MedPac Reports on Medicare Advantage Program

MedPACIn 2014, the Medicare Advantage (MA) program included 3,600 plan options, enrolled more than 15.8 million beneficiaries (30 percent of all beneficiaries), and paid MA plans about $159 billion to cover Part A and Part B services.

The MA program gives Medicare beneficiaries the option of receiving benefits from private plans rather than the traditional FFS Medicare program. Medicare pays private plans a per person predetermined rate rather than a per service rate so plans have incentive to innovate and use care-management techniques.

Recent legislation has reduced the historic inequity in Medicare spending between MA and FFS. As a result, over the past few years, plan bids and payments have come down in relation to FFS spending while enrollment in MA continues to grow. The pressure of competitive bidding and lower benchmarks has led to either improved efficiency or lower margins that enable MA plans to continue to increase MA enrollment by offering packages that beneficiaries find attractive.

  • Access to MA plans remains high in 2015. Overall, 99 percent of all Medicare beneficiaries have access to an MA plan, and 95 percent have an HMO or local preferred provider organization plan operating in their county of residence.
  • Between 2013 and 2014, enrollment in MA plans grew by about 9 percent (or 1.3 million enrollees) to 15.8 million enrollees. About 30 percent of all Medicare beneficiaries were enrolled in MA plans in 2014, up from 28 percent in 2013. Among plan types, HMOs—with 10.4 million enrollees—continue to have the highest share of MA enrollment.
  • We estimate that 2015 MA benchmarks (including quality bonuses), bids, and payments will average 107 percent, 94 percent, and 102 percent of FFS spending, respectively. The average net bid did not increase between 2014 and 2015.
  • MedPAC analysis shows that, on average, MA plans in 2012 had a margin of 4.9%. Plan sponsors reporting a positive margin accounted for about 91% of MA enrollment. There were differences by plan type: employer group plans had higher margins than plans for individual Medicare beneficiaries; for-profit plans had higher margins than nonprofit plans; and special needs plans (SNPs) generally had higher margins than non-SNP plans, except that nonprofit SNP plans reported a slight negative margin.

Medicare payments to plans for an enrollee are based on the plan’s payment rate and the enrollee’s risk score. The risk scores are based on diagnoses attributed to the beneficiary during the year before the payment year. To receive the maximum payment, plans have an incentive to ensure that providers record all diagnoses. Analyses have shown that MA plan enrollees have higher risk scores than otherwise similar FFS beneficiaries because of more complete coding. As mandated by the Deficit Reduction Act of 2005, CMS makes an across-the-board adjustment to the scores to make them more consistent with FFS coding practices.

The Congress instituted a quality bonus program for MA in the Patient Protection and Affordable Care Act of 2010, with bonuses available beginning in 2012. MA plans are able to receive bonus payments if they achieve an overall rating of 4 stars or higher on CMS’s 5-star rating system. For plans receiving ratings for both 2014 and 2015, there was virtually no difference between average star ratings for 2014 (3.88) and the ratings for 2015 (3.91).

CMS data show that in 2012, about 10 percent of beneficiaries voluntarily changed their MA plan. Of that number, 80% chose another MA plan and the remaining 20% went to FFS Medicare—meaning that only 2% of MA enrollees left MA for FFS. Among the switchers who were faced with changes in plan premiums, the large majority switched to a plan with a lower premium. Medicare’s Plan Finder website helps Medicare beneficiaries choose among plans based on cost and quality. However, the display of premium information for plans offering a reduction in the Part B premium could be improved to make beneficiaries more aware of the existence of such an option and its associated effect on their total out-of-pocket costs.

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