Higher Medicare Advantage payments don't benefit consumers

Higher government payments to hospitals through the Medicare Advantage program don't trickle down to benefit consumers, according to a study from professors at the Wharton School at the University of Pennsylvania, Philadelphia.

“Given the many quality measures that we can look at, we don't find a ton of evidence that paying plans substantially more leads to much better quality,” Mark Duggan, professor of business economics and public policy at Wharton, said in an interview published by the school.

Duggan, along with Amanda Starc, assistant professor of healthcare management at Wharton, and Boris Vabson, a Wharton Ph.D. student, authored the research paper, “Who Benefits When the Government Pays More? Pass-through in the Medicare Advantage Program.” (PDF)

Of the 52 million people in the U.S. enrolled in Medicare, about 30% opt out of the traditional program in which the government pays a hospital or physician directly for care administered to a Medicare recipient. Instead, they participate in Medicare Advantage plans, wherein the government writes a monthly per-person check to a health insurer that coordinates and finances the recipient's care.

The researchers examined what happens when the government pays more to insurers under the Medicare Advantage program, as it does in certain higher-population areas. Counties grouped in metropolitan areas with populations greater than 250,000 generally receive about 10.5% more in Medicare reimbursement through the program than counties in metro areas where the population is below 250,000.

What they found initially was not unexpected, since more health insurers enter a market when the government pays more. That seems fairly intuitive. So too does the idea that as more insurers compete for Medicare Advantage participants, they begin to advertise more. And with increased advertising, more people subsequently enroll in the plans.

But, in examining a broad set of indicators—including the kind of deductibles and co-pays consumers have, the breadth of their provider networks, the ease with which they are able to see a physician and overall patient satisfaction—Duggan, Starc and Vabson did not find that better quality resulted.

“The question then naturally rises, 'Where does the money seem to go?'” Duggan said. “And in a final empirical analysis, we try to see how much of it ripples through to profits of health insurers. And we see that a quite significant share of it does.”

That's important to note, the researchers said, because of concerns that planned reductions in Medicare Advantage reimbursement under the Patient Protection and Affordable Care Act—which have now been delayed twice—would hurt consumers. And that is not at all what Duggan and his colleagues discovered.

“Our research suggests that when … policy makers are ready to implement some of those reimbursement cuts, that the impact for consumers may not be that negative,” Duggan said.

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