Plans have experienced exponential growth, but researchers caution that the outdated payment policy has ramifications.
Medicare Advantage (MA) payment policy hasn't kept up with its rapid growth of 337% from 2006 to 2022, according to a study published in Health Affairs.
Researchers from the USC Schaeffer Center analyzed Medicare enrollment data over that time period and found MA added 22.2 million beneficiaries while enrollment in traditional Medicare declined by one million (-2.9%).
MA penetration increased from 16.9% in 2006 to 49.9% nationally in 2022, and 24% of Medicare beneficiaries with Parts A and B lived in a county with adjusted MA penetration equal to greater than 60%.
"The dramatic growth in MA penetration during the past two decades indicates that beneficiaries are reforming Medicare with their feet," the study stated. "Policy discussions about the future of the Medicare program would be well served by recognizing these trends and accounting for the dramatic shifts in the preferences exercised by Medicare beneficiaries in recent years."
With MA enrollment booming, the study highlights that the way plans are paid hasn't evolved to reflect the growth.
Payment to MA plans is based on the average cost per beneficiary in traditional Medicare in each county, but researchers ask what that will mean if only a minority of Medicare enrollees are in traditional Medicare.
"We know that MA plans are getting overpaid relative to the costs of providing care to comparable beneficiaries in traditional Medicare, and this has contributed to the magnitude of extra benefits offered to MA enrollees," study co-author Paul Ginsburg said in a press release. "While this is appealing to consumers, this is increasing federal spending and accelerating the rate at which the Medicare trust fund is being exhausted."
MA plans have come under scrutiny for receiving billions in overpayments, which they will likely have to pay back from 2018 onwards after CMS released its Risk Adjustment Data Validation final rule.
For policymakers wanting to balance the scales and adjust the payment to MA plans, the study suggests not tying payment policy to costs in traditional Medicare, but rather competitive-bidding benchmarks.
"We can't continue to think of Medicare Advantage as an appendage of the traditional Medicare program," Ginsburg said. "We are at a point where the tail is wagging the dog."
Jay Asser is an associate editor for HealthLeaders.
A study published in Health Affairs found Medicare Advantage plans added 22.2 million beneficiaries while traditional Medicare lost one million enrollees from 2006 to 2022.
As Medicare Advantage continues to grow, how plans are paid remains the same, with payment based on the average cost per beneficiary in traditional Medicare in each county.
This has financial consequences when only a minority of Medicare enrollees are in traditional Medicare.