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November 15, 2021

Medicare Advantage plans have cost taxpayers billions in excess payments, according to new research

Daily Briefing

New research shows Medicare Advantage (MA) plans cost taxpayers billions more than original Medicare, Fred Schulte writes for Kaiser Health News—but industry officials argue that the costs are necessary to offer high-quality health coverage.

Costs of Medicare Advantage have climbed in recent years, research finds

MA offers private alternatives to Medicare and is primarily run by major insurance companies, Schulte writes. According to America's Health Insurance Plans (AHIP), around 27 million people, or around 45% of those eligible for Medicare, have enrolled in a MA health plan.

However, new research suggests that switching seniors from Medicare to MA plans has cost taxpayers billions of dollars since 2018—and costs are likely to continue to increase.  

Richard Kronick, a former deputy assistant secretary for health policy at HHS under President Barack Obama and a professor at the University of California, San Diego, analyzed MA billing data and found that CMS overpaid the private health plans by more than $106 billion between 2010 and 2019. Furthermore, around $34 billion of that spending came during 2018 and 2019, the latest payment periods available.

"They are paying [MA plans] way more than they should,” Kronick said.

MA payments are based on a coding formula called a "risk score," Schulte writes, which pays higher rates for sicker patients and less for healthy patients. According to Kronick, MA plans' risk scores increased by 4% between 2017 and 2019, faster than the average in prior years. MA risk scores in 2019 were also 19% higher than Medicare risk scores, but Kronick says there is "little evidence" that higher MA enrollees are sicker than the average senior.

CMS can set an annual "coding intensity adjustment" to adjust MA risk scores to keep costs more in line with Medicare, but the agency has kept the coding adjustment at 5.9% since 2018, the minimum amount required by law.

According to Kronick, if CMS continues to keep its coding adjustment at 5.9%, spending on MA plans will increase by $600 billion from 2023 to 2031.

The rising cost of MA plans is a "systemic problem across the industry" that CMS has failed to get under control, Kronick said.

Separately, Joshua Gordon, director of health policy for the nonpartisan Committee for a Responsible Federal Budget, said the excess payments to MA plans "[are] not small change." He added, "The problem is just getting worse and worse."


According to Schulte, AHIP has argued that MA costs are justified because plans generally offer extra benefits, such as eyeglasses and dental care, not available with Medicare, and that most seniors who join MA plans are happy they did so.

"Seniors and taxpayers alike have come to expect high-quality, high-value health coverage from MA plans," said David Allen, an AHIP spokesperson.

In addition, several U.S. senators have voiced opposition to reducing payments to MA plans. In October, a bipartisan group of 13 senators sent a letter to CMS arguing payment reductions "could lead to higher costs and premiums, reduce vital benefits, and undermine advances made to improve health outcomes and health equity" for people enrolled in MA plans.

In response to questions about MA payments, a CMS spokesperson said the agency "is committed to ensuring that payments to [MA] plans are appropriate. It is CMS's responsibility to make sure that [MA] plans are living up to their role, and the agency will certainly hold the plans to the standards that they should meet." (Schulte, Kaiser Health News, 11/11)

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