Private plans have been part of Medicare since the program's inception in 1965. Coupled with the traditional fee-for-service program (“traditional Medicare”), these plans, now known as Medicare Advantage (MA), offer Medicare beneficiaries the option of receiving benefits administered by private health plans that have been approved by CMS.
Private plans vary more than traditional Medicare in their benefit design and cost-sharing structures. The subsidies fueling MA's rapid expansion include benchmarks set explicitly above fee-for-service spending; quality bonuses that add to total payments (in contrast to budget-neutral bonuses for accountable care organizations); and payment increases for diagnosis coding that elevates risk scores. MA plans also offer supplemental benefits, such as dental, hearing, and vision, and low premiums.
With these subsidies and efficiencies generated from care management, MA plans have been able to attract an increasing share of beneficiaries. In 2022, more than 28 million people are enrolled in a MA plan, accounting for nearly half (or 48%) of the eligible Medicare population and $427 billion (or 55%) of total federal Medicare spending, according to data from the Kaiser Family Foundation and the Congressional Budget Office. Over the past dozen years, MA enrollment has nearly doubled, with 25% of the eligible Medicare population enrolled in 2010. The MA population has similarly evolved, becoming more ethnically and racially diverse. Nearly six out of 10 MA enrollees also self-identify as women, according to the Alliance of Community Health Plans.
ACP does not endorse the privatization of Medicare. However, there are ongoing debates about the similarities between individuals who enroll in MA plans and the general population of Medicare beneficiaries, as well as whether MA is more or less costly than traditional Medicare for the federal government. A systematic review of 48 studies, published in June 2021 by Health Affairs, showed that in most or all comparisons, MA enrollees reported more preventive care visits, fewer hospitalizations and ED visits, shorter hospitalizations, and lower spending than those in traditional Medicare.
A Sept. 16 Kaiser Family Foundation review of 62 studies published since 2016 found few differences supported by strong evidence, including that beneficiaries with both coverage types reported similar rates of satisfaction with their care and overall measures of care coordination. Relatively few studies specifically examined population subgroups (e.g., beneficiaries from communities of color, living in rural areas, or dually eligible for Medicare and Medicaid), but the review demonstrated that rates of switching from MA to traditional Medicare were relatively higher among these population subgroups, suggesting that switching may be a proxy for dissatisfaction with current coverage.
Cause for concern?
Recognizing that beneficiaries and physicians alike desire flexibility and smooth transitions, the College released a position paper in June 2022 recommending a shift toward population-based, prospective payment models, with the incorporation of hybrid-type models, so long as they are designed with intention, focus on health equity, and are feasible for smaller practices. Hybrid models combine fee-for-service with prospective payments, and the prospect of a rapidly diminishing traditional Medicare model necessitates preparation as questions arise about Medicare's structure and future. If projections from the Congressional Budget Office remain, the number of enrollees in MA will surpass those in traditional Medicare by 2025. With more than 30 plans to choose from, all with different variabilities in benefits, premiums, and quality ratings, it is especially challenging for policymakers to create policy on how plans are paid and regulated. Higher costs relative to traditional Medicare will strain federal spending and the solvency of the Hospital Insurance (Part A) trust fund, which the Social Security Association projects will be depleted by 2028.
With growing concerns of fiscal sustainability, Congress will need to act to replenish the fund, which would permit health care spending growth to exceed GDP growth primarily due to the rapid aging of the U.S. population. Efficiency in health care is critical for equity, and continued growth of MA will require less spending on other things, such as important social services that assist historically marginalized groups. There also remain questions regarding the quality of MA plans relative to traditional Medicare and whether these plans mirror CMS’ vision to advance health equity; drive comprehensive, person-centered care; and promote affordability and the sustainability of the Medicare program. Hybrid-type models, therefore, may offer a reprieve by combining fee-for-service with prospective payments, thereby achieving high-value care, and adjusting for social drivers that impact health outcomes.
Congress has also taken a particular interest in MA plans' requirement for physicians (and other clinicians) to obtain prior authorization for certain services. MA plans employ prior authorization as a cost-control mechanism, resulting in delays to medically necessary care. This process creates unnecessary burdens, drives up costs, and impedes patient access. ACP has developed a series of policies with the important objective of reducing administrative burden and has supported legislation to help protect patients from unnecessary delays in care, but future legislation must go further in ensuring the transparency and efficacy of utilization management. There have been enduring discussions regarding automating MA plans' existing processes; however, while this is a good start, expediency is not the only missing ingredient.
The bottom line
As enrollment in MA plans increases, organizations face an increasing need to anticipate future financial resources for health care and predict appropriate reimbursement for physicians. CMS uses the Hierarchical Condition Category (HCC) risk adjustment model to estimate predicted costs for MA beneficiaries, and the results directly impact reimbursement. The HCC model assigns a Risk Adjustment Factor (RAF) to each Medicare patient as a measurement of probable costs, which is then used to adjust capitation payments for MA plans. As part of the College's bimonthly informational webinars on coding- and payment-related subjects, we discussed HCC coding in its current state, but it is becoming more prevalent as value-based payment models gain popularity. With increasing numbers, organizations need to improve coding accuracy to remain financially viable, and ACP offers a comprehensive training program to prepare members to code smarter and more efficiently, saving time, driving accuracy, and optimizing payments.
Despite its several challenges and opportunities for improvement, MA can help deliver better outcomes and added benefits at a lower cost for an increasingly diverse beneficiary population. But as MA plans soon become the dominant form of Medicare coverage, it is increasingly important that we assess beneficiaries' experiences and the long-term sustainability of the program. MA plans are designed to enhance care coordination and quality of care, principles ACP established the groundwork for via our patient-centered medical home model and expanded upon in our 2022 policy paper “Beyond the Referral: Principles of Effective, Ongoing Primary and Specialty Care Collaboration.”
Recognizing that Medicare must work toward a future where beneficiaries receive more equitable, high-quality, and person-centered care, CMS announced on July 28 that it has partnered with stakeholders, including the College, to better understand how care innovations are changing outcomes and costs. In response to the Center for Medicare & Medicaid Innovation's recently announced Strategy Refresh, ACP expressed strong support for testing a broad array of complementary MA innovations designed to investigate service delivery and/or payment approaches that contribute to the modernization of MA by increasing choice, lowering cost, and improving the quality of care. However, the College continues to endorse hybrid-type models that afford physicians the flexibility of deciding what may work best for their practice. For additional information on the College's recommendations regarding MA, the College's 2017 position paper “Promoting Transparency and Alignment in Medicare Advantage” is a great resource.
Even as MA plans gain popularity, the fact remains that better, strengthened, more comprehensive information will need to be made available to inform policymaking. As both MA plans and traditional Medicare sectors evolve, it will be imperative to assess how well traditional Medicare and MA plans' payment methodologies hold down beneficiary costs and federal spending and enhance efficient access to care. In the meantime, particular attention should also be paid to whether MA plans are designed in a way that makes it feasible for physicians in all types of practices to transition and whether these plans adequately address the long-standing undervaluation of primary and comprehensive care.