Straight talk on health care reform: Medicare Advantage thrives under Affordable Care Act
Medicare Advantage is alive and ... doing very well. Opponents of the Affordable Care Act raised fears among senior citizens by saying that the new law would gut the popular program, but the latest information about the program tells a far different story.
Medicare Advantage gives seniors the option of enrolling in private insurance instead of the traditional government-run Medicare program. As of August 2010, 11.8 million Americans were enrolled in Medicare Advantage plans, representing about 25 percent of all Medicare beneficiaries.(1) The program offers additional benefits and therefore is more costly for the government, and that is why the ACA targeted the program for cuts.
Concern about cost was based on trends for the program. According to the Medicare Payment Advisory Commission, the government was projected to pay Medicare Advantage plans 14 percent more per beneficiary than those enrolled in traditional Medicare.(2) Between 2004 and 2008, these additional payments to Medicare Advantage plans totaled nearly $44 billion and averaged more than $1,100 for each MA beneficiary.(3) According to the Centers for Medicare and Medicaid Services, these higher payments helped to drive up premiums for beneficiaries in the traditional Medicare program by an additional $86 per year.(4)
As a result, the Affordable Care Act included several provisions to reduce federal spending:
- Reduce additional payments to MA plans over three years beginning in 2011.
- Require MA plans to meet an 85 percent medical-loss ratio by 2014.
Combined, these provisions were expected to reduce federal Medicare spending by at least $136 billion over 10 years. The American Association of Health Plans (the national political advocacy and trade association for health insurers) predicted these provisions would "result in seniors facing higher premiums; a reduction in additional benefits; fewer health care choices; and higher out-of-pocket costs."(5)
So far, pretty much the opposite has happened.
- Medicare Advantage beneficiaries can expect to see their monthly premiums drop by an average of 4 percent without any changes to their benefits.(6)
- Enrollment in plans is expected to grow by about 10 percent next year.(7)
And what about quality?
The ACA had provisions aimed at improving quality based on a five-star quality rating system. The new law provides bonus payments of up to 5 percent per beneficiary payment to those companies that can achieve a four-star rating. In addition, five-star plans would be allowed to enroll members year-round, instead of being limited to an annual open-enrollment period. Both are strong incentives for plans to improve ratings. (Recently, the Department of Health and Human Services implemented a three-year program that goes beyond the ACA by providing a 3 percent bonus payment to plans that attain a three-star rating. This means that 62 percent of Medicare Advantage plans could qualify for bonus payments. Even though health plans would not receive those payments until 2013, they can use the marketing advantage of this rating throughout 2012.)
The star rating system has introduced an element of competition among insurance firms. "Everyone is taking this seriously," said Sarah Baker of Health Dialog, a Boston-based insurance analytics firm that is advising plans on how to improve their ratings. Higher ratings offer a "huge competitive advantage,"(8) she added.
Dr. Rhonda Medows, the chief medical officer overseeing quality for the UnitedHealth Group, stated the company has set a goal for having all of its members in four-star or better plans by 2014.(9)
So, to date, Medicare Advantage premiums have gone down, benefits have stayed the same for most plans, enrollment has gone up and the law seems to have provided an incentive for insurers to improve the quality of their plans. Not exactly the dire results that some opponents predicted.
Much of the opposition to the ACA is based on fears and predictions that don't hold up to scrutiny. In the end, only time will tell how successful the law will be. Some provisions may not work as well as hoped and will need modification. What we can be sure of is that efforts to defund, dismantle and repeal the law will leave us with a status quo system that is broken and financially unsustainable.
Early on, proponents urged patience and told skeptics to give the reforms a chance. In the case of Medicare Advantage, that advice was sound, and the results speak for themselves.
1) Donahue, Debra, One in Four Seniors Enrolled in Medicare Advantage Plans as Annual Election Period Approaches, Sept. 16, 2010.
2) Medicare Payment Advisory Commission, Report to Congress: Medicare Payment Policy, March 2009.
3) Brian Biles, Jonah Pozen and Stuart Guterman, The Continuing Cost of Privatization: Extra Payments to Medicare Advantage Plans Jump to $11.4 Billion in 2009, The Commonwealth Fund, May 4, 2009.
4) Rick Foster, Letter to Congressman Stark, Office of the Actuary, Centers for Medicare and Medicaid Services, June 25, 2009.
5) American Association of Health Plans (AHIP Coverage), The Impact of the ACA on Medicare Advantage, March 22, 2011.
6) Phil Galewitz, Medicare Advantage Premiums To Fall 4% Next Year, Kaiser Health News, Sept. 15, 2011.
8) Christopher Weaver, Chasing The Stars, Insurers Improve Quality – And Revenue, Kaiser Health News, Oct. 12, 2011.