More on Proposed Cuts to Medicare Advantage: Seniors Would Save Far More Than They Lose

Thanks to reader Brad F for sending a link to this post from “The Incidental Economist” on what cuts to Medicare Advantage (MA) would mean to seniors. 

In the post, Boston University health economist Austin Frakt summarizes an article that he co-authored for the International Journal of Heatht Care Finance and Economics


“Seniors, in general, should not be concerned,” Frakt writes. “First, only about 23% of Medicare beneficiaries are enrolled in an MA plan. Second, there will be very little loss [of services due to ] MA payment cuts. 

The authors of the study analyzed what seniors might lose by looking at “consumer surplus”–the dollar value that Medicare beneficiaries receive from the benefits provided by their chosen health plan. They did this by taking a close look at the detailed choices seniors actually make and then calculating what they would be willing to pay, on average, for particular bundles of benefits.

It turns out that the additional benefits and flexibility created by recent increases in MA payment rates simply weren’t worth very much to seniors,” Frakt writes. “Consumer surplus loss associated with cuts in payments to MA plans will be only 14 cents per dollar saved. . . the truth is that under Obama’s plan a small fraction of Medicare beneficiaries will lose their MA benefits and/or face higher costs. However, the potential savings are enormous and research shows that the benefit cuts needed to achieve them will not be terribly missed.”

Overall, then, the proposed cuts to Medicare Advantage means a Win for Seniors, a Loss for Insures.

11 thoughts on “More on Proposed Cuts to Medicare Advantage: Seniors Would Save Far More Than They Lose

  1. Look at kff.org and their Medicare Advantage tracker where you will see a good number of states with High MAPD enrollment:
    Oregon:41%
    California:34%
    Arizona: 32%
    Pennsylvania: 36%
    NY and Fla: 28%
    California has 1.5 million in Medicare Advantage.
    The problem with Democrats is that they don’t know how Medicare Advantage works. In Arizona, we’ve had $0 premium Medicare HMO’s for 20 years. That will be changing soon. And this will come as a shock to seniors when they are informed they now have to pay a $40 per month premium as well as higher doctor visit co-pays.
    I know that Medicare Advantage plans have been overpaid by fiscally irresponsible Republicans. They did it to eventually privatize Medicare. This is another mess Democrats are stuck with, and the cleanup will be messy I fear.

  2. Denise–
    Yes, I can easily believe that Medicare Advantage is much better in some states– particularly states with
    strong non-profit insurers–than in others.
    The problem, as you say, is that Medicare Advantage was created in an effort to privatize Medicare and hand Medicare over to the for-profit insurers.
    By and large, those for-profit insurers have not served their patients well.
    As the post indicates, only a small part of the windfall is going to patient services–and some of those services are of unknown value.
    (For example, gym memberships sound nice, But if a 68 year old goes to the gym twice a week and spends his time in the sauna, this is no doubt relaxing and even good for his healht–but the health benefit is not great enough for me, as a tax-payer to be willing to pay for it.
    Co-pays and premiums under traditioinal Medicare are at a point where a great many low-income and middle-income seniors have a hard time meeting them.
    And those do-pays and deductibles are as high as they are in part because the money is going to Medicare advantage to pay for the gym memberships . . .
    I believe that Medicare ADvantage providers should be paid no more than Medicare would spend to deliver Medicare.
    I also think that traditional Medicare should get in the business of providing prescription drugs–and negotiating for lower prices for those drugs.
    Very good non-profit insurers could continue Medicare Advantage without the windfall, just as the non-profit Peugot Sound Cooperative continued providing Medicare Plus, back in the 1990s, when other insurers pulled saying that it just wasn’t profitable.

  3. guess this is in the eye of the beholder. this clearly says that anyone in medicare advantage will lose 14 cents in benefits for each dollar cut from the program. but the people in medicare advantage won’t get the dollar. so at the end of the day they’ll be 14 cents behind. may be a selfish attitude, but they don’t want to lose anything, which isn’t unusual in the political system. what precisely would they gain as a result of this real cut?

