Medicare Advantage overpayments are projected to exceed $75 billion in 2023, more than double the previous estimate. The favorable selection of Medicare Advantage plans and the reliance on fee-for-service spending for payment rates contribute to significant overpayments. Efforts to reform the system include reducing aggressive coding, improving data reporting, and exploring competitive bidding approaches. Addressing the financial implications and securing the Medicare Trust Fund’s solvency is crucial in achieving a more efficient and sustainable Medicare system.
According to the USC Schaeffer Center for Health Policy & Economics, the projected overpayments for Medicare Advantage in 2023 could exceed $75 billion, more than double the estimate of $27 billion previously predicted by the Medicare Payment Advisory Commission (MedPAC).
The overpayments are attributed to the favorable selection of Medicare Advantage plans, whereby payment rates are primarily determined based on Medicare fee-for-service spending. This often leads to significant overpayments to Medicare Advantage plans.
MedPAC’s estimate of $27 billion in overpayments for 2023 takes into account aggressive coding of beneficiary health conditions and easily attained bonus payments for quality. However, this estimate does not consider the substantial number of beneficiaries who have transitioned from traditional Medicare to Medicare Advantage.
Data from USC researchers indicates that Medicare beneficiaries who have switched to Medicare Advantage plans have lower healthcare spending compared to those with similar health risks who have not made the switch. In 2019, out of the 29 million fee-for-service (FFS) beneficiaries, 1.7 million moved to a Medicare Advantage plan. Adjusting for risk scores, the average spending for all FFS beneficiaries was $11,439. For those who switched to Medicare Advantage, spending was $9,094, while for those who remained with traditional Medicare, it was $11,589.
Furthermore, nearly 47% of Medicare Advantage beneficiaries in 2020 had switched from traditional Medicare between 2006 and 2019. Approximately 30% of these beneficiaries made the switch from 2015 to 2019 alone, resulting in Medicare Advantage plan payments that were twice their expected expenditures.
This ongoing favorable selection of Medicare Advantage plans significantly exceeds MedPAC’s overpayment estimates. USC projects that Medicare Advantage overpayments will surpass $75 billion, accounting for 20% of total payments.
Steven Lieberman, a nonresident senior fellow at the USC Schaeffer Center, emphasized the financial implications of this skewed distribution of expenditures and the persistent trend of beneficiaries with below-average spending opting for Medicare Advantage plans. He stressed the need for reform options that improve the relationship between FFS expenditures and Medicare Advantage payments. Lieberman also suggested delinking Medicare Advantage payments from FFS as the current rate-setting system becomes increasingly unreliable and problematic.
Possible reforms to address the issue include measures to reduce the impact of aggressive codings, such as eliminating irrelevant codes. Additionally, implementing new data reporting requirements for Medicare Advantage plans could improve the accuracy and comparability of the data with traditional Medicare claims.
Alternatively, policymakers could consider adopting a competitive bidding approach. This could involve setting Medicare Advantage and FFS premiums based on bids, with the FFS bid reflecting risk-score-adjusted expenditures. However, it is worth noting that this approach may disrupt the FFS system.
Another bidding method could restrict competitive bidding for Medicare Advantage payment rates, allowing market forces to determine payments. This would enable taxpayers to benefit from the efficiency of Medicare Advantage plans instead of excessive plan profits.
Paul Ginsburg, a senior fellow at the USC Schaeffer Center and professor of the practice at the USC Price School of Public Policy, emphasized the importance of addressing the fiscal solvency of the Medicare Trust Fund and its impact on federal budget deficits, regardless of the chosen approach.
Overall, the significant overpayments in Medicare Advantage underscore the need for reform to ensure the financial stability of the Medicare system and optimize its effectiveness in providing quality care to beneficiaries.
