“short of comprehensive reform by Congress, CMS may find it challenging to build value in Medicare over this decade if TM’s [traditional Medicare] scaffolding erodes [due to the rise of Medicare Advantage (MA)]. Much can be done under CMS’s existing authorities to promote efficiency and equity, but, under Medicare’s present configuration, that requires preservation of TM. Without substantive legislative reform on the horizon, regulatory policy will thus need to keep the long view in mind, lest several years of inertia set in motion an unalterable course to a lesser outcome. [..]
MA has been clearly successful in managing utilization more tightly than TM, as rigorous studies that account for non-random sorting of beneficiaries into MA have shown. Plans limit utilization via provider network restrictions, direct utilization review such as prior authorization, and strategic cost-sharing; changes in utilization due to redesigns of care delivery are less clear. MA has also been successful in sidestepping the need for legislation to expand benefits, and this has disproportionately benefited historically marginalized groups as the proportion of these groups in MA has grown, thereby advancing equity. However, the substantial subsidies MA receives are largely responsible for the extra benefits and have more than offset savings from any efficiencies, posing a net cost to Medicare and complicating assessments of MA’s added value. [..]
Such a valuation [that MA’s benefits exceed its costs], however, is very challenging for at least four reasons. First, evidence on the impact of MA on quality of care and health outcomes is less clear than its impact on utilization; much of the evidence is subject to selection bias. Second, the average value of the additional benefits may differ greatly from the incremental value. Rebates, the portion of the plan payment that is intended to finance extra benefits (equal to 50-70 percent of the difference between a plan’s bid and its benchmark), have grown rapidly as subsidies have grown. Over time, the rebate dollars allocated to directly measurable premium and cost-sharing reductions have plateaued, raising concerns that an increasing share of the rebate is retained by plans—e.g., allocated to supplemental benefits that count actuarially toward the rebate but may go unused by enrollees.
Third, the total size of the subsidies is unclear because of methodological challenges in estimating differences in coding intensity between MA and TM net of true differences in risk. MedPAC estimates this differential to be 3 percentage points greater than the 5.9 percent coding adjustment, whereas Kronick et al. estimate a much greater difference (~14 percentage points). Fourth, possible spillovers of MA onto FFS spending further complicate the calculus. In assessing MA’s relative costs, ideally we could compare MA payments to what FFS spending would be in the absence of MA rather than to observed FFS spending.
A virtue of neutral payments (an “even playing field”) would be that we could more directly judge the comparative advantage of MA based on enrollment (its relative attractiveness as revealed by beneficiary choices) at an equal—or lower—level of payment. But we do not have that luxury at present. At the very least, MA seems to have offered an option preferred by beneficiaries who are willing to accept some limitations on provider choice and utilization in favor of lower out-of-pocket costs—a mechanism for converting efficiencies into enrollee benefits, to some extent. But it also seems clear that recent growth in subsidies from coding intensity, and any further subsidy growth, could be put to better use. [..]
No matter what you think about MA’s success, its trajectory under current payment policy should give you pause for at least three reasons.
First, we cannot afford 8 percent annual spending growth in Medicare. If the Part A Trust Fund reserves constitute a true budget constraint, MA payments will need to be cut to avoid a 9 percent benefit reduction upon the Trust Fund’s depletion in 2026. Although Congress may act to replenish the Trust Fund through a limited appropriation to continue support of 100 percent of scheduled benefits, permitting health care spending growth to exceed GDP growth has consequences. As Skinner et al. recently reminded us, devoting an increasing share of GDP to health care means that we have less to spend on other things, some of which may be more important to health than health care. The impact is insidious but unmistakable and inequitable, for example eliminating an entire decade of wage growth.
MA subsidies may be disproportionately distributed to historically marginalized groups. But unless the subsidies are financed by a new tax on the rich, continuing them as MA grows will necessitate other inequitable actions—whether drawing down benefits for future beneficiaries, increasing regressive FICA (Social Security and Medicare) taxes, or reducing public spending on important social services such as housing and education. Efficiency in health care is critical for equity. Ideally, Medicare could lead the way by indexing its spending growth to GDP growth and encouraging more efficient and equitable use of the (already substantial) resources allocated.