  4. Maggie-
    Medicare co-pays are 20% and are based on the costs of the service, as allowed by Medicare. I don’t think Medicare Advantage has any part in how Medicare sets fees for services.
    I’m not a fan of insurance companies, but I have to say that lots of seniors have been well served by their Medicare Advantage plans – it just depends on the illness or condition a person has.
    For example, an 80 year old client of mine showed me his bill for having his two knees replaced. He spent two nights in the hospital for a co-payment of $400. The actual bill for his surgery and hospitalization was $26,000. He paid $400. I’d say that’s a pretty good deal.
    Where Medicare Advantage is not good is cancer and other illnesses that need Part B drugs like chemo. Almost every Medicare Advantage plan I have seen only covers 80% of chemo and radiation charges. The patient pays 20%, and this is like having only Medicare. In this case, a person who thought he had a “supplement for his Medicare”, or better coverage than just Medicare, is not well-served by his Medicare Advantage plan.
    In Connecticut I know that Health Net was forced by public pressure to offer 100% coverage for Part B drugs in its plans.
    So, you see, there are some good points to Medicare Advantage as well as some not-so-good things.

  5. Insurance companies simply pass through changes in payments to beneficiaries – in the form of increased or decreased premiums and benefits.
    Because the increase in funding for 2010 Medicare plans averaged .5% versus the medical trend of 7-8%, Medicare Advantage plans will see commensurate decreases. For example the 2010 Aetna Medicare Advantage plans in Connecticut, almost all plans raised monthly premiums, office copays, and other cost sharing. The HMO Value Plan increased premium from $0 to $24 per month, and raised ambulance, skilled nursing and other copays.
    Medicare Advantage plans must prove to taxpayers and beneficiaries that they provide high quality care at a savings, but to suggest that cutting payments will not affect benefits is folly.

  6. jim, Denise, Bill
    jim– What will people in Medicare Advantage get?
    You’re right they get nothing this year– Six or seven years down the road however, they win big.
    In part because we are over-paying Avantage insurers and given MA seniors freebies that other seniors don’t get (at an exoribtant price)
    Medicare will begin running out of money in 7 years.
    That probably means that it stops paying Medicare Advantage these bonuses, that Medicare Advantage ceases to exist, and that when MA seniors go back to traditional Medicare, they and all seniors find themselves paying much higher deductibles and co-pays as it struggles to stay afloat.
    I realize it’s hard for very selfish people to see beyond their nose, but MA seniors who like the idea of 78% of seniors paying for whatever extra benefits they get need to realize that they and other seniors are all in the same boat..
    If Medicare goes down (or more likely, becomes more like today’s Medicaid, paying providers 70% of what Medicare now pays) they will all find themselves struggling to find a doctor who will take them. And they’ll find that they are no more welcome at hospitals than Medicaid patients. (Hard to get from the ER into the hopsital. Quick discharges if you do get in. If you can’t walk, they give you crutches. Little or no physical therapy.
    Denise– 90% of Medicare
    beneficiaries purchase supplmental insurance– often “MediGap” policies and so they don’t pay 20% co-pays.
    We need subsidies for Medicare patients who truly cannot afford Medigap policies so that they can afford them– my guess is that this will become part of “universal coverage.”
    But the combination of Medicare and MediGap has worked well (MediGap policies are quite tightly regulated by teh government)–an example of how public plans and regulated private plans can co-exist.
    Trust me, when Health Net decided to give people 100% coverage on drugs, this did not come out of Health Net’s bottom line.
    Beneficiaries are making up the difference somewhere else–with higher co-pays or deductibles.
    When the public puts pressure on one issue, it pays somewhere else.
    The only Medicare Advantage plans that are really providing a good deal are well-established successful MA plans that
    “manage care.” They are given a lump sum each year to keep a patient healthy and it is up to them to use that money efficietly–or wind up spending more than they receive for the average patient.
    I wrote about this in the Washington Post this past week, and will post the piece on the blog.
    Bill–
    No one suggested that cutting payments won’t affect benefits.
    What I said was that the
    amount that MA customer lose in benefits is Far Less than what All Medicare Benficiaries Save.
    Medicare saves $1, MA beneficiares lose 14cents of benefits.
    Why should they care that Medicare saves $1? Because whether they understand it or not, they are still part of Medicare.
    If Medicare continues to overpay for MA, in a few years Medicare begins running out of money, and all Medicare beneficiaries will suffer.
    Secondly,it’s not clear how much that 14 cents of extra benefits is worth medically. Are beneficiaries healthier as a result? No evidence that they are.
    Finally as Medicare cuts overpayment, the least efficient insurers are are providing little value–even to MA beneficiaries–will drop out of the program, just as they did in the late 1990s under Medicare Plus.
    The few that remained were the really goods ones, like Pegugot Sound, a non-profit in the state of Washington.

