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Medicare Advantage, Obamacare Enrollment, and DeSantis on Medicaid Expansion

Paragon Newsletter
President at Paragon Health Institute
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

The Iowa caucuses are over and the presidential race is heating up although prediction markets indicate we are heading toward a rematch of the 2020 election. Paragon has produced a series of one-page briefing documents for policymakers and candidates on Medicaid reformMedicare reformprivate health reform, and public health reform. Below I highlight recent Paragon work on Medicare Advantage, Obamacare exchange enrollment, and Medicaid expansion.

The costs of Medicare Advantage

Medicare Advantage is an increasingly popular alternative to traditional Medicare as more than half of Medicare enrollees now choose MA. The growth of MA has led to questions of whether MA is more efficient, i.e. can offer better benefits at less cost, or whether taxpayer subsidies are larger for MA than traditional Medicare. Both are true. MA plans spend less on health care services and beneficiaries often have lower expenses for core program benefits, but government payments to MA plans exceed traditional Medicare spending on a per enrollee basis.

At a meeting last week, the Medicare Payment Advisory Commission (MedPAC) released estimates that MA spending is 23% higher than traditional Medicare per enrollee, with 14% from coding intensity (MA plans get higher payments when they diagnose recipients with health conditions) and 9% from favorable selection (MA plans attract healthier enrollees). Understanding these issues is important as policymakers set future Medicare policy. Paragon’s senior policy analyst Joe Albanese has a new policy brief analyzing the MedPAC estimates.

Joe argues that policy changes must be properly targeted. Addressing coding intensity too aggressively could undermine the purpose of risk adjustment: ensuring that plans have incentives to take care of sicker patients. On the other hand, several aspects of traditional Medicare’s design – the lack of mechanisms to control unnecessary health care utilization, default enrollment, a monopoly on hospice coverage, and rules governing Medigap plans – may significantly influence favorable selection.

Joe also believes that MedPAC’s estimates may be overstated. Under-diagnoses in traditional Medicare and methodological choices in MedPAC’s analysis could overestimate coding intensity and favorable selection.

“Free plans” driving increased Obamacare enrollment

Obamacare’s open enrollment is now over and sign-ups this year will reach a record number. There are two reasons: 1) huge taxpayer subsidies cover most, if not all, of the cost for the vast majority of enrollees and 2) the continuous coverage requirements for Medicaid have ended and many people who lost Medicaid transitioned to a heavily subsidized exchange plan.

In a recent Paragon research paper, actuaries Daniel Cruz and Greg Fann analyzed the ACA individual market changes through 2021. They found a largely inefficient and underperforming program. In 2021, individual enrollment was less than half what the Congressional Budget Office (CBO) expected before the law’s key provisions took effect and taxpayer spending per new private insurance enrollee was more than three times what CBO projected.

Beginning in 2021, subsidies for the ACA were significantly increased. See here for a very brief explainer of the expanded subsidies and the figure below and here for an explainer of the numerous problems with the expanded subsidies.  

Nearly Half of Exchange Enrollees Now Have Income Below 150% of the Federal Poverty Level-_

The expanded subsidies resulted in many plans available to people where the full premium was paid by taxpayers. In particular, the vast majority of enrollees with income below 150 percent of the federal poverty level (FPL) have plans with $0 premium and very minimal cost-sharing. The figure is for 2023 since income distribution information is not yet available for coverage selected in 2024. Last year, 46 percent of exchange enrollees had income between 100 and 150 percent of the FPL. From a public policy perspective, this means that millions of enrollees value the coverage at less than five percent of the cost since they choose not to enroll when they had to pay $25 a month and only decided to enroll when taxpayers pick up the entire share of the premium.

DeSantis articulates key takeaways from Paragon’s Medicaid research

During last week’s presidential debate, Florida governor Ron DeSantis was asked about whether states that expanded Medicaid under Obamacare would be able to keep the expansion if he was president. Here was his response:

I think what you do is you block grant the program and then let states run the way they see fit to do. I can tell you this, expanding Medicaid leads to less private coverage. It doesn’t necessarily increase access to quality care. I want … people get good health care. It’s not just about a sheet of paper if you don’t get any good doctors.

Governor DeSantis clearly read Paragon’s recent report, Resisting the Wave of Medicaid Expansion: Why Florida is Rightor The Wall Street Journal op-ed on why he has made the right decision not to expand.

Governor DeSantis referenced the finding that nearly two-in-three people projected to gain Medicaid would replace private coverage, which covers more doctors and hospitals. And it’s clear from other states that expanded Medicaid that overall health outcomes do not improve and that existing Medicaid enrollees (low-income pregnant women, children, seniors, and people with disabilities) must wait longer for appointments. Of note, former Governor Haley also did not expand Medicaid when she was governor of South Carolina, and she has also endorsed Medicaid block grants.

Ultimately, a central aim of Medicaid reform would eliminate the much higher federal payment rate for Obamacare expansion enrollees. The federal government should not discriminate against traditional Medicaid enrollees at the expense of able-bodied, working-age adults. By paying 90 percent of the cost of expansion enrollees, improper and wasteful spending in the program has exploded and traditional Medicaid enrollees are harmed. A sensible policy position would permit states to maintain their expansion but would require them to pay the same percentage of the cost of expansion enrollees as they do for traditional enrollees.

As the political world moves on to New Hampshire, it’s important to remember that, regardless of the outcome of this year’s election, government health programs need significant reform to better serve American patients and families.

All the best,

Brian Blase
Paragon Health Institute

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