Medicare Advantage Overpayments Help Insurers More Than Beneficiaries

I noted yesterday that health reform scales back overpayments to private Medicare Advantage plans, thereby lowering premiums for all Medicare beneficiaries and extending the solvency of Medicare’s trust fund.  Insurers, arguing that curbing the overpayments results in direct benefit cuts for enrollees, often imply that they have used the overpayments solely to provide increased benefits.  But findings from a recent National Bureau of Economic Research study challenge this argument.

The study examined certain urban counties in which Medicare Advantage plans received substantial overpayments in the four years before health reform started phasing down the overpayments in 2012.  Here’s what it found:

• The results of the study suggest that the “additional plan reimbursement for plans in [the counties studied] does not translate into more generous benefits for Medicare Advantage recipients.”
• Most of the overpayments are not passed through to enrollees: the higher reimbursement “is not accompanied by significant differences in premiums, out-of-pocket costs, or rebates.”
• The study finds no evidence of improved quality of care as a result of the overpayments.
• The study suggests that insurers retain about one-fifth of the overpayments as higher profits.   They also use the overpayments to boost advertising spending in order to promote further enrollment in Medicare Advantage.

Despite insurers’ “doom and gloom” warnings that health reform will devastate the program by scaling back the overpayments, Medicare Advantage continues to thrive.  Insurers can still provide additional benefits to attract enrollees by trimming profits and becoming more efficient.

That’s likely why the Congressional Budget Office expects Medicare Advantage enrollment to continue to grow through 2019 and why Wall Street analysts also still have a “positive long-term view of Medicare Advantage.”