12/23/2024

Switching From Medicare Advantage To Traditional Medicare: Increased Spending

Guest Article: Jeffrey S. Baird, Esq. and Laura Williard

The following article was published in 'Medtrade Monday' on 12/16/2024:

Medicare Advantage (MA) has become an important (and permanent) part of DME suppliers’ lives. Approximately 54% of Medicare beneficiaries are covered by Medicare Advantage Plans (MAPs) and this percentage is expected to increase. With approximately 78 million Baby Boomers living well into their 80s, and with a similar number of Millennials following close behind the Boomers, the strain on the Medicare program will continue to grow.

The challenge to the Medicare program is to provide adequate health care services…while also controlling costs. MAPs came into existence several decades ago. The selling point to Congress to pass legislation creating MAPs was that MA would be less expensive than traditional Medicare. Unfortunately, the facts indicate the opposite.

An interesting twist on the cost savings argument is a recent Kaiser Family Foundation (“KFF”) report that points out that Medicare spends more on Medicare beneficiaries after they switch from MA to traditional Medicare…than on similarly stated beneficiaries who started out with traditional Medicare and continuously remained with traditional Medicare.

This raises a number of questions, one of which is whether the beneficiaries (while with a MAP) received inadequate care…at least as compared to beneficiaries who are covered by traditional Medicare.

The KFF report states, in part:

More than half (54%) of eligible Medicare beneficiaries are enrolled in a private Medicare Advantage plan in 2024. People are drawn to Medicare Advantage because most plans offer extra benefits and lower cost sharing compared to traditional Medicare without supplemental insurance, usually for no additional premium (other than the Part B premium). Medicare Advantage is also popular among lawmakers in Congress, both Republicans and Democrats, as well as President-elect Trump, whose previous administration generally supported policies that provided increased flexibilities to insurers when designing and administering these private plans.

Though Medicare Advantage is a popular choice for Medicare beneficiaries, there is some evidence that people who use relatively more health care services are less likely to choose a private plan and more likely to choose traditional Medicare. Previous analyses from KFF and the Medicare Payment Advisory Commission (MedPAC) found that people who enroll in Medicare Advantage have lower Medicare spending in the years before they enroll than similar people who remain in traditional Medicare, even after controlling for health status. This pattern may be partly attributable to concerns about the tools Medicare Advantage plans typically use to manage utilization and costs, such as prior authorization requirements and provider network restrictions.

This analysis looks at traditional Medicare spending among people who choose to disenroll from Medicare Advantage and obtain coverage under traditional Medicare during the annual Medicare open enrollment period. It compares their traditional Medicare spending (Parts A and B) in the year following disenrollment to similar people who were continuously covered by traditional Medicare …

Key Takeaways

• Medicare spent 27% more, on average, for people who were covered by traditional Medicare after disenrolling from Medicare Advantage than for people who were continuously covered by traditional Medicare, after adjusting for differences in health status and other characteristics. This is a difference of $2,585 in Medicare spending per person, on average, between the two groups in 2022.
• Differences in Medicare spending between people who disenrolled from Medicare Advantage and beneficiaries continuously in traditional Medicare varied by health condition, ranging from 15% for people with pneumonia to 34% for people with diabetes. For example, among people with certain cancers, Medicare spending was 28% ($4,907) higher, on average, among those who disenrolled from Medicare Advantage than among people continuously covered by traditional Medicare.
• Differences in Medicare spending between people who disenrolled from Medicare Advantage and those continuously in traditional Medicare increased with age for Medicare beneficiaries ages 65 and over. For example, among people ages 85 and over the difference was 46% ($7,113) compared to 25% among people ages 65 to 69 ($1,843).
• Differences in Medicare spending between people who disenrolled from Medicare Advantage and beneficiaries continuously in traditional Medicare were larger among Black (55%, $5,203) and Hispanic (54%, $4,434) beneficiaries than White beneficiaries (25%, $2,464).
• People dually-eligible for Medicare and full Medicaid benefits who disenrolled from Medicare Advantage had spending that was 61% ($9,435) higher than their counterparts who were continuously in traditional Medicare, while the difference in spending for Medicare beneficiaries who do not receive Medicaid was 20% ($1,684).
• Skilled nursing facility spending accounted for the largest share of the difference in average Medicare spending per person between people who disenrolled from Medicare Advantage and those continuously in traditional Medicare (34%), followed by outpatient hospital spending (23%), and inpatient hospital spending (20%), with some variation by chronic conditions and other beneficiary characteristics.

