• The net cost of Medicare Advantage

    An Economic History of Medicare Part C,” a new paper in The Milbank Quarterly by McGuire, Newhouse, and Sinaiko, is a tasty smorgasbord of background on Medicare Advantage, aka Medicare Part C.*  I mean no disrespect for the authors or their work, but let’s just skip all the very nice detail in the paper and cut right to the money chart that illustrates the net effect of the Medicare Advantage program on Medicare spending:

    Clearly this figure shows us very little about what happened between 1997 and 2004. Feel free to presume that the program saved Medicare so much money in those years that it offset the documented massive costs in other years, but I doubt you’d find many serious scholars agreeing with you. No, on the whole, the program has cost us and cost us dearly.

    This need not be a condemnation of private plans, but it isn’t good news for pro-market advocates. Were I to don that hat, and I have done so, I’d be infuriated or embarrassed by this abysmal performance of MA plans. As a taxpayer, I’m none too happy. There’s a rather simple way to address it without abandoning the MA program, as I suspect would be hard for Congress to achieve. Until we force private plans to compete head-on with traditional Medicare, I’m afraid we’ll see more overpayments of the type documented in the chart.

    A potential silver lining would be that all the extra spending on MA led to a spillover that, somehow, saved at least as much in traditional Medicare. If that were once true, it is not likely to be so today.

    * The paper is gated, but you can find a current summary of the Medicare Advantage program at the Robert Wood Johnson Foundation.

    • Hey again, Austin. I see your acknowledgement that “This need not be a condemnation of private plans, but it isn’t good news for pro-market advocates.”

      I worked with MA plans for a while in my career and am very familiar with how they are priced (i.e. how insurers are reimbursed from CMS) from the private-insurer point of view. I don’t feel that the MA “market” is similar to, for instance, the market for new cars.

      It is more like a rent-seeking contest. It is not clear that the feedback loops present in actual markets are present in the MA market. That is, the response to the product (health care service delivery, network, etc.) and prices of an MA policy to the insureds is not necessarily what corresponds with the insureds reimbursement from CMS.(revenues)

      So this is why I understand your statement of “This need not be a condemnation of private plans” since what we see in a more typical market looks nothing like the MA “market”.

      • clerification: when I said “is not necessarily what corresponds with the insureds reimbursement from CMS.(revenues)”

        I meant “… with the insurance company’s reimbursement …”

        but you knew that already.

    • are there no comparisons of us vs peer health costs that reveal where us health service costs are higher than peers

      we see lots of macro – top level costs

      we see little in terms of specific costs (provider pay, hospital costs, cardio tx , cancer tx, mental health tx,

      we see little in terms of who gets care

    • A small point about clarity: Since both the Massachusetts health care law, and Medicare Advantage are prominent and of interest, it might be helpful to those of us who try to keep up – and wind up skimming far too often – it would be helpful if neither were referenced by abbreviation. MA is shorter to type than either Massachusetts or Medicare Advantage, but text expansion could take care of that problem. Thanks.

      • I try to make it clear in each post. The number of posts that focus on both Mass. and Med. Adv. are very small. I think it happened once.

        • Thanks. I appreciate the clarity in writing as well as the clarity of thought that I find here.
          I certainly read posts without the attention and thought that they deserve, but this is not my main focus and time is a limiting factor so I often wind up reading several posts quickly. For example, before reading the Medicare Advantage post I had just glanced at Kevin Outterson’s post on cost control (in Mass. & VT). It’s usually a matter of shifting gears smoothly, and help is appreciated. Thanks again.

    • The analysis omits the benefits to the plan participant. At Medicare.gov, CMS calculates the annual costs of different plans to the plan holder. Many MA plans are shown to save the participant $1,000 or more. Not quoting CMS data is a disservice to a reader.

      • It’s not a disservice when I provide links to more information. In fact, I claim that reading this blog can only be welfare improving. It costs you nothing and you do it voluntarily (I presume).

      • An MA plan that is paid a premium over normal Medicare costs and then charges the participants less than regular Medicare makes the program even worse than I imagined. What is their marketing pitch; “Buy our policy and we will help you hose the taxpayers?”

      • So what you’re saying is it saves the participant while costing the government (aka the rest of us) more. Somehow that doesn’t seem like a good deal.

    • Doesn’t the ACA, over time, do away with MA subsidies? If so, there’s a reason to support the new law.