BB’s Thoughts on Original Medicare versus Medicare Advantage

Medicare versus Medicare Advantage FeatureA new trend from original (traditional) Medicare to Medicare Advantage is currently happening.  In 2005, 13% of all Medicare-eligible beneficiaries were Medicare Advantage  enrollees and in 2016, the number was 31% (with 18% in enrolled as part of a group) according to the Kaiser Family Foundation.   Original Medicare is government-run (fee-for-service) and Medicare Advantage is private insurance company-run (managed care). In this blog post, I will present a couple of my personal thoughts, both as a future Medicare consumer and as a taxpayer interested in making the Medicare system of health care affordable and robust financially for all. Hopefully my original Medicare versus Medicare Advantage comparisons will help you see the big picture that will impact us all.

Original Medicare Versus Medicare Advantage For the Consumer

Taken from the individual Medicare-eligible beneficiary’s viewpoint, Medicare Advantage plans can be very appealing, especially in locations where an HMO presence is well-established and thriving. They offer more covered health benefits, financial protection with a maximum out-of-pocket limit, and are cheaper to purchase than the original (traditional) Medicare + Medigap + Plan D alternative most people buy.

Private employers, always on the lookout to reduce costs, are taking advantage of their cheaper purchase prices (group rates) and steering former employees with retiree benefits into them.  These retirees may even get negotiated plan features (with reduced cost sharing) not available to individual enrollees.

Original Medicare versus Medicare Advantage Price

On the surface Medicare Advantage plans are hard to beat for many Medicare-eligible beneficiary. I say on the surface because the history of managed care Medicare has revealed many problems when the interests of the for-profit healthcare system do not coincide with the interests of the American consumer.  

Being a skeptic by nature, I question anything that needs heavy advertisement to attract customers and is being heavily touted as the best thing since sliced bread.  Names like Medicare Advantage and Medicare +Choice (managed care plans from 1997-2003)) make me question how much of an advantage or how much choice the plans really provide. These plans definitely are not delivering greater choice of healthcare providers (quite the opposite in fact).  

The vast majority of Medicare Advantage enrollees today are in HMO plans and HMOs in the past have not had good reputations for putting their patients ahead of profits.  They are low cost and great as long as you do not end up needing expensive health care.  The best HMOs today keep costs down by delivering efficient, coordinated care, but others may use methods that limit the quality and amount of medically necessary healthcare services to enrollees to keep profits high.

Original Medicare Versus Medicare Advantage For the Taxpayer

As an American taxpayer, I am always looking for the delivery of healthcare value. Are Medicare Advantage plans really more economical than the single-payer, government-run (original) Medicare system?  If these private insurance companies are falling short, I want to know about it before more money is thrown into for-profit coffers.

What Can Private Insurers Do That Govt Cannot?

–Lower Insurance Costs?

My first instinct tells me that going from a single payer healthcare system (original Medicare) to one that includes hundreds of managed care private health insurance plans (Medicare Advantage) is a recipe for higher spending.   Original Medicare’s fee-for-service rates are already the lowest in the country (only Medicaid rates are lower) and it is unlikely that doctors and hospitals will accept less from private plans that bring them fewer customers. Medicare Advantage plans have higher administrative costs and must feed business profit demands.

The insurance companies that run Medicare Advantage plans get a fixed dollar amount per beneficiary (varies by location and plan) and they repeatedly demand more taxpayer money from the government.  One way these plans get more money is through risk adjustment payments.  The plans claim to have enrollees that are “sicker” than original Medicare beneficaries and “prove” it by abusing diagnostic codes so that enrollees appear “sicker” on paper.  This practice cheats taxpayers and depletes the Medicare fund.  According to data from the Commonwealth Fund, Medicare Advantage plans only cost less than original Medicare in 25 urban counties across the entire United States.  In all other locations, the American taxpayer is paying more for the privilege of enriching private companies with increased profits.

Unfortunately, our government lawmakers don’t always look out for taxpayers ahead of private for-profit companies–influence peddling pays better.  As of January, 2017, the Republicans are in the process of repealing Obamacare (PPACA) and reinstating the payments Medicare Advantage plans get over and above what our government spends for original Medicare beneficiaries.

