Medicare Disadvantage Update

In a previous post I asked “Who’s Getting the Advantage from Medicare Advantage? [1]” (See that post for background on the Medicare Advantage program and the controversy over cutting overpayments to the private insurance companies that operate them.)

The answer to my question continues to be answered from the pages of The Wall Street Journal, which proclaimed this past August: ”Humana 2Q Profit Rises 34% On Medicare Business.” [2]

But some still bemoan that people in Medicare Advantage plans will suffer horribly if the $149 billion [3] we will give these plans in overpayments over the next ten years are cut, like in this letter to the editor [4] of the Palm Beach Post:

“Medicare Advantage is an option that serves 22 percent of the 45 million Medicare beneficiaries. The key is its innovative and coordinated approach to health and wellness. These plans offer enhanced benefits and added value.”

Just what is this 'added value'? Austin Frakt, a health economist at Boston University, provides hard evidence [5] that the extra benefits to people in Medicare Advantage plans are highly overrated — and overpaid:

“My work (with Steve Pizer and Roger Feldman) shows that for each additional dollar spent by the federal government (taxpayers) on the program since 2003, just $0.14 of it can be attributed to additional value (consumer surplus) to beneficiaries (see also: findings brief [6]).

How can anyone possibly claim that 14 cents on the dollar is a good deal?

These overpayments are particularly unfair to the majority of people who prefer the public Medicare program but must help pay for those who enroll in the private plans. As the Center on Budget and Policy Priorities explains [7]:

“Under Medicare Part B, beneficiaries are charged a monthly premium equal to 25 percent of the costs of Part B-related services, which include physician visits and other types of outpatient care. Because private-plan overpayments increase Medicare costs under both Part A (hospital and nursing home services) and Part B, they increase the Part B premiums that beneficiaries must pay. According to both MedPAC and the Chief Actuary at the Centers for Medicare and Medicaid Services, the Medicare Advantage overpayments have raised the Part B premiums by $2 per month per person, or $48 a year for a couple, in 2007.

To quote Dr. Frakt, “Cuts to MA [Medicare Advantage] should be a no brainer.”