Medicare Advantage Fees Explained
[I]n many counties, private plans bid an amount lower than the amount Medicare FFS (fee for service) needs to offer Part A and Part B coverage. Taken as an enrollment-weighted whole, Medicare Advantage plans bid at 98%, just a shade below Medicare FFS. Private HMOs bid at 95%, which makes for a more substantial savings. Other private alternatives, like private fee-for-service, fare poorly relative to Medicare FFS. But of course that makes perfect sense. One can easily imagine, as Austin Frakt has suggested in the past, an equilibrium in which traditional Medicare FFS is the lowest-cost provider in rural counties, in which there is a relatively small number of medical providers with a great deal of leverage. In denser urban markets, with more competition among providers, private HMOs can out-compete traditional Medicare FFS by building more efficient provider networks.
Full Reihan Salam piece in NRO worth reading.
I imagine Medicare Advantage plans are like any other goods and service. Prices are better in some areas than others. In the rural country where I grew up, doctors, dentists, physical therapists and other medical personnel find they can make more money (and have a better quality of life) in larger, metropolitan areas. As a result, the county has to provide generous subsidies to entice providers to be willing to practice there.
Makes sense for now.
The bottom line is that Medicare Advantage standards and disbursements to the plans differ substantually in different counties around the country, and making modifications to them is no simple matter.
Peter Orszag has an interesting follow-up on this topic. I suspect most of you won’t agree with his overarching point (especially with the title), but you should probably read it anyway. He discusses how some (if not all) of the savings created by Medicare Advantage plans may be due to selection of patients who likely to cost them less (compared to the risk-adjusted reimbursement).
http://www.bloomberg.com/news/2012-08-20/private-market-tooth-fairy-can-t-cut-medicare-cost.html
That explains it.
It makes sense, but Quality health care is different from a expensive cheeseburgar.