–If not Costs, what then…

Looking at the structure of original Medicare versus Medicare Advantage plans, we see that the latter has an extra layer of management between healthcare providers and the payers (Medicare). This layer of management’s only function is to incentivize doctors and hospitals to deliver care in a coordinated and efficient manner.  In uncoordinated original Medicare,  private insurance companies simply process claims and nothing more.  They are not paid to coordinate anything or even introduce any cost efficiencies into the system.  Under Obamacare (PPACA) reforms, the Medicare program was accomplishing this same feat through its Independent Payment Advisory Board (IPAB) and the Center for Medicare and Medicaid Innovation (CMMI).  Both are threats to the for-profit companies that sell Medicare Advantage plans and are scheduled for elimination when Obamacare (PPACA) is gone.

Why Does Our Govt Encourage Medicare Advantage?

Apart from making insurance companies richer, I am baffled why our government continues to encourage the spread of Medicare Advantage plans outside select HMO markets.  Is this our government’s attempt to privatize Medicare slowly and hope people don’t notice?  YES! This encouragement comes in many forms and takes away from original Medicare reform that can serve all beneficiaries not just a subset of beneficiaries. Let’s look at a few of the ways our government helps spread Medicare Advantage below.

  •  It spends more money per beneficiary in Medicare Advantage plans than it does for original Medicare beneficiaries (greater than 100% of average original Medicare costs)
  •  It helps insurance companies market their Medicare Advantage plans with features not given to original Medicare beneficiaries (e.g., maximum out-of-pocket limit imposed and bundling of prescription drug coverage with the health plan for one stop shopping).
  • It lets Medicare Advantage Plans continue to overinflate their risk scores (i.e., claiming they have sicker enrollees than the local original Medicare program has) for increased payments.
  • It gives the insurance companies bonus payments for quality (star rating) measures. This serves as a backdoor handout for higher profits and mandated beneficiary improvements (that in turn helps them entice more customers).  None of the improvements are available to original Medicare beneficiaries.

Original Medicare versus Medicare Advantage government actions

If our government started paying Medicare Advantage plans at the same rate they did for original Medicare, would Medicare Advantage plans still be around? Maybe, but the costs and cost-share would be much higher and the “extra” benefits would be long gone.

Summary-Original Medicare Versus Medicare Advantage

When making the original Medicare versus Medicare Advantage comparison, it is important to look at both the individual consumer and taxpayer pluses and minuses.  Our government is encouraging consumers to switch into Medicare Advantage plans (the privatization of Medicare) by pouring more money into them and letting them provide extra benefits not available to original Medicare beneficiaries.  If extra benefits are on offer in Medicare Advantage plans, then why aren’t they also on offer to original Medicare beneficiaries?   With control of all legislative branches of government in 2017, the Republicans are poised to make Medicare completely in the hands of for-profit health insurance companies.

Working to increase healthcare value within the original Medicare system as a whole should be our government’s number one priority.  Keeping  the Independent Payment Advisory Board (IPAB) and the Center for Medicare and Medicaid Innovation (CMMI) are steps in the right direction and make the need for an added layer of costly management (Medicare Advantage) unnecessary.  All present and future Medicare beneficiaries should complain loudly to their elected officials to keep these Obamacare (PPACA) reform initiatives intact so that original Medicare will continue to thrive.

This choice of original Medicare versus Medicare Advantage reminds me of a choice my husband had about 20 years ago when his company was introducing a 401K pension plan for all new employees and gave current employees the option to remain in their defined-benefits pension plan (like original Medicare) or switch into the defined-contribution 401K plan (like privatized Medicare).  The company extolled the many virtues of the new plan and provided extra monetary incentives to make the switch. My husband reasoned that if the company was pushing the new 401K plan so much, it obviously was financially better for them and probably not so good for him personally.  My husband chose to stay with the defined-benefit pension plan (like original Medicare) and stock market years like 2008 have made him glad that he did.  The defined-benefit pension, like original Medicare is a known quantity that makes managing retirement finances more predictable.

(updated February 5, 2017)


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