Second, to the extent we care about evidence-based health policy, we should prefer a horse race that isn’t rigged. It may be the case that a MA-for-all restructuring of Medicare is sound policy, but ideally MA could be put to the test against a legitimate competitor and without a head start. One concern about MA is that insurer intermediaries add administrative costs. Another is that MA may not be as well-suited to transforming care delivery as population-based payment models in which Medicare contracts directly with providers (thereby ensuring integration of payment and delivery). Financial risk and the accompanying flexibilities may not be transmitted to providers as well through insurers, in part because successful risk-contracting with providers by one insurer may spill over to benefit its competitors (a free rider problem). More generally, MA arguably exacerbates the multi-payer problem in provider payment reform.
Third, and most elementary, today’s Medicare is not structured to support a dominant MA program. By statute, MA is entirely dependent on TM for establishing its payment rates. As MA grows, local FFS spending will no longer provide a reliable external benchmark. This is not a distant problem but an impending one. Already, some large urban counties are nearing or eclipsing 70 percent MA enrollment. While the ensuing selection pattern is hard to predict, it stands to reason that residual holdouts in TM will be those with higher demand for unrestricted provider networks and higher incomes, and thus higher utilization—and that those with lower demand who currently forgo supplemental insurance will increasingly take up zero-dollar-premium MA plans. If so, MA benchmarks could rise further above enrollee costs, acting to accelerate MA growth.
[..] the Medigap market could destabilize, if not collapse, in high-MA states. Several of the major insurers in the Medigap market are also major insurers in MA, which might hasten Medigap premium increases as other insurers exit in response to a shrinking TM. Not only would this accelerate MA growth, but it would also greatly weaken TM as a competitor, as TM benefits without Medigap are limited.
Generally, there are two legislative paths. The first would strengthen TM by updating the benefits package and restructure MA to eliminate subsidies; establish a basis for setting and controlling MA payments when MA grows beyond some threshold in a region (e.g., indexing them to GDP growth); and ensure competition in such regions. MA benchmarks would not necessarily fall substantially under this option, as TM spending would rise as a consequence of the additional benefits.
How such a leveling up of TM would be scored is an interesting question; the answer would depend on estimates of how much of the additional spending would happen anyway under current law as MA (currently the costlier option) grows. Presumably, the cost of leveling up TM would be financed in part by eliminating MA overpayments related to coding intensity, but could also be financed in part by constraining MA spending growth to an external index should MA continue to grow. In concert, CMS and CMMI could continue to strengthen their portfolio of alternative payment models. This path would make TM a more viable program and competitor, establish an even playing field for MA to improve upon TM, and introduce explicit checks on spending growth and consolidation.
The second path would be to embrace MA without fortifying TM, sustain current MA benefits with only modest payment cuts to start, but enact strong mechanisms for controlling subsequent payment growth and ensuring adequate competition (and thus pass-throughs) in MA. This path would lead Medicare into uncharted territory. Recognizing that the U.S. has not excelled in legislating limits on health care spending or devising and enforcing stiff competition policy, we should think twice before discarding constraints availed by a public option whose absence is bemoaned in other settings. But either path would be an improvement over the status quo and could effectively head off the prospect of an increasingly bloated MA program without effective controls over competition or spending.
The likelihood of Congressional action in the near term, however, seems low. This leaves regulatory options. The administration, specifically CMS, can do much but also faces challenging constraints. Since CMS cannot change the basis of payment for MA or regulate MA market structure, the most viable regulatory path must attempt the undertaking of the first legislative path described above but without the capacity to expand TM benefits directly—that is, preserve and strengthen TM enough to make it and, by extension, MA perform as well as possible until more definitive reform can occur.”
Full post, JM McWilliams, Health Affairs Forefront, 2022.3.24