An Emerging Consensus: Medicare Advantage Is Working
This article was originally published in Health Affairs.
Since enactment of the Affordable Care Act (ACA) in 2010, much of the attention in the policy community has been on modernizing Medicare’s traditional fee-for-service (FFS) program. Through Accountable Care Organizations (ACOs), larger “bundles” of payments to fee-for-service providers for episodes of care, and tests of pay-for-performance models, the hope is that the traditional Medicare model can be remade through sheer force of bureaucratic will. The stated intent is to find a way to pay for value, not volume.
These efforts may or may not bear much fruit, but, over the longer term, it’s not likely to matter much. That’s because a more important transformation of Medicare is already well underway and is occurring despite more resistance than assistance from the program’s bureaucracy. According to the 2014 Medicare Trustees’ report, enrollment in Medicare Advantage – the private plan option in Medicare — has been surging for a decade. In 2005 there were 5.8 million Medicare beneficiaries enrolled in MA plans — 13.6 percent of total enrollment in the program. Today, there are 16.2 million beneficiaries in MA plans, or 30 percent of program enrollment. (See Table IV.C1) In addition, the Medicare drug benefit, which constitutes about 12 percent of total program spending, is delivered entirely through private plans. (See Table II.B1)
As MA enrollment has surged, so has recognition of its improved value. A recent, comprehensive review of the evidence conducted by Joseph Newhouse and Thomas McGuire of Harvard University makes a compelling case that MA plans are providing higher value services at less societal cost than the traditional FFS program. Based on their findings, Newhouse and McGuire argue for policies that would provide incentives for even more beneficiaries to enroll in MA plans in the future.
The Newhouse-McGuire study is part of a notable transformation in views on the MA program. For many years, private plans were heavily criticized for costing too much while providing little additional value to beneficiaries. But those criticisms are now beginning to recede as the evidence mounts that MA plans can deliver more efficient and higher quality care than FFS. And as valid criticisms fade in relevance so too do the arguments against using MA as a foundation for a larger reform of the Medicare program.
The success of Medicare Advantage in recent years is changing the conversation on Medicare reform. It is now possible to envision genuine bipartisan support for fair competition between MA plans and FFS. The “premium support” concept still engenders highly politicized opposition in some quarters. But support for the idea has also begun to cross ideological divides. At various points, Senator Ron Wyden (D-Oregon), former Clinton administration budget director Alice Rivlin, and Austin Frakt of Boston University (and prolific defender of the ACA) have all embraced the idea. Unlike others, they support the idea that a truly level playing field for MA-FFS competition requires full FFS participation in the bidding process and transparent beneficiary choices based on the resulting premiums that must be charged for coverage.
Serious Medicare reformers on both sides of the political aisle also increasingly recognize that private plans are far more flexible than FFS, and that is a major advantage. They can adapt and improve their networks, their care management protocols, their customer support systems, and other features of their plans far more rapidly than can FFS. Moreover, in premium support, Medicare’s beneficiaries get to choose the kind of coverage that suits their needs. This is in stark contrast to other reforms, like ACOs, which attempt to place beneficiaries in new delivery models without their full consent.
Premium support is of course a complex reform. It requires risk adjustment of payments and regulation of plans to ensure fair competition. But the risk adjustment system and the regulation need not be perfect for the reform to work; indeed, the system already in place today for MA plans should provide sufficient confidence that a competitive reform model would be beneficial for the program’s participants.
The main obstacle to more intensive competition in Medicare has been distrust. MA advocates believe the bureaucracy will tilt the playing field toward FFS; and FFS defenders believe private plans will find new ways to risk select and game the system or to influence policymakers to provide them with overly generous terms on their payment rates. Only a more transparent competitive bidding system between MA and FFS has a chance of overcoming this mutual distrust and ensuring that both beneficiaries and taxpayers receive the most value for each Medicare dollar.
Tom Miller is a resident fellow at the American Enterprise Institute. James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.
This article is an excerpt from a longer essay published in Health Affairs.
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