Medicare Advantage Continues to Drive Up Medicare Costs – Congress Must Act to Level the Playing Field with Traditional Medicare

The Center for Medicare Advocacy has long advocated for leveling the playing field between Medicare Advantage (MA) and traditional Medicare. Over the last several years, however, legislative and regulatory policy changes have continued to tip the scales in favor of MA over traditional Medicare. Such efforts include the as-yet-unimplemented Executive Order issued by President Trump in October 2019, along with recent coverage expansions to only the MA program. In addition, while the Affordable Care Act has reined in excessive overpayments to MA plans, those private plans still get higher payment per-beneficiary than traditional Medicare due to “quality” bonus payments and inappropriate manipulation of risk-adjusted payments.  Despite such overpayments, MA enrollee quality outcomes are decidedly mixed.

Higher payment to MA plans, coupled with MA-only coverage expansions and enrollment advantages, continue to drive higher enrollment in MA plans and exacerbate the differences between MA and traditional Medicare. As discussed below, recent projections by the Congressional Budget Office (CBO) show that Medicare Advantage will cost the Medicare program even more than previously thought. As pressure grows on the federal budget – and Medicare specifically – indiscriminate cuts to the program would inevitably harm beneficiaries. A recent Health Affairs Blog by researcher Dr. Ricard Kronick outlines a policy change Congress can enact that would both rein in wasteful payments to MA plans and help level the playing field between MA and traditional Medicare.

Congressional Budget Office Points to Medicare Advantage for Increased Spending Projections

On January 28, 2020, the Congressional Budget Office (CBO) released a report entitled The Budget and Economic Outlook: 2020 to 2030 in which it “provides detailed projections of the federal budget and the U.S. economy under current law for this year and the decade that follows as well as projections for the following two decades.”[1]
Among other findings, the Report notes that mandatory federal spending, including Medicare, will be higher than previously projected, primarily due to the “aging of the population and the rising costs of health care.”[2]
CBO explains the projected increases in its estimated mandatory outlays for the Medicare program in 2020 and beyond:

Several factors led CBO to increase its estimate of Medicare spending in 2020. First, actual net outlays for Medicare in 2019 exceeded CBO’s projection for the year by about $8 billion (or 1.3 percent); higher spending for Medicare Advantage (MA) accounts for most of that difference. Second, in August 2019, CBO increased its projection of outlays for MA only for 2019 because at the time, the agency thought that the higher-than-expected spending was driven by one-time payments that would not affect spending in future years. On the basis of additional spending data, CBO now anticipates that spending for MA will be higher than previously projected in 2020 and later years. Third, the increase in MA payment rates in 2020 that was announced earlier this year was larger than CBO had projected. Finally, CBO now expects that, on average, MA beneficiaries will be coded as being in poorer health than the agency previously anticipated.[3]

In short, higher than expected future Medicare spending will largely be due to the Medicare Advantage program, including through manipulation of risk adjusted payments. As noted in a December 2019 HHS OIG report discussed in a recent Center Alert, risk-adjusted payments “may create financial incentives for [MA plans] to make beneficiaries appear as sick as possible to obtain higher payments. CMS estimates that from 2013 through 2016, Medicare paid $40 billion in overpayments that resulted from plan-submitted diagnoses that were not supported by beneficiaries’ medical records.”
Medicare in the Crosshairs

The CBO Report will likely intensify cries to cut Medicare, Medicaid and Social Security – a long-standing goal of some policymakers. As noted by the New York Times, President Trump recently suggested that he “would be willing to consider cuts to social safety-net programs like Medicare to reduce the federal deficit if he wins a second term, an apparent shift from his 2016 campaign promise to protect funding for such entitlements.”[4]
As noted by the Washington Post, “[t]he CBO projection […] appears to cast doubt on recent statements by President Trump and other administration officials that the 2017 Republican tax cut is creating enough revenue through new economic growth that it will offset all near-term losses.”[5] In fact, it was clear during the debate leading to the passage of the 2017 tax cut bill that the resulting increase in the national deficit would inevitably lead to calls to cut Medicare, Medicaid and Social Security.[6]

Rather than indiscriminate cuts to the Medicare program that would inevitably harm beneficiaries, there are ways to reduce wasteful spending on private MA plans that would also serve to foster greater equity between traditional Medicare and Medicare Advantage. Reforming the way that MA plans are paid is an avenue that should be explored in any discussion of Medicare reform.

