Reader Question – Why are we cutting Medicare Advantage?

Well, it seems I haven’t convinced many of you that we can make cuts to Medicare Advantage without cutting benefits.

Look, this is complicated.  First of all, I never stated as an absolute truth that benefits would not be cut.  I said:

Private companies said that they cannot provide Medicare benefits to the elderly for the same amount that the government does.

And I stand by that.  People are correct, that for more money, private insurance can also give more benefits.  If that’s the case, and we’re paying extra money to private companies for Medicare Advantage, we’d expect extra benefits.  But how much are we getting?  Turns out, not much.  Cue Austin Frakt:

Payment to MA plans has gone way up since 2003. Did the payment increase largely benefit beneficiaries or not? This is a current political and policy debate, about which much has been written in the media (both traditional and blogospheric). It turns out the answer is known and quantifiable. 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).

So for every dollar we give extra to Medicare Advantage companies, they pocket 86% of it; only 14% goes to actual care.  I’d argue that’s waste.  Are people opposed to reform arguing that spending an extra dollar to get 14 cents of benefits is a good idea?

Moreover, this still violates the purpose of Medicare Advantage, which was to do the same thing government was already doing for less money.  They failed.

(h/t Ezra Klein)

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