How policymakers can help Medicare Advantage plans maximize their potential 

Even as Medicare Advantage plans grab an increasing share of the market, they’re not living up to their full potential, according to a new report. 

The Manhattan Institute, a free-market think tank, found that MA enrollment has grown from just 6% of Medicare beneficiaries in 1990 to 36% today. These plans enjoy bipartisan support and are growing in population as they can negotiate and drive down costs, oftentimes more effectively than traditional Medicare. 

However, the current policy landscape is still holding these plans back, the institute found. The report highlighted several policy reforms that could allow MA plans to maximize their potential for lower cost and improve patient outcomes: 

  1. End the “tax” on MA plan rebates.
  2. Develop a baseline contract MA plans can use with providers.
  3. Sunset supplemental Medicare coverage. 

“Upward of a third of all senior citizens have chosen MA—and with some modest budget-neutral reforms, many more could similarly benefit,” the think tank’s researchers said. 

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The way the Centers for Medicare & Medicaid Services develops payment rates is one of the key struggles, the report said. CMS sets a payment benchmark that’s based on all Medicare spending in a geographic region, including fee-for-service plans and Part B. 

Payers that bid under the benchmark can earn back between 50% and 70% of that benchmark in rebates—however, that leaves as much as 50% of possible payments on the table, amounting to a “tax” on these plans, according to the report. 

Beneficiaries would see benefits right away from a change to eliminate these gaps in lower out-of-pocket costs and, potentially, greater access to dental care, according to the report. 

MA plans are more popular in urban areas, so providers in regions with limited MA uptake have no real incentive to offer the contract concessions that these plans desire. So, establishing a baseline contract for all providers could help ensure that MA plans are able to secure the best prices for beneficiaries. 

Supplemental coverage, according to the report, is truly the competitor to MA plans, not traditional Medicare itself. Medicare Advantage plans are more effective at generating cost savings than these supplemental options, so policymakers should strongly consider nudging these plans to the back burner. 

“Although there will undoubtedly be a need for them to be tolerated to some extent for political reasons, policymakers should embrace every incremental opportunity to tax, nudge and regulate them out of existence,” the researchers said.