In yesterday’s post, Mish-Mash Monday, in the section about the House Budget Committee’s Health Care Task Force, I offered some commentary regarding MedPAC (Medicare Payment Advisory Commission) and Medicare Advantage plans. I also included a letter from the senior living trade association LeadingAge to the Congressional task force that references MedPAC’s concerns regarding Medicare Advantage growth and the cost associated with that growth (to the Medicare program). As I promised, I dug a little deeper into MedPAC’s commentary/analysis on Medicare Advantage plans.
For those unfamiliar, MedPAC is a nonpartisan independent legislative branch agency that provides the U.S. Congress with analysis and policy advice on the Medicare program. It was formed via the Balanced Budget Act of 1997 (P.L. 105-33) to advise Congress on issues affecting the Medicare program. In addition to advising Congress on payments to private health plans participating in Medicare and providers in Medicare’s traditional fee-for-service program, MedPAC provides information on access to care, quality of care, and other issues affecting Medicare.
The Commission has 17 members with diverse expertise in the financing and delivery of health care. Commissioners are appointed to three-year terms by the Comptroller General. Appointments are staggered with the terms of five or six Commissioners expiring each year.
Each year, MedPAC provides Congress with its analysis of the Medicare program (data book, usually in July) including spending information by provider and plan sector, and quality and access information from the perspective of the Medicare beneficiary. The report is comprehensive though it has a bit of a flaw; the data presented is a year or more behind/past. The full book is available for download here: July2023_MedPAC_DataBook_SEC
A few notes before I look specifically at Medicare Advantage data. The graphics that follow are pulled from the report.
- Medicare was the largest, single buyer of personal health care in the U.S. in 2021 – $3.6 trillion.
- Compared to other payers, its two fastest growing, largest per person spend categories are home health and skilled nursing care.
- Health care spending as a percent of GDP jumped in 2020 (19.7%) attributable to COVID. In 2021, with less COVID spending, the share dropped 18,3 percent. This change, however, is temporary as the projection is for continued health care spending growth. By 2030, health care spending is forecasted to be 20% of U.S. GDP.
- Due to rising eligibility numbers (new beneficiaries), expanding life expectancy, driving additional demand for health care, Medicare spending is projected to double in the next ten years.
- Medicare spending doubled between 2008 and 2022, increasing from $455 billion to $918 billion.
- Medicare spending is expected to again double between 2022 and 2032, when the Medicare Trustees
estimate it will reach $1.9 trillion. The Trustees expect Medicare spending to increase at an average
annual rate of 7.5 percent over the next 10 years.
Medicare Advantage plans and their impact/data on the Medicare program is found in Section 9 of the full report. That section is available here: July2023_MedPAC_DataBook_Sec9_SEC The most relevant data related to cost to Medicare is found on page 9 of this section or page 126 of the full report.
- Since 2006, plan bids have partly determined the Medicare payments that plans receive. Plans
bid to offer Part A and Part B coverage to Medicare beneficiaries (Part D coverage is bid
separately). The bid includes plan administrative cost and profit. CMS bases the Medicare payment
for a private plan on the relationship between its bid and its applicable benchmark. - The benchmark is a bidding target in each county that is set by means of a statutory formula
based on percentages (ranging from 95 percent to 115 percent) of each county’s per capita
Medicare FFS spending. Plans with quality ratings of 4 or more stars typically have their
benchmarks raised by 5 percent (and up to 10 percent in some counties). - If a plan’s bid is above the benchmark, then the plan receives the benchmark as payment from
Medicare and enrollees have to pay an additional premium that equals the difference. If a plan’s
bid is below the benchmark, the plan receives its bid plus a “rebate,” defined by law as a
percentage of the difference between the plan’s bid and its benchmark. The percentage is based
on the plan’s quality rating, and it is typically 65 percent or 70 percent. After accounting for
administrative expenses and profit, plans must return rebates to enrollees in the form of lower cost
sharing, supplemental benefits, or lower premiums. - We estimate that MA benchmarks average 109 percent of fee-for-service spending when weighted by MA
enrollment. The ratio varies by plan type, as they draw enrollment from different geographic areas.
Driving the additional cost to Medicare (via Medicare Advantage) are a number of factors.
- Growth in dual eligible (Medicaid and Medicare) enrollment. Dual eligibles tend to be more soci0-economically disadvantaged, correlating often to poorer health status, less efficient access to care (more use of urgent care, emergent care), higher level of chronic disease prevalence.
- Payments to MA plans are risk adjusted to account for differences in health status. Higher risk
scores increase payments to plans for enrollees with higher expected Medicare spending. Risk
scores are based on demographic information and diagnoses that plans submit to CMS.
Documenting additional diagnosis codes raises plan enrollees’ risk scores, generating two distinct
benefits for MA plans: (1) increasing plans’ monthly payments and (2) increasing the rebates plans
use to provide extra benefits to enrollees. Plans that document relatively more diagnosis codes
have a competitive advantage over other plans. In contrast, the payment policies in FFS Medicare
offer relatively little incentive to code all diagnosis codes. This difference in coding incentives
causes beneficiary risk scores to be higher when a beneficiary enrolls in MA than if the same
beneficiary enrolls in FFS Medicare. As a result of higher MA coding intensity, the Medicare
program pays MA plans more than the program would have paid for services provided through
FFS Medicare. - In 2021, MA risk scores on average were 10.8 percent higher than risk scores for comparable FFS
beneficiaries.
- Payments to MA plans are risk adjusted to account for differences in health status. Higher risk
- Increasing enrollment drives costs up, especially in non-competitive, higher costing, Medicare Advantage programs such as I-SNP, C-SNPs. These programs have no comparable fee-for-service option and while overall quality and higher cost utilization tends to be lower, these plans have Medicare incentives included to increase plan participation.
- The number of SNPs increased by 11 percent from April 2022 to April 2023. Dual-eligible SNPs
increased by 13 percent, institutional SNPs increased by 3 percent, and the number of chronic
condition SNPs increased by 13 percent. - In 2023, most SNPs (61 percent) are for dual-eligible beneficiaries, while 16 percent are for
beneficiaries who reside in institutions (or reside in the community but have a similar level of
need), and 24 percent are for beneficiaries with chronic conditions.
- The number of SNPs increased by 11 percent from April 2022 to April 2023. Dual-eligible SNPs
As I have written before, across many years, Medicare as it is presently configured, including Medicare Advantage is unsustainable. Its financing mechanism is broken, tied to payroll taxes in a society where more are participating in Medicare and fewer, are in the workforce paying Medicare taxes via their paychecks. The immediate solution, though not great, is to increase the payroll tax and trim outlays (spending). Politically, this may be impossible. Unfortunately, economically, the U.S. spending on health care, particularly via entitlements, is consuming greater shares of resources, crowding out productive investment capital and reducing the capability of the government to fund other programs.
- While Medicare enrollment is rising, the number of workers per beneficiary is rapidly declining.
This presents a financing challenge for Medicare because Part A Hospital Insurance is primarily
financed by workers’ Medicare payroll taxes. The number of workers per Medicare beneficiary with
Part A Hospital Insurance has declined from 4.5 workers per Medicare beneficiary at the program’s
inception in 1967 to 2.9 workers per beneficiary in 2022 and is projected to fall to 2.5 workers per
beneficiary by 2029.
Anyone interested in the technical components of how Medicare Advantage funding works as part of the Medicare program, a great download is available here: MedPAC_Payment_Basics_23_MA_FINAL_SEC