CMS could be overpaying Medicare Advantage (MA) plans by billions of dollars because of how it calculates MA payment rates, according to Kaiser Family Foundation (KFF) analysis released Tuesday.
For the analysis, KFF researchers compared Medicare spending levels among traditional Medicare beneficiaries who decided to enroll in MA plans with those who remained in the traditional Medicare program. The researchers reviewed spending levels on MA enrollees in the year before they switched from traditional Medicare as a way to evaluate whether the beneficiaries who switched had "lower spending, on average—before they enroll[ed] in [MA] plans—than similar people who remain[ed] in traditional Medicare."
The researchers reviewed claims data from CMS representing a sample of 5% of Medicare beneficiaries from 2013 through 2016. The researchers adjusted their findings for health risk factors.
The researchers found beneficiaries who switched to MA plans in 2016 spent on average $1,253 less in 2015—while they were still enrolled in a traditional Medicare plan—than beneficiaries who remained enrolled in traditional Medicare plans.
According to the researchers, even Medicare beneficiaries with health conditions who switched to MA plans in 2016 had lower spending, on average, in 2015, than those who remained in traditional plans. For example, the researchers found that beneficiaries with:
- 10 or more chronic conditions who switched to MA plans spent $2,773 less in 2015 than similar beneficiaries who remained in traditional Medicare plans;
- Asthma who switched to MA plans spent $1,410 less in 2015 than similar beneficiaries who remained in traditional Medicare plans;
- Breast or prostate cancer who switched to MA plans spent $1,517 less in 2015 than similar beneficiaries who remained in traditional Medicare plans;
- Diabetes who switched to MA plans spent $1,072 less in 2015 than similar beneficiaries who remained in traditional Medicare plans; and
- One chronic condition who switched to MA plans spent $512 less in 2015 than similar beneficiaries who remained in traditional Medicare plans.
In addition, the researchers found beneficiaries of all ages and genders, as well as those dually eligible for Medicare and Medicaid, who switched to MA plans in 2016 on average spent less in 2015 than those who remained in traditional Medicare plans.
However, the researchers noted some variations in spending levels across U.S. counties. In some U.S. counties, the researchers found beneficiaries who switched to MA plans in 2016 had higher spending in 2015 than those who remained in traditional Medicare plans.
Researchers say CMS could be overpaying MA plans
The researchers said their findings show "beneficiaries who choose [MA plans] have lower Medicare spending—before they enroll in [MA] plans—than similar beneficiaries who remain in traditional Medicare, suggesting that basing payments to [MA] plans on the spending of those in traditional Medicare may systematically overestimate expected costs of [MA plan] enrollees."
The researchers said it is unclear if the spending differences they identified would persist as beneficiaries grow older, or as the share of counties with a majority of beneficiaries enrolled in MA plans increases. However, the researchers said CMS would overpay MA plans by billions of dollars if beneficiaries enrolled in MA plans continue to spend less than beneficiaries enrolled in traditional Medicare. For example, the researchers wrote, "[I]f the difference in average Medicare spending [in 2015] applied to just 10% of all [MA] enrollees in 2016, or 1.8 million enrollees, it would amount to more than $2 billion in excess spending in one year alone" (Luhby, CNN, 5/7; Livingston, Modern Healthcare, 5/7; Owens, "Vitals," Axios, 5/7; Jacobson et al., KFF analysis, 5/7).
Health Insurance 101: Get the slide decks
Confused about the U.S. health insurance system? You're not alone—it's one of the most complicated systems in the world. If you missed our recent webconference series diving deep into the system, don't worry; we've got you covered.
Review the slide decks from our recent webconferences for a quick overview of each program:
- Understand Medicare Advantage (MA)
- Overview of the health insurance business
- Understand commercial insurance
- Understand Medicaid managed care