Study Finds Government Overpaying Medicare Advantage Plans

The Kaiser Family Foundation recently released a study (https://www.kff.org/medicare/issue-brief/do-people-who-sign-up-for-medicare-advantage-plans-have-lower-medicare-spending/) that concluded patients on Medicare Advantage plans spend less in benefits than those in traditional Medicare. The study cited the fact that the government pays insurance companies that administer advantage plans based on the average expense of those on traditional Medicare as a potential flaw in the system that is creating overpayments.

The study used spending data from enrollees in traditional Medicare in 2015, then separated its patient sample into those who stayed in traditional Medicare in 2016, and those who switched to an Advantage plan. The group that switched spent on average $1,253 less per person in 2015 than the group that stayed. The data points to the conclusion that Advantage plans seem to attract a healthier demographic than traditional Medicare. Consequently, the government may be paying Medicare Advantage carriers more than they would have to pay if the patients remained in traditional Medicare.

Supporters of Advantage plans have long argued that private insurance companies can administer Medicare more efficiently than the government. Generally, these plans do cut costs by using smaller networks than traditional Medicare, having stricter coverage and pre-authorization guidelines, and by modifying the Medicare cost-share structure to include co-pays.

However, the study shows that the costs savings are currently benefiting insurance companies more than enrollees or Medicare.