From Disappointment to Predominance: Medicare Advantage's Ascendancy and Transformation of Medicare

Policy Points Since 2004, beneficiaries in government-administered traditional Medicare decreased by about 3 million (8%), whereas enrollment in Medicare Advantage (MA) plans run by private insurance companies increased by approximately 30 million (500%). MA's growth has exceeded the adequate evolution and refinement of the program's regulatory apparatus. MA now annually costs at least 20% (around $84 billion) more than what Medicare would have spent if all MA enrollees were in traditional Medicare (TM). This differential in payments has advantaged MA relative to TM and transformed the Medicare program in part by corporatizing it for tens of millions of beneficiaries. Most MA revenue now flows to large, increasingly vertically integrated, multinational, for-profit companies that are reshaping the US health care landscape for all patients, providers, and payers. Overpayments have strengthened the political position of the largest MA plan providers such that the program is at risk of interest group capture because of their powerful lobbying and political influence. Reforming MA should include the following: (a) ongoing improvements to the program's risk adjustment system and benchmark policy for rate setting, (b) replacing the quality bonus program with a value incentive program that is budget-neutral, and (c) standardizing MA plans into a small number of basic plan categories and having private health companies make competitive bids in each of them to compete on price instead of on benefit offerings. Savings from any MA payment reforms could shore up Medicare's Hospital Trust Fund or improve TM for a "Medicare 2.0" that competes on a more level playing field with MA.