What Happens When Medicare Overpays Medicare Advantage Plans?
The Medicare Payment Advisory Commission (MedPAC) figures that Medicare Advantage plans cost 6 percent more than if beneficiaries had been in fee-for-service Medicare. New research concludes that beneficiaries only get a small fraction of these increased payments in benefits. According to Scott Duggan and colleagues:
…[O]nly about one-fifth of the additional reimbursement is passed through to consumers in the form of better coverage. A somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures. Our results have implications for a key feature of the Affordable Care Act that will reduce reimbursement to MA plans by $156 billion from 2013 to 2022.
This finding would be disturbing if there were any substance to it. Unfortunately the authors have put out one of the most misleading and error-filled descriptions of public Part C Medicare Advantage program I’ve ever seen. There are four errors alone in the first sentence describing Part C.
More substantively, I see no mention of annual out of pocket (OOP) caps, which is THE most important feature of public Part C health plans (it’s the reason one buys insurance after all and a feature not usually available if a beneficiary chooses Original Medicare and a private supplement). It also never compares public Part C to private supplements and employee retiree insurance, which would be the only way you could draw the conclusions drawn. The research also does not seem to ever mention the costs in the various geographic areas studied (so how could the authors conclude that beneficiaries were not getting the value).
The “suggestive evidence” (academic gobbledygook for “a guess,” I think) concerning advertising does not seem to recognize how advertising works.
ah yes, Academic Gobbledygook
Yet many are going to take their “suggested evidence” and apply it to real life
What I understand from this is that the government is giving higher subsidies to the insurance companies for the Medicaid Advantage program but the additional money is going to the coffers of the insurance companies instead than to benefit the consumers. This is one of the reasons why people talk about hidden interests behind the reforms.
Probably true. People, however, usually cannot see and confirm that.
This law is full of special interests!
How will this end up affecting the overall costs though
Duggan, Starc and Vabson mention that these increases in subsidies have helped the financials of the insurance companies. This is something that has been commented on this blog previously. (http://healthblog.ncpathinktank.org/medicare-advantage-cuts-dont-bite-health-insurers-stocks-rally/) As I commented before, the increase in the stock prices were abnormal for a period of uncertainty, it seems that now we know why the stocks have rallied. The government is inflating their books.
The only thing the government was doing right and they proved that was false too
“New research concludes that beneficiaries only get a small fraction of these increased payments in benefits.” That is what we call “marginal effect” in economics. The relationship between inputs and outputs are not linear.
I think that you are not getting what is being said. Consumers are getting less for paying more. This would make sense if the earnings of the insurance companies are not increasing as a result. It is not that they are receiving less because nothing else can be afford with that increase, in accordance with diminishing marginal returns, what is happening is that instead of passing the subsidies to the consumer, the insurance companies are keeping it.
I think Steven gets in the right way. So pay more, get less? Sounds unfair…
The new American way!
“[O]nly about one-fifth of the additional reimbursement is passed through to consumers in the form of better coverage.”
So worse coverage. Awesome.
That’s all ObamaCare is