  7. I just read on the kff.org site that 19% of folks on Medicare have Med Supps. 11% do not. 23% have Medicare Advantage and I think the rest have retirement plans or Tricare. 7 million have Medicaid and Medicare.
    I also read that HMO’s are paid less than the average Medicare amount, though the formula for payment is so convoluted as to make it impossible for me to be sure. I also read that CareMore in California has chronic illness Medicare Advantage plans that are paid 86% of the average Medicare expenditure per person. That sounds like a good deal for Medicare – and their co-pays are excellent ($100 for a hospital stay here in Tucson for 2010.) They are new to Tucson for 2010 and have a very interesting patient management program.
    As a Democrat and an insurance agent, I see both sides of Medicare Advantage. Here in Tucson, AZ people really like their MA plans. And many seniors have never known any other type of coverage.
    It will be interesting when folks get their Annual Notice of Change and see their zero premium plan go to $40/month. And Secure Horizons is going to charge $10 for what used to be free gym membership!! Now that should get a reaction here in Tucson!! It certainly makes my work interesting.

  8. Denise–
    Medicare payment formulas take in differences in local prices–and as you say the formulas are complicated.
    See the excellent post reader Pat A. wrote on how Medicare pays hospitals here http://www.healthbeatblog.com/2009/08/does-medicare-underpay-hospitals-.html
    (Aug 24.)
    There are huge regional variations, depending both on the cost of labor and other overhead, and how much effort Congressmen representing that state have put into getting high Medicare reimbursements for their region.
    The Same is true of MA– in some states MA is overpaid more than others.
    A really good chronic disease management program should be able to keep people healthier at a lower cost.
    People in Tuscon may be surprised that they have a $40 premium and no free gym, but $10 for a gym is a pretty good deal.
    And, of course, people in Iowa shouldn’t be being paying for free gym and no premiums in Tuscon– unless the Tuscon HMOs are good enough that they are able to provide these extras without being paid any more than it would cost traditional Medicare.
    On average, nationwide, MA
    HMOs are paid abotu 98% of what it would cost traditional Medicare to provide the same care.
    On average, MA Fee for service plans are paid 14 percent more than it costs traditional Medicare, making them a bad deal for
    MEdicare (and the 78% of beneficiaries on traditional Medicare who wind up paying higher co-pays to finance MA. Many of them live in regions where there isn’t a good MA plan–or it’s too expensive for them.

  9. Maggie -Thanks for the info on MA payments. I think HMO’s work (certainly here in Tucson. I started out working for Humana which was pushing PFFS. Trying to explain how a doctor could see you “if” they will bill the company…..but next month the doctor might not be willing to bill the company and you can’t go to him… I had to quit Humana because I could not live with the idea of signing people up for a plan with so many questions, t hough PFFS has been widely accepted in Tucson. How this was approved, for so many reasons, is beyond me.
    I wasn’t in Tucson or this business ten years ago when companies pulled out of the Medicare Part C market due to reduced payments by Medicare to insurance companies. The companies that stayed around back then are still here (even with different ownership)so I think Medicare Advantage will continue to be big here.
    I would rather see companies charge a premium and offer lower co-pays, like in CT where the Health Net plan pays 100% for Part B drugs like chemo. I do not like that big gap in MA plans and all of them have that gap here in AZ.

  10. We currently have Medicare Plus Blue in Michigan and our rates are increasing from $53 pp to $184 pp. Outrageous!!!!