Researchers Say Medicare Advantage Plans Need Better Incentives to Meet Future Demand

In a new Commonwealth Fund research report, researchers said Medicare Advantage plans will need enhanced incentives to make sure that high-quality care is provided at lower cost.

Enrollment in Medicare Advantage plans has increased more than 80% since 2009, and today, 33% of Medicare beneficiaries are in these private plans. Average plan premiums have fallen since 2010, and payments have decreased relative to traditional Medicare.

These risk-based private insurance plans (sometimes called Part C plans) began with goals of improving care quality, controlling spending, and providing additional benefits to beneficiaries than offered by traditional Medicare. Under a monthly, capitated sum, the plans assume liability for a beneficiary’s health expenses.

While some goals have been achieved, in many parts of the country, the plans are paid more than traditional Medicare would be expected to spend for the same beneficiaries.

Commonwealth researchers examined major policy changes to Medicare risk plans and the effects of these policies on plan participation, enrollment, average premiums and cost sharing, total costs to Medicare, and quality of care.

The report, called the Evolution of Private Plans in Medicare, traces these time periods and the policy developments that happened within those timeframes:

• 1966-1982: The first private plans used salaried physicians, paid on a reasonable-cost basis; the 1972 Social Security Amendments introduced risk-sharing contracts.
• 1982-1977: HMOs and capitation began; enrollment soared as additional benefits were added.
• 1997-2003: The Balanced Budget Act of 1997 led to lower enrollment and a drop of offerings.
• 2003-2010: The Medicare Modernization Act of 2003 led to a rise in spending and plan growth; drug benefits were added.
• 2010-2017: Affordable Care Act reforms created quality incentives.

With the Congressional Budget Office projecting that 41% of beneficiaries will be enrolled in Medicare Advantage by 2027, the report made these conclusions:

• Policymakers must stay true to original goals of lowering costs, improving quality of care, and providing consumer choice.
• Quality measures must be improved to ensure broader access to high-quality care. Medicare Advantage plans will not be sustainable if plans are paid more than traditional Medicare.
• Inefficiencies within traditional Medicare may not make it the best standard on which to base payments for Medicare Advantage plans.
• Realigning incentives in Medicare Advantage will not be an easy task, yet recent proposals to reform Medicare support increased roles for private plans.