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Raising Medicare Advantage Payments an Inefficient Way to Help Puerto Rico

Raising payments to Medicare Advantage plans is among the health options that Puerto Rico is suggesting to address its serious financial and economic challenges.  Such an approach itself wouldn’t directly benefit Puerto Rico, as the higher payments would accrue to insurers rather than the island’s government, and it would be an inefficient way to help its residents and health care providers.  Increasing Medicaid funding to Puerto Rico would be a far better way to ease its fiscal woes and reduce stress on its health care system. 

Medicare has historically paid Medicare Advantage plans substantially more per beneficiary than it would cost to cover these beneficiaries in traditional Medicare; health reform curbs (but doesn’t eliminate) such overpayments nationwide (including in Puerto Rico) over time.  Boosting Medicare Advantage payments in Puerto Rico presumably would involve scaling back some of these scheduled cuts to the overpayments that Puerto Rican health plans receive. 

But as we’ve explained, research shows that much of the overpayments goes to insurer profits and administrative costs, rather than to enrollee benefits, so such a proposal may do little to directly benefit Puerto Rico’s Medicare beneficiaries.  To be sure, greater payments to Medicare Advantage plans could eventually lead plans to pay higher reimbursement rates to financially stressed hospitals, physicians, and other health care providers, but there wouldn’t be an assurance that they’d actually do so, or to what degree such reimbursements might rise.

Medicare beneficiaries in Puerto Rico do disproportionately rely on Medicare Advantage — nearly three-quarters were enrolled in Medicare Advantage plans in 2014, compared with about 31 percent nationwide.  Even so, those in Medicare Advantage constitute less than 16 percent of the island’s total population.  Far more of Puerto Rico’s residents — some 1.4 million people, or roughly 40 percent of the population — are enrolled in Medicaid; that’s because low-income status and lack of access to private insurance are so widespread.  With such a large share of their patients on Medicaid, hospitals, physicians and other health care providers on the island heavily rely on Medicaid for reimbursement.  And Puerto Rico’s Medicaid program has been under great fiscal strain — which is soon expected to become even more severe — and this has placed substantial stress on the island’s health care system and finances.

That’s because unlike for the 50 states and the District of Columbia, federal law limits Puerto Rico to a very low, fixed amount of federal Medicaid funding each year, irrespective of its actual Medicaid costs.  Puerto Rico’s government must cover all costs above the low federal cap.  As a result, Puerto Rico’s effective federal matching rate — how much of its total Medicaid costs the federal government actually pays — has generally been between 15 and 20 percent, as compared to an average of 57 percent in the states and 70 to 75 percent in the poorest states, even though Puerto Rico is considerably poorer than any of the states.  Indeed, if there were no funding cap and Puerto Rico’s matching rate were based on per-capita income as it is for the states, the federal government would likely pick up 83 percent of its total Medicaid costs.

Rather than boost Medicare Advantage payments, policymakers should increase Medicaid funding to Puerto Rico, which would help address the shortfalls in federal Medicaid funding and better ensure that the Commonwealth has sufficient federal funding to sustain Medicaid over the long run.  Greater federal Medicaid funding would shore up Puerto Rico’s finances, improve its residents’ access to needed care, and strengthen its overall health care system.