Demand parity among Medicare programs

What a shame: Reimbursement rates are going up for private Medicare Advantage plans.

Contrary to its April 7 announcement that private Medicare reimbursement rates would be reduced, the Centers for Medicare & Medicaid Services has just reversed course and announced that it will increase overall Medicare Advantage rates. The change in policy came after pressure from the political parties and insurance companies. As Medicare spending per beneficiary grows at a slower pace, subsidies to Medicare Advantage plans should also be reduced. Medicare Advantage should reflect actual market costs if we really want to improve Medicare financing and the federal budget.

Passed by Congress in 1997, Medicare Advantage is a means of receiving Medicare coverage through private insurance plans. Many advocates find that the system is fraught with difficulties, particularly when enrollees need post-acute care.  This is made worse by requirements that specialty care be pre-approved, and by an appeals system that is often arbitrary. Economic calculations — rather than quality of care — guide many coverage determinations.

The Centers for Medicare & Medicaid Services’ recent decision allows private Medicare to continue to cost more than traditional Medicare. While this may be good for the bottom line of insurance companies that offer Medicare Advantage plans, it is not good for Medicare, the vast majority of Medicare beneficiaries, or American taxpayers.

Why should we spend more of our limited public funds on private Medicare when traditional Medicare costs less? Why should taxpayers ensure private profits to deliver public Medicare coverage? After all, the experiment in privatizing Medicare was originally intended to see if a private model would cost less, while providing the same or better coverage than traditional Medicare. That was not to be.

Private plans left the market when their reimbursements were capped at or below the per capita price of public Medicare. The Centers for Medicare & Medicaid Services failed to learn from that experience, and maintain the cost of traditional Medicare as the maximum taxpayers would pay for private plans. Instead, since the Medicare Act of 2003 we actually pay private plans more than traditional Medicare.

This result is not good for the financial security of the Medicare program or for the federal budget deficit. It’s not good for the vast majority of beneficiaries who continue to choose the traditional Medicare program. It’s not even best for many Medicare Advantage enrollees, especially those with long-term and chronic conditions, who often get less coverage than they would in traditional Medicare. And remember, by design, Medicare Advantage plans have limited networks of providers, so private Medicare Advantage enrollees have fewer choices in physicians and other health care providers than they’d have in traditional Medicare.

The Center for Medicare Advocacy continues to call for parity in payments between private Medicare plans and traditional Medicare. It’s the best deal for taxpayers, the Medicare program, and the vast majority of Medicare beneficiaries. Common sense should prevail.

Judith Stein is executive director, Center for Medicare Advocacy.

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  • JW

    Your blog post doesn’t make much sense. Medicare Advantage plans are overwhelmingly better than traditional Medicare, both for the patients and for the doctors.

    They are better for the patients because such innovations as out-of-pocket-maximums are instituted (something normally available to people on individual and group plans, but for some reason not a feature of traditional Medicare). In case this is confusing to you: OOPM represents more coverage. Also copays/coinsurance are sometimes lower on Medicare Advantage plans.

    One does have to pay an additional premium (in addition to the Part B premium) every month, but it might include drugs (which one would have to purchase anyway, if one wanted them covered ever, as the penalty for not buying Part D increases continually until it’s unreachable and some people who would otherwise qualify are effectively uninsurable).

    Advantage Plans are also better for doctors because they are better reimbursed. Payments for Medicare (and even worse for Medicaid) are not enough to meet costs or provide a decent salary (by anyone’s standards).

    Medicare Advantage plans also may cover more needed services.

    Medicare Advantage does indeed cover skilled nursing in a facility or at home. (However neither traditional Medicare nor Medicare Advantage cover custodial care, which would seem to be a failing. If a person is too sick to cook their own meals or wash their own hair, that seems to be a medical need. Just ask Florence Nightengale.)

    In my town, one of the biggest clinics just announced they would cover Medicare patients only if they had an Advantage plan, and they held workshops to help patients find such a plan. Locally at least, Advantage plans would seem to offer as much or more choice. Yes, there’s a network restriction, but most doctors and hospitals in my area anyway make an effort in most cases to carry all the main insurances, except some of the doctors won’t carry Medicare. Medicare is the biggest limiting factor.

    It seems to me that requirements for specialty care to be pre-approved might be an innovation related to the ACA, as it appeared suddenly this year.

    Advantage and Medigap plans remain a vital strategy for meeting the needs of those who are elderly, long-term sick, or disabled.

    I do agree with one thing–people on traditional medicare who cannot afford the premium but want to have more choices because things are being needlessly denied by Medicare, or they cannot afford something they need because there is no OOPM, or cannot find a doctor who will take them, are at a disadvantage. The solution is not to disband the Advantage plans that are working, but to offer vouchers.

  • Center for Medicare Advocacy

    We recognize that MA plans can be a viable option for some enrollees. As a beneficiary advocacy organization, however, we are rarely contacted by individuals who are happy with their plans. Instead, we regularly hear from individuals and their families who are having trouble accessing services through their MA plans. For many of these individuals, their MA plans worked fine while they were relatively healthy, but once they required more intensive medical services, or needed to see a particular provider, their MA plan became a barrier to care.

    The issue discussed in this post, however, is really one of parity in cost, as evidenced by the title.

    Even IF private (and they are NOT public – they are run by private, for profit companies, as opposed to being administered by the Centers for Medicare & Medicaid Services) MA plans are better for specific individuals, they cost the government, and us the taxpayers, more per-enrollee than traditional Medicare. That is simply wasted money.

    It is particularly wasted money when you consider that, according to Bloomberg, the watchdog of the business world, ”…overpayments have not translated to significantly better care for the 28 percent of Medicare beneficiaries who use Medicare Advantage, as insurers have argued. Only a fifth of the extra payments even goes to pay for extra benefits, according to a report…from economists at the University of Pennsylvania. Insurers use much of the rest for advertising or to increase their profits.” (Bloomberg Editorial –

    Medicare came into existence precisely because private insurance abandoned our older citizens. When Medicare was created in 1965 over 50% of everyone 65 or older had no health insurance. Traditional Medicare, on the other hand, increased the number of insured older adults to 95%.

    If private plans can offer coverage comparable to traditional Medicare at the same or lower cost-per-beneficiary to the government and taxpayers, they would be fulfilling their promise. They already failed to do so once, in the 90′s, with Medicare+Choice, but time will tell.

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