The substantially higher Medicare spending among people who disenrolled from Medicare Advantage, on average, compared to similar people who were continuously covered by traditional Medicare raises several questions. First, why are some Medicare Advantage enrollees choosing to disenroll from Medicare Advantage rather than get the medical care they need from their plan, and why are they receiving more medical care in the year following disenrollment than similar people who have been continuously covered by traditional Medicare?

Second, given how challenging it can be for people with pre-existing conditions to purchase Medicare supplemental insurance (Medigap) if they switch to traditional Medicare, and concerns about potentially high out-of-pocket costs under traditional Medicare without supplemental coverage, what share of Medicare Advantage enrollees would want to switch to traditional Medicare, but feel they cannot afford to do so?

Third, does the current payment system adequately account for adverse selection into traditional Medicare, which leads to higher Medicare Advantage benchmarks and higher payments to Medicare Advantage plans? Additionally, to what extent does the pattern of higher utilization and spending among people who disenroll from Medicare Advantage, reduce the costs incurred by insurers, increasing their profits and contributing to their ability to offer supplemental benefits? Finally, how does higher Medicare spending among people who disenroll from Medicare Advantage impact Medicare spending, and to what extent does it place added strain on the Medicare Hospital Insurance Trust Fund and increase beneficiary premiums?

The “middleman business model” naturally leads to abuse. We see this in the pharmacy space with PBMs…and we see this in the non-pharmacy space with MAPs.

• In the pharmacy space, the payor pays the PBM (the middleman). The PBM, in turn, pays the pharmacy…and the PBM pockets the spread. It is human nature for the PBM to increase its spread by (i) obtaining increased payments from payors and (ii) reducing payments to pharmacies.
• The same phenomenon occurs with MAPs. The MAP will be paid by the Medicare program (usually on a per patient/per month basis). In turn, the MAP will pay the hospital/physician/DME supplier…and will pocket the spread. As with PBMs, the MAPs are motivated to (i) obtain increased payments from Medicare and (ii) reduce payments to providers.

As previously noted, the KFF study raises several important questions, one of which is this:

• Smith is a 72 year old Medicare beneficiary. He has continuously been with traditional Medicare since he turned 65.
• Jones is also a 72 year old Medicare beneficiary. He was with a MAP until he turned 70 and then he switched to traditional Medicare.
• Smith’s and Mr. Jones’ health conditions are roughly the same.
• For the last two years, traditional Medicare has spent noticeably more on Mr. Jones than MA has spent on Mr. Smith. Why is this? Does this indicate that the MAP is more restrictive than traditional Medicare regarding payment for health care services? And does this indicate that Mr. Jones is receiving the type of health care services from traditional Medicare that his counterpart, Mr. Smith, is not receiving from MA?

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Jeffrey S. Baird, Esq., is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or jbaird@bf-law.com.

Laura Williard is the vice president of Payer Relations for the American Association for Homecare. In this role, she has formed relationships with national payers including Anthem, TRICARE, the Defense Health Agency, AIM Sleep Management, and CareCentrix, to have a greater impact on policy and operational changes for HME providers. Williard has served in the HME community since 1999 and has extensive experience working with managed care, Medicare Advantage, Medicaid MCOs, and state Medicaid programs.