In Medicare Beneficiary Out-of-Pocket Costs: Are Medicare Advantage Plans a Better Deal? Brian Biles and Lauren Hersch Nicholas of George Washington University and the Fund's Stuart Guterman compared estimated out-of-pocket costs for 88 MA and Medigap F plans in 44 areas across the nation. They found costs for beneficiaries in good health lower in all 88 MA plans and, for those in fair health, all but two MA plans had lower costs than fee-for-service plans. But for beneficiaries in poor health, 19 of the 88 plans had higher out-of-pocket costs than they would have had in traditional Medicare with a Medigap supplement. The authors conclude that "the benefit packages offered by MA plans often result in substantial out-of-pocket costs for beneficiaries in poor health."
In the MA plan with the least financial protection, MA plan enrollees in poor health faced $7,522 in annual out-of-pocket costs, compared with $5,606 in traditional Medicare with a Medigap F plan, a difference of $1,916. In the MA plan with the best protection for enrollees in poor health, annual out-of-pocket costs were $1,359 in the MA plan compared with $5,984 in the traditional Medicare plus Medigap Plan F coverage.
As a result of policies enacted as part of the Medicare Modernization Act of 2003, Medicare paid MA plans an average of $800 extra per enrollee in 2005, to let MA plans improve their benefit package by lowering premiums and cost-sharing. The new study shows that, despite those richer benefits, many beneficiaries who are the highest users of health care services may still be at a disadvantage.
"These findings raise questions about what Medicare is achieving with extra payments to private Medicare Advantage plans, which totaled more than $2.7 billion in 2005 over fee-for-service costs," said Fund President Karen Davis. "While the payments were designed to help improve benefit packages, the most vulnerable enrollees in MA plans are facing high cost burdens for their health care, leaving them at risk for not getting needed health care services. The extra payments provided to MA plans could be better targeted to protect the sickest beneficiaries."
The authors offer several ways to address the current situation:
The authors note that "if Medicare were to offer a true alternative to private coverage--such as a more comprehensive fee-for-service option--market forces could be expected to work more effectively, and beneficiaries could choose between comparable alternatives on an equal footing."
The findings of the new report are being discussed at a Fund-sponsored Alliance for Health Reform briefing today at noon in Washington D.C.
The Commonwealth Fund is a private foundation supporting independent research on health and social issues.