Today, Paragon is releasing a major report by senior policy analyst Joe Albanese about the future of the Medicare program, Improving Medicare Through Medicare Advantage. The paper covers a lot of ground: it examines the inherent flaws of traditional Medicare, takes a deep dive into the structure and key issues surrounding Medicare Advantage (MA), and recommends a package of policies to build on MA’s success and strengthen the program while saving taxpayers $250 billion over a decade.
Medicare is at a critical inflection point. Within the next decade, its hospital insurance trust fund is expected to become insolvent. Retiring baby boomers, rising health care costs, and inefficient government policies will increase these fiscal pressures. The recommendations in this paper will address these challenges.
Events on Paragon’s Proposal
We will be hosting two events on the paper.
An in-person lunchtime discussion tomorrow February 22 at noon EST at the Capitol Visitor Center. Register here.
A virtual briefing on March 7 at 1pm EST with experts from the Brookings Institution, Manhattan Institute, and Committee for a Responsible Federal Budget. Register here.
Growth and Value of MA
Most beneficiaries now choose to receive their Medicare coverage through a Medicare Advantage (MA) plan.
- Offering choices to seniors and encouraging competition among plans has been enormously successful. MA delivers better value to enrollees in terms of lower costs, higher quality, and more benefits than traditional fee-for-service (FFS) Medicare.
- MA is the best vehicle for transforming Medicare as a whole.
However, there are problems to address
MA’s cost to the government is a concern.
- MA’s benchmarks are set above FFS costs in many parts of the country.
- MA’s quality bonus program does not produce better outcomes and rather leads to administrative burdens and box-checking exercises.
- MA’s risk adjustment program is likely being gamed, leading to excessive transfers to plans.
There is not appropriate regulatory parity between MA and FFS.
- FFS does not face the same requirements to be efficient as MA. For example, Medigap plans in FFS have unique rules that increase Medicare spending.
- Newly eligible Medicare beneficiaries are enrolled in FFS by default.
Paragon’s recommendations
These recommendations do not require a significant redesign of the Medicare program and should be attractive to serious, reform-minded policymakers in both parties. They balance the goals of improving MA efficiency while preserving and enhancing the quality of coverage as the program continues to grow.
- Capping MA benchmarks so that they do not exceed FFS costs – with safeguards for markets with low MA access and the use of a comparable benchmark population;
- Eliminating quality bonuses, which are of dubious value to actually improving health care;
- Addressing coding intensity with more targeted payment adjustments and increased monitoring of diagnostic documentation;
- Changing Medigap rules, including prohibiting inefficient first-dollar cost-sharing coverage;
- Promoting coverage choice rather than default enrollment in FFS; and
- Other policies to promote alignment between FFS and MA, flexibility in MA benefit design, and reduction of administrative burden in MA.
Medicare Advantage Beats Expectations
If you had trouble viewing the figure, you can see it on Paragon’s website here.
Our latest Paragon Pic demonstrates that Medicare Advantage is now the most popular form of coverage in Medicare. As the figure above shows, MA enrollment has steadily increased and enrollment now far exceeds previous expectations of scorekeepers like the Congressional Budget Office (CBO). In 2013, CBO projected that 30% of Medicare enrollees would be in MA in 2023—well below the 51% of enrollees choosing MA last year.
CBO’s 2008 projections took place soon after the program’s inception in 2006 when it replaced the previous Medicare+Choice program. Its 2013 projections took place after the enactment of the Affordable Care Act, which contained significant payment reductions to Medicare and MA. CBO believed the ACA changes would stall growth in MA. The Office of the Chief Actuary (OACT) at CMS expected that the ACA would lead MA enrollment to fall by half. However, MA’s strong growth continued, demonstrating its high value to seniors.
CBO only began to project that MA would cover a majority of beneficiaries in their March 2020 baseline estimates, and even then it only expected this to occur in 2030. Thus, even MA’s recent growth continues to defy expectations.
Policymakers try to evaluate the success of government programs with many types of metrics and data, but the decisions of individuals are among the best signal of what they value. While there are opportunities to improve MA and address concerns that overall MA spending is higher than FFS, MA has demonstrated better health outcomes, lower costs for basic Medicare benefits, and better value for beneficiaries (more benefits like vision, dental, and hearing coverage plus lower out-of-pocket costs).
All the best,
Brian Blase
President
Paragon Health Institute
