CMS may overpay Medicare Advantage plans by billions, study finds 

Many Medicare Advantage members already spend less on care and use fewer services before they sign up for their MA plans—a fact that may be leading the government to significantly overpay MA insurers, according to a new study.

Researchers at the Kaiser Family Foundation (KFF) examined spending for people who switched to MA in 2016 and found they spent $1,253, or 13%, less on average on care the year before changing insurers.  

These findings challenge the long-held assumption that care management strategies deployed by MA plans are what’s keeping spending low, as these beneficiaries were already spending less to begin with, according to the study. 

It also raises questions about whether the Centers for Medicare & Medicaid Services (CMS) should continue to base MA payments on traditional Medicare rates, because that is leading the agency to overpay those insurers.  

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“The results suggest that favorable self-selection into Medicare Advantage plans is occurring, even among traditional Medicare beneficiaries with similar health conditions,” the researchers wrote. 

For example, if the average difference in spending applied to 10% of MA plan members—or about 1.8 million enrollees in 2016—it accounts for $2 billion in excess spending in just one year, according to the study.  

CMS is expected to pay MA plan sponsors about $250 billion this year, a number that’s expected to grow as enrollment expands. About a third of Medicare beneficiaries are in an MA plan.

The KFF study dove into spending among beneficiaries with certain chronic conditions and found similar trends for those who jumped into MA in 2016. Beneficiaries with asthma, for example, spent on average $1,410 less in 2015 than their counterparts who stayed in traditional Medicare.  

Spending was on average $1,517 less among people with breast or prostate cancer who switched to MA and $1,072 less for people with diabetes, the study found. 

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The potential overpayments increase alongside chronic conditions, according to the study. The average potential overpayment for beneficiaries with no chronic illnesses was $226, while it was $1,629 among beneficiaries with five or more chronic conditions. 

In looking for targeted areas for potential savings, this would be a good place for CMS to start, the researchers said. 

“This finding suggests that potential overpayments may be largest for the Medicare Advantage plans serving the sickest beneficiaries,” they said.