Why Medicare Advantage should function like exchanges

If Medicare Advantage plans had to compete for members like plans sold on the health insurance exchanges, insurers could provide high value at lower costs, reported the New York Times.

Moreover, the current Medicare Advantage framework uses a formula created by the federal government to allot a certain amount of subsidies, which the Times alleges doesn't appropriately match payments to actual costs.

And although Medicare Advantage plans have boosted their enrollