The plans would then seek enrollees by bidding against each other on rates, which should drive premiums lower. Payments from the Medicare program would be based on the bids submitted by all plans in an area. Standardization would also make choosing a plan much simpler and more understandable for beneficiaries, especially if Medicare rates plans on quality, restrictions on access to care, and customer service in an easy-to-understand format appropriate for seniors.
- Using some of the savings generated by these reforms, Congress should limit annual beneficiary out-of-pocket costs in Traditional Medicare. That change would push Medigap premiums lower, making supplemental coverage more accessible and less essential to Advantage enrollees who want to switch. Federal or state officials could then expand the circumstances under which Medigap insurers would have to offer coverage to beneficiaries switching out of Medicare Advantage.
“Keep your government hands off my Medicare” has become a commonly invoked refrain in health reform debates, signifying the peril for politicians who dare to suggest revisions in the treasured program. But left alone, Medicare Advantage will increasingly push overall costs in Medicare — which now top $1 trillion a year — into unsustainable territory. Needed reforms can be phased in over a period of years. The goal should not be to disrupt Medicare, but to rebalance the program by setting Advantage on a fairer and more efficient course while improving Traditional Medicare.
Paul Ginsburg is a senior scholar at the USC Schaeffer Center for Health Policy & Economics and is a former vice chair of the Medicare Payment Advisory Commission. Steve Lieberman is a nonresident senior scholar at the Schaeffer Center, a former assistant director at both the Congressional Budget Office and the White House Office of Management and Budget, and a former senior adviser to the Administrator of the Centers for Medicare and Medicaid Services.