Medicare spending lower among seniors who switch to Medicare Advantage

The health insurance industry often attributes lower spending among Medicare Advantage seniors compared with those in traditional Medicare to care-management strategies. But a study published Monday turns that claim on its head.

Researchers at the Kaiser Family Foundation found that traditional Medicare beneficiaries who opt to enroll in a Medicare Advantage plan offered by a private health insurer have lower average spending and use fewer services—before they ever switch to Medicare Advantage—than their counterparts who stay in traditional Medicare. The findings raise questions about how much Advantage plans actually lower spending.

Moreover, the results suggest that the CMS, which uses traditional Medicare spending to calculate Advantage payments, overpays Medicare Advantage plans to the tune of billions of dollars each year, the researchers concluded. A little more than a third of Medicare's 60 million enrollees are in an Advantage plan. The CMS paid Medicare Advantage insurers about $233 billion in 2018, a figure expected to grow as more seniors choose Advantage plans.

"Medicare Advantage plans are perhaps getting paid more than the actual expected costs of their enrollees," said Gretchen Jacobson, a Kaiser Family Foundation associate director who co-authored the study.

Researchers looked at average Medicare Part A and B spending among people who were enrolled in traditional Medicare in 2015. Those enrollees who switched to a Medicare Advantage plan in 2016 spent $1,253 less in 2015 on average than beneficiaries who did not switch, after controlling for health risks.

That trend was evident no matter how researchers sliced the data. The difference in spending was present for all age groups and both genders. Medicare spending for dual-eligible patients who enrolled in Medicare Advantage plans in 2016 was also lower in 2015 than spending on dual-eligibles who stayed in traditional Medicare.

Researchers also found that the trend held steady among seniors with the same chronic health conditions. Traditional Medicare enrollees with diabetes in 2015 who opted for an Advantage plan the next year had Medicare spending that was $1,072 lower in 2015 than similar seniors with diabetes who stayed put.

Moreover, the difference in spending increased with the number of chronic conditions a patient had. Seniors with 10 or more chronic conditions who enrolled in Medicare Advantage in 2016 spent $2,773 less in 2015 on average than seniors with the same number of chronic conditions who remained in traditional Medicare. Meanwhile, seniors with just one chronic condition who enrolled in an Advantage plan in 2016 had Medicare spending that was $512 less in 2015 than similar beneficiaries who did not switch.

While spending was lower among Medicare Advantage switchers on average, spending varied widely across U.S. counties. In some places, seniors who switched to Medicare Advantage actually had higher spending in traditional Medicare in 2015 than seniors who did not switch.

Jacobson, who was surprised by the findings, explained that the features of Medicare Advantage plans, such as provider networks and utilization management, like prior authorization, may be more attractive to people who aren't big users of healthcare services. Seniors who use more healthcare services may be less open to care management and provider networks.

The study noted that it's unclear if the differences in spending would persist as seniors age or as the share of counties with the majority of seniors in Medicare Advantage plans grows. But if the differences in spending hold up, potential overpayments could reach billions. In one year alone, the average difference in Medicare spending in 2016 applied to just 10% of Medicare Advantage enrollees would amount to more than $2 billion in excess spending, researchers wrote.