Health Affairs Blog Outlines Proposal to Level the Playing Field

In a recent Health Affairs Blog post entitled “Why Medicare Advantage Plans Are Being Overpaid By $200 Billion And What To Do About It", Dr. Richard Kronick outlines how to bring MA payment more in line with other providers by implementing a statutory formula for measuring coding intensity relating to risk adjusted payments.[7]

Current methods used to determine payment to MA plans employ a “coding intensity adjustment” used “to adjust for differences in patterns of diagnosis coding between MA and traditional Medicare.” Dr. Kronick notes that “under reasonable assumptions about the rate of growth of MA coding, CMS will overpay MA plans by $200 billion over the next decade if the coding intensity adjustment remains at 5.91 percent, its current level.”[8]

Dr. Kronick explains:

Why does this overpayment persist? The annual decision about the size of the coding intensity adjustment is made by political appointees at CMS, the Department of Health and Human Services, and the White House, and the political benefits from implementing a smaller than empirically justified coding intensity adjustment far outweigh the potential political gains from protecting the taxpayers and creating a stable and level playing field between MA and traditional Medicare. To fix this problem, Congress should remove discretion from CMS and specify in statute an even-handed method of computing coding intensity. A statutory formula for measuring coding intensity would bring MA payment more in line with payment for other providers, in which Congress, not CMS, decides how much providers will be paid.[9]

Dr. Kronick outlines suggestions regarding what such a statutory formula could look like, but cautions that “[o]f course, Congress, like CMS, is subject to political pressures that will make enacting such a formula difficult. But unlike CMS, Congress could use the $200 billion in avoided MA overpayments to fund other priorities, offering countervailing political incentives for legislators to save taxpayer money and level the playing field between MA and traditional Medicare by adopting a statutory measure of relative coding intensity.”[10]

Conclusion

Medicare Advantage payment rates for the coming year are released early in the prior year. As of this writing, the 2021 rates are imminent. Release of this information coincides with the annual ritual of the insurance industry rounding up support on Capitol Hill for the MA program and loudly protesting any reductions in MA payment rates. We expect to see yet another letter signed by hundreds of members of Congress saying, essentially, “don’t touch a dime of Medicare Advantage money.”

As discussed in the Center’s 2019 Alert regarding the proposed 2020 payment rates:

Despite coding practices that can inflate payment to MA plans, many policymakers continue to promote the MA program without regard to growing inequity between MA and traditional Medicare. For example, every year, CMS issues a draft Call Letter which includes proposed policy changes and payment rates for Part C Medicare Advantage and Part D plans for the following calendar year. Every year, the insurance industry gathers support in Congress to ensure that MA plans receive steady payment.

Dr. Kronick notes in his Health Affairs Blog that “[j]ust as CMS is reluctant to anger the MA industry and its enrollees, members of Congress will be reluctant as well.” Instead of continuing to cravenly favor Medicare Advantage regardless of cost, we urge policymakers to advance complete equity between MA and traditional Medicare. This includes benefits and programmatic spending – at the very least, there must be coverage and payment parity between traditional Medicare and the MA program. Otherwise, we may end up with a federal program that resembles “Medicare Advantage for All” rather than one that allows free choice of providers for the current majority of beneficiaries who want to remain in traditional Medicare.
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[1] CBO Report, p. 1.
[2] CBO Report, p. 2; also see pp. 16-17.
[3] CBO Report, pp. 70-71; emphasis added; footnote omitted.
[4]“Trump Opens Door to Cuts to Medicare and Other Entitlement Programs” by Alan Rappeport and Maggie Haberman, New York Times (Jan. 22, 2020), available at: https://www.nytimes.com/2020/01/22/us/politics/medicare-trump.html ; also see, e.g., Washington Post at: https://www.washingtonpost.com/business/2020/01/22/trump-appears-open-overhauling-social-security-medicare-break-2016-campaign/ and  Los Angeles Times https://www.latimes.com/business/story/2020-01-23/trump-social-security.
[5]“U.S. deficit to eclipse $1 trillion in 2020, CBO says, as fiscal imbalance continues to widen” by Jeff Stein, Washington Post (Jan. 28, 2020):  https://www.washingtonpost.com/business/2020/01/28/us-deficit-eclipse-1-trillion-2020-cbo-says-fiscal-imbalance-continues-widen/
[6] See, e.g., “More than 40 Organizations Join Together in Opposition to  Senate’s Tax Cuts & Jobs Act” joint press release by Center for Medicare Advocacy, Justice in Aging and Medicare Rights Center (Nov. 28, 2017), available at: https://www.medicareadvocacy.org/more-than-40-organizations-join-together-in-opposition-to-senates-tax-cuts-jobs-act/.
[7] “Why Medicare Advantage Plans Are Being Overpaid By $200 Billion And What To Do About It" Health Affairs Blog, January 29, 2020. DOI: 10.1377/hblog20200127.293799.
[8] Note: hyperlink to earlier study by Dr. Kronick in quoted text removed.
[9] Emphasis added.
[10] Emphasis added.