Mean old Washington is out to get granny again – or at least that’s the impression created by ad campaigns on TV and the Internet, in which seniors warn, in heart-rending terms, of impending “cuts” to the Medicare Advantage program. What’s really going on is pretty routine – though, as is often the case in Washington, routine is not quite the same thing as sensible.
Medicare Advantage is a $150-billion-a-year federal program that pays insurance companies to enroll elderly and disabled clients in managed-care plans – unlike traditional Medicare, which reimburses providers on a fee-for-service basis. About 17 million people participated in the program in 2015, 31 percent of those who were eligible for Medicare. Intended as a more efficient alternative, Medicare Advantage has always been controversial, plagued by various forms of system-gaming and perverse incentives. Democrats are especially critical of its per-capita costs, which are higher than those of traditional Medicare. Yet it remains popular because many seniors prefer its all-in-one benefit packages to traditional Medicare’s fragmented “parts.” The Affordable Care Act squeezed Medicare Advantage’s federal funding – but enrollment, contrary to expectations, kept growing.
Each year at this time, the Department of Health and Human Services announces how much it will pay insurance companies for serving Medicare Advantage patients in the next year, and each year the insurance companies complain it’s not enough. To amplify their position, they support “citizens’ groups,” take to the airwaves and elicit letters of outrage from members of Congress, with the ultimate aim of influencing HHS’s final rule, due this year by April 4.
The hot issue this year is the arcane one of “risk adjustment.” Basically, HHS subsidizes these plans partly based on how many chronic conditions their clientele has; the sicker the population, the bigger the subsidy. This gives insurers an incentive to diagnose more conditions but not necessarily to treat them; in recent years, some companies have deliberately driven up the “risk profile” of their clients, increasing costs to taxpayers with debatable health benefits, if any, for patients. In 2014, the “risk scores” of Medicare Advantage patients rose 9 percent faster, on average, than in traditional Medicare for comparable beneficiaries, according to the Medicare Payment Advisory Commission, or MedPAC.
In February, HHS unveiled a new, and, it says, more accurate risk adjustment formula, and other tweaks, the total impact of which would be to increase Medicare Advantage funding by just under 1 percent. Health insurers dispute that, arguing that there would be an overall cut. Notably, HHS could have gone much further: Its proposal reflected only the minimum risk adjustment savings required by the Affordable Care Act, and it didn’t decide that patients’ risk scores cannot be raised unless they’re later confirmed in treatment settings, as some policy experts, including MedPAC, have recommended.
If the experience of recent years is any guide, the government will finally settle on a new funding figure that is somewhat more to the industry’s liking, and the kerfuffle will go away for another year. Taxpayers might wonder, however, whether this annual Beltway ritual is really the most efficient or transparent way to allocate billions of their dollars – or what would happen if we could put the same energy and resources behind a structural reform of Medicare and other entitlements.