• The Advantage of Medicare Advantage (at Great Cost)

    Medicare Advantage (MA) plans are a good deal for Medicare beneficiaries, though not for taxpayers. For the premium charged, they offer the most generous benefits and lowest cost sharing of any Medicare plan type or supplement. That’s why beneficiaries will miss them when they exit the market (to the extent they will) in response to cuts in government payments (to the extent they materialize). But, as I’ve written before, the plans are overpaid and the benefits, while of value to beneficiaries, are economically inefficient. There are better ways to spend some of the taxpayer dollars paid to MA plans.

    However, in this post I’ll look at what the loss of MA plans would mean for beneficiaries. In particular, I’ll address the question: how much more in premiums would the average beneficiary pay if he no longer had access to an MA plan and instead bought enhanced coverage for Medicare benefits from other plan types?

    This is a relatively simple question to answer. The average premium for an MA plan for the non-drug benefits it provides is about $30 per month [1, 2] (numbered references at end of post). The average premium for an MA plan for the drug benefits it provides is about $20 per month [2]. The average premium for a stand-alone prescription drug plan (PDP) is about $38 per month [2, 3]. The premium for an average Medigap plan (taking into consideration the different types of Medigap plans and the degree of enrollment in each) is about $120 per month [4]. All of these figures are above the standard Part B premium ($110.50 per month in 2010) [1].

    Consider a beneficiary enrolled in an average drug-offering MA plan and paying about $50 per month for it ($30 for non-drug benefits and $20 for drug benefits under the plan). Suppose he loses access to MA plans because they withdraw from the market, perhaps due to a reduction in government payments. To purchase on the individual market drug and non-drug coverage above that offered by FFS Medicare, he would need to buy a Medigap product at $120 per month and PDP coverage at $38 per month, or a total of $158 per month. That’s an increase of $108 per month in premium over what he had paid for an MA plan. Switching from a non-drug MA plan (at $30 per month) to a (non-drug) Medigap plan (at $120 per month) would be a $90 monthly increase.

    Those are big increases. But let’s keep this in perspective. They’d only apply to a small fraction of Medicare beneficiaries, most of whom are enrolled in private fee for service (PFFS) plans. First of all, I’m considering MA enrollees, which comprise about 23% (about 10 million) of all 45 million Medicare beneficiaries. Of those, most will not lose access to an MA plan. Based on my prior work and the literature (notably [1,4] and this spreadsheet described in a prior post) I expect something like one-third of current MA enrollees (i.e. about 3 million beneficiaries or 7% of all Medicre beneficiaries) will lose access to an MA plan if payments are cut to the level of average FFS costs. Two-thirds of those (2 million) are enrolled in PFFS, the plan type that is the most costly to taxpayers and does the least to control health care spending (in a subsequent post I’ll elaborate on PFFS, though I’ve posted on such plans before).

    To be sure, all this is a bit simplistic. Average figures, which I’ve used, don’t reflect the tremendous variation in premiums (especially for Medigap products). Also the foregoing doesn’t recognize the differences in benefits across plan types. However, in general an MA plan is a far better deal than any other plan type because it is highly subsidized with taxpayer dollars. It is easy to see why MA enrollees would be unhappy losing these benefits. They really gain a tremendous advantage from the program. On the other hand, it is easy to see from equity or efficiency perspectives why it makes more sense to cover the uninsured with taxpayer dollars before continuing to pay for enhancements to Medicare Advantage benefits.

    References

    [1] Kaiser Family Foundation, Medicare Advantage 2010 Data Spotlight: Plan Availability and Premiums, November 2009.

    [2] Frakt and Pizer, A First Look at the New Medicare Prescription Drug Plans, Health Affairs Web Exclusive (May 23, 2006): w252-w261. (Summarized in a prior post.)

    [3] Kaiser Family Foundation, Medicare Part D Spotlight: Part D Plan Availability in 2010 and Key Changes Since 2006, November 2009.

    [4] Frakt, Pizer, Feldman, Payment Reduction and Medicare Private Fee-for-Service Plans, Health Care Financing Review, 2009 Spring;30(3):15-24. (Summarized in a prior post.)

    Share
    Comments closed
     
    • Thoughs premiums look great. Try checking out the “lower Hudson Valley” in New York State. We probably have, by far, the highest insurance premiums, in the nation; health or otherwise.
      What this country has to do is eliminate the PFFS. It is the highest cost of the MA’s and is a crapshoot on insurance. Same doctors can accept or reject these plans, based on treatment. Terrible. They should at least place a provider network HMO to these plans.