Medicare Advantage Enrollment and Challenges

Today, a significant 54% of Medicare beneficiaries access their coverage through Medicare Advantage (MA) plans. This system of private health plans has become a key alternative to traditional fee-for-service Medicare.

However, the future funding for these plans is precarious, and the implications for countless seniors are major.

Since its inception in 2003, the expanding MA program has been a hallmark of GOP health policy, allowing millions to enroll in reasonably priced, extensive plans with capped out-of-pocket expenses.

Despite these advantages, Democratic lawmakers have persistently sought to cut funding, arguably aiming to revert beneficiaries back to the traditional Medicare model, which often necessitates supplemental insurance to cover gaps.

Interestingly, both Democrats and Republicans acknowledge that MA plans are currently overcompensated, leading to situations where health plans exploit the system at taxpayers’ expense. This shared concern was evident during a recent congressional hearing, where discussion centered on the excessive reimbursements for MA plans.

At the same time, Team Trump is initiating annual audits of these plans and scrutinizing the operations of United Health Group, the primary insurer in the program.

Flawed Policy

While audits may seem like a step in the right direction, they won’t address the fundamental issues at play: the MA payment system is not only overly intricate, but also flawed.

Every year, the Medicare bureaucracy determines a “benchmark” payment based on traditional Medicare pricing, which is then adjusted at the county level and considers various factors, including the enrollment of older and sicker beneficiaries.

Plans are required to report data regarding beneficiaries they enroll within specific risk categories that include factors like age and health status. Naturally, plans that cater to higher-risk patients receive greater reimbursements.

What’s more, the risk adjustment process is prospective; health plans estimate the risk of the beneficiaries and must submit accurate data upfront to obtain the needed reimbursement.

This year, the focus has shifted to how health risks are evaluated. Plans submit diagnostic codes for a range of conditions, with more codes leading to increased government reimbursements for the plans involved.

The Medicare Payment Advisory Commission suggests that current “coding intensity” adds roughly $40 billion in costs due to these practices.

But even with meticulous data submission, estimating enrollee health status remains a complex challenge. For example, if a plan enrolls 100 diabetics, pinpointing which individual might incur exceptional medical costs is nearly impossible.

This fundamental flaw in the prospective adjustment process results in a loss for taxpayers.

The Remedy

In our book, “Modernizing Medicare: Harnessing the Power of Consumer Choice and Competition,” my colleague and I proposed a retrospective health risk adjustment approach as a potential solution to the existing simplistic predictive framework.

The essence of a retrospective system would involve all MA plans contributing to a shared risk pool. Plans would transfer their high-risk individuals to this pool, enabling them to set premiums based on the overall risk coverage needed. At year’s end, funds would be reallocated based on actual costs incurred, ensuring that plans catering to the sickest beneficiaries receive proper compensation.

Adopting such a system might stabilize insurance markets by eliminating speculation and the possibility of exploiting conditions, thus reducing undue costs borne by taxpayers.

Health economist Alain Enthoven from Stanford University noted that in this model, costs wouldn’t need to be predicted, as payments would be finalized retrospectively, under state insurance department oversight that is already familiar with such arrangements.

Bipartisan Potential

Proposals for a retrospective health risk adjustment aren’t novel. Various significant Medicare reform suggestions in the past 15 years have featured this concept, ensuring accurate reimbursements while promoting market stability, especially for plans servicing older and sicker patients.

Notably, proposals from figures like Sen. Ron Wyden (D-Ore.) and Rep. Paul Ryan (R-Wis.) highlight a potential for bipartisan agreement on this issue.

The future of Medicare Advantage holds promise, but only if Congress and the White House collaborate to address its shortcomings and enhance the benefits of personal choice and market-driven competition.