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MedPAC Reports Medicare Advantage Costs 6% More Than Traditional Medicare

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A recent analysis by the Medicare Payment Advisory Commission (MedPAC), an independent federal advisory body, finds that Medicare spends about 6% more on individuals enrolled in Medicare Advantage (MA) plans compared to those in traditional Medicare (Original Medicare). This represents a $27 billion higher expenditure for the 32 million Medicare Advantage enrollees as of 2023. The higher payments to MA plans have steadily increased since 2017, reaching two percentage points higher than the 2022 estimate. This increase in spending has implications not only for the Medicare program's finances but also for all beneficiaries, as higher Medicare spending leads to increased Medicare Part B premiums for all enrollees. Medicare Part B covers physician services, outpatient care, some home health, and preventive services. Although the elevated payments allow MA insurers to offer additional benefits like dental, vision, transportation, and limited meal services, these are generally not accessible to those enrolled in traditional Medicare without purchasing extra coverage. The drivers behind the higher payments to Medicare Advantage plans include incentives embedded in the payment system, plan bids, and the risk adjustment methodology. Enrollment in Medicare Advantage has expanded rapidly, from less than 12 million enrollees in 2009 to 32 million in 2023, comprising nearly 48% of all Medicare participants. Projections suggest this growth will continue, with Medicare Advantage expected to surpass traditional Medicare enrollment by 2027. Given the growing prominence and higher costs associated with Medicare Advantage, the report urges policymakers to reform the MA payment system to improve cost efficiency while protecting the needs of Medicare beneficiaries. Any payment reforms should carefully consider beneficiary impact and aim to prevent adverse effects on vulnerable populations while sustaining a strong Medicare program for all current and future enrollees.