Medicare has become more of a private marketplace — and it's costly
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Medicare's open enrollment will kick off in two months, leading to the health insurance industry's annual marketing blitz that entices seniors with Medicare Advantage plans that tout capped out-of-pocket costs, vision and dental benefits, and fitness classes.
Why it matters: Medicare Advantage continued to grow during the pandemic, and it's increasingly likely a majority of all Medicare enrollees will be in private plans in a few years despite Medicare Advantage's deep, longstanding problems.
By the numbers: 26.2 million, or 41% of all Medicare beneficiaries, were enrolled in a MA plan as of Jan. 1. That's more than double the 12.4 million MA enrollees, or 25% of all enrollees, from a decade ago.
- Medicare trustees estimate MA enrollment will hit 31 million in 2026, and that's a conservative projection. The Congressional Budget Office predicts MA enrollment will surpass 37 million in 2026, which would equal half of all Medicare enrollees.
- More individuals are picking MA plans when they turn 65, and more employers are shifting their retirees to MA plans (sometimes unknown to the retirees).
"This is a fundamental change in the architecture of Medicare, and it's probably not what people think about when they think about the Medicare program," said Tricia Neuman, a Medicare expert at the Kaiser Family Foundation. "Medicare is evolving into a program that looks more like a marketplace of private plans with a public plan as a backup option."
A growing concern: The federal government paid almost $350 billion to MA insurers for this year, a 10% increase from 2020. Every year since 2015, annual spending growth on MA plans has outpaced annual enrollment growth.
- MA plans coordinate care for people within a more narrow network of doctors and hospitals, but promises of saving taxpayer dollars have not panned out.
- "No iteration of private plan contracting has yielded net aggregate savings for the Medicare program," the Medicare Payment Advisory Commission said in its June report.
Between the lines: Spending on MA is rising quickly in large part due to several policies, but the most notable is "risk adjustment."
- Numerous auditors, watchdogs and researchers have found insurers are overcharging the government by exaggerating how sick their members are, and now one of the nation's leading MA plans, Kaiser Permanente, is facing its own risk adjustment scandal.
- But unlike risk adjustment in the Affordable Care Act marketplaces, MA insurers get potentially unlimited funds to code as many diagnoses as possible. The risk adjustment unit for one dominant MA insurer has been known as "the office of profit planning," according to an industry source.
- "It's like Pooh Bear sticking his paw in the honey pot," said one Medicare Advantage expert. "The honey pot is bottomless. [MA] risk adjustment always goes up."
- The giant pot of taxpayer funding is a big reason why venture capitalists have backed new insurers like Alignment Healthcare, Bright Health, Clover Health, Devoted Health and Oscar Health and why hospitals have owned MA plans.
The bottom line: Medicare Advantage is consuming more membership and more of the Medicare trust fund, but many enrollees are not sticking with their plans until the end.
- MA enrollees who are in their last year of life ditch their plans for traditional Medicare "at more than twice the rate of all other MA beneficiaries," the Government Accountability Office said in a June report.
- Why? As those people get sicker, they need more care, and their plans' networks limit access to the doctors, hospitals, nursing homes and hospice care they want.
