How the growth of Medicare Advantage may explain traditional Medicare's spending slowdown

Insured patients typically receive similar care regardless of their source of coverage

Finding the answers to the "two mysteries of Medicare"—why traditional Medicare spending growth is slowing and Medicare Advantage enrollment is growing—could be key to understanding the program's future costs and structure, Austin Frakt writes for the New York Times' "The Upshot."

The two trends appear to be linked, Frakt writes, with the growth in MA enrollment leading to slower Medicare spending growth.

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One possibility, for instance, is that the expansion of MA has increased MA plans' influence over how clinicians and hospitals provide care. Specifically, Frakt writes that doctors and hospitals may cut costs to increase their chances of being included in MA plan networks. Since providers tend to treat insured patients similarly regardless of their type of coverage, those cost-cutting efforts could be affecting traditional Medicare spending as well, Frakt says.

A growing body of research backs this theory, known as the "spillover" effect.

For example, a study examining a period from 1999 to 2009 found that a 10-percentage-point increase in MA market share correlated with a 4.5 percent drop in per-beneficiary traditional Medicare hospital costs, as well as a drop in the length of hospital stays. The research predated the Affordable Care Act (ACA), which has shifted the ways Medicare pays for care.

A study that spanned the ACA's passage also affirms the theory. The study found that a 10-percentage-point increase in MA market penetration correlated with a 7.3 percent reduction in the amount of time traditional Medicare beneficiaries spent in hospitals. The study also found that beneficiaries received care in less costly settings. Overall, per-beneficiary annual traditional Medicare costs fell by $252 for each 10-percentage-point increase in MA market share.

Further, a study published last month, which included data through 2014, found that slower growth in traditional Medicare spending was associated with MA market penetration over 17.2 percent. The study concluded that the spillover accounted for 11 percent of a recent slowdown in traditional Medicare spending. According to "The Upshot," given the study's methodology, the spillover effect could actually be greater than the authors estimated.

Policy implications

The data suggest policymakers should consider encouraging MA enrollment, Frakt says. That could be done by paying insurers more to drive them to enter the market MA, but Frakt says that would be "controversial."

Michael Chernew, a Harvard University health economist who has researched the topic, said, "There's almost continuous policy debate about how much we should pay [MA] plans." He added, "In addressing that, we should consider the full impact of [MA], not just impact on those who choose to enroll in the program."

Frakt writes, "We still don't know exactly why Medicare Advantage is growing in popularity or why Medicare spending is slowing. But now we know that the two are related."

He adds, "Medicare Advantage growth doesn't completely explain slower Medicare spending growth, but it is one piece of the puzzle" (Frakt, "The Upshot," New York Times, 10/3).

Why a successful population health strategy must include Medicare Advantage

Many providers have recognized the necessity of having a Medicare-based population health strategy. However, the shared savings program (MSSP) has not been particularly financially rewarding: only 1 in 4 ACOs earned a bonus in the program's first year.

Discover four reasons why Medicare Advantage contracts are becoming an attractive alternative to MSSP for providers seeking a higher-risk, higher-reward opportunity, and more control over the contract elements.

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