News & Commentary

MA Less Costly Than Traditional Medicare, But Is That Because of an Unfair Advantage?

Spending for health care per month per enrollee is 9% to 30% lower in Medicare Advantage (MA) than in traditional fee-for-service Medicare, according to Vilsa Curto of Harvard’s T.H. Chan School of Public Health and colleagues from MIT and Stanford University.

Their study, scheduled to be published in April 2019 in the American Economic Journal: Applied Economics, compares claims data from both programs. They look at MA plans operated by Aetna, Humana, and UnitedHealthcare in 2010. Together, the insurers cover almost 40% of MA enrollees. (The data were collected by the Health Care Cost Institute.)

MA plans bid against a benchmark determined by the government that’s based on how much it costs to care for fee-for-service beneficiaries in a county. But some experts argue that the benchmark doesn’t really have anything to do with how much plans cost. The study states that “the revenue of the MA plans we observe is 30% higher than the payments they make for their enrollees’ health care. If this applied to the entire MA population in 2010 (including those outside our sample), it would imply $21 billion in annual (2010) revenue for MA insurers in excess of their spending on health care claims.”

In a posting on the Health Affairs blog, Robert Coulam of Simmons University and Roger Feldman and Bryan Dowd, both of the University of Minnesota, argue that this and other studies underscore a need to allow MA and traditional fee-for-service Medicare to compete.

According to the three, fee-for-service Medicare should be part of a bidding process and its bid, along with MA bids, should set the benchmark. “Fee-for-service Medicare’s price would be compared to the prices of MA alternatives, giving beneficiaries a price signal they now lack in choosing between the two types of plans,” Coulam, Feldman, and Dowd argue. “In a competitive bidding system, if fee-for-service Medicare were more expensive in a given area, beneficiaries would have to pay an additional premium for the extra cost.”

The 9% to 30% range that Curto and colleagues find in their forthcoming study reflects what happens when researchers make certain adjustments.

Prices appear to be similar for both MA and traditional Medicare. To illustrate this point, Curto and colleagues said they compared the price of admission for a particular ailment at a particular hospital. In that instance, average prices in MA are 1.1% higher than in traditional Medicare.

MA beneficiaries discharged from a hospital are much more likely than beneficiaries who stick with traditional Medicare to be sent home rather than to an acute care facility, according to Curto and her colleagues. MA and traditional Medicare beneficiaries go to primary care physicians at about the same rate, but traditional beneficiaries see specialists at a much higher rate. All in all, the lower spending on health care in MA reflects lower utilization, they found. “Lower utilization in MA appears both for services where there are concerns about overuse, such as diagnostic testing and imaging, as well as for services where there are concerns about underuse, such as preventive care,” the study states. This all adds up to a “cautionary tale on the bluntness of policy instruments in the health care sector,” say the researchers.

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