Medicare beneficiaries have escaped the jaws of the wolf but are not out of the woods yet. On April 7, the Centers for Medicare and Medicare Services announced that seniors will be able to keep their Medicare Advantage plans. Launched two decades ago, Medicare Advantage plans give seniors the option of receiving their Medicare benefits from private plans, instead of from the government directly.
Legacy Medicare, launched in 1965, is a complicated bureaucratic program that combines three offerings: Part A for costs related to hospital inpatient stays, Part B for physicians, and Part D for prescription drugs. Separately, each part has design flaws. For example, Part A has no out-of-pocket maximum! To protect themselves from unlimited hospital costs, legacy Medicare beneficiaries have to pay an extra premium for a supplemental policy, called Medigap.
Medicare Advantage plans, which combine these parts, are now a mature market. Indeed, many new Medicare beneficiaries bypass legacy Medicare altogether. In 2022, 44% of newly eligible beneficiaries — 1.6 million people — enrolled directly into Medicare Advantage.
Medicare Advantage plans submit competitive bids against benchmarks, which are based on legacy Medicare’s costs. Competition is so fierce that plans always bid below the benchmarks. These low bids result in rebates from CMS, which plans must pass through to beneficiaries as lower premiums, lower cost sharing, or extra benefits not available in legacy Medicare.
The Biden administration tried to eliminate Medicare Advantage plans by establishing inadequate benchmarks. In January, less than two weeks before Biden’s term ended, CMS announced proposed rates for 2026 based on benchmarks increasing by 5.93%, significantly lower than the spending trend in legacy Medicare.
On April 7, the Trump administration finalized estimated rates based on benchmarks increasing by 9.04%, which was more in line with the actual growth in legacy Medicare spending. However, because of competitive bidding, CMS expects to increase payments to Medicare Advantage plans by just 5.06%.
The Biden administration’s attack on Medicare Advantage was largely driven by a flawed analysis published by the Medicare Payment Advisory Commission, which advises Congress on Medicare. In March 2024, MedPAC’s annual report to Congress asserted CMS pays Medicare Advantage plans 22% more than legacy Medicare would have spent on the same beneficiaries. Last month, MedPAC reasserted this conclusion, slightly reducing the so-called overpayment to 20%.
MedPAC believes Medicare Advantage plans game the system by enrolling beneficiaries who are healthier than others (“risk selection”), pretending those beneficiaries are sicker than they really are (“coding intensity”), benefitting from artificially high benchmarks in some counties, and receiving unjustified quality bonuses.
This conclusion is not supported by the facts. MedPAC itself cautions:
“Currently, the Commission does not quantify the extent to which favorable selection stems from plan behavior, beneficiary preferences, or other reasons, nor the extent to which higher MA coding intensity reflects documenting diagnoses more comprehensively than providers in FFS Medicare, the fraudulent submission of diagnostic data, or other reasons.”
A recent report by FTI Consulting clarifies where MedPAC’s analysis goes wrong. First, as Medicare Advantage displaces legacy Medicare, fewer Medicare beneficiaries were ever enrolled in legacy Medicare, so there is no way to tell what legacy Medicare would have spent on their care.
Second, MedPAC tracks costs for beneficiaries who switch from legacy Medicare to Medicare Advantage but does not (and cannot) fully understand why they switched. For example, a beneficiary who knows he will have a very expensive hospital procedure next year may choose a Medicare Advantage plan with a low out-of-pocket cap. His spending will go up significantly next year, but spending would have gone up if he had stayed in legacy Medicare just the same.
TRUMP MUST RESTORE MEDICARE ADVANTAGE
Finally, there are overwhelming structural challenges to estimating a precise cost difference when comparing a government-administered program to an alternative consisting of over five thousand offerings by private plans. These are made more complicated by factors such as Medicare Advantage plans that focus on enrolling very sick people (“Special Needs Plans”), legacy Medicare beneficiaries who are enrolled in Part A but not Part B, legacy Medicare beneficiaries who are also in Medicaid (“dual eligibles”), beneficiaries who have Medicare as a secondary payer, and beneficiaries who move during the year.
Rather than reiterating the same flawed report every year, MedPAC should go back to the drawing board and use better data for its analysis. And neither Congress nor the Administration should threaten seniors’ access to Medicare Advantage plans by relying on MedPAC’s faulty conclusion that Medicare Advantage plans are significantly overpaid.
Martin Hoyt is the Director for Public Health Reform Alliance, a nonpartisan organization committed to increasing transparency and oversight on the public health system, so it works better for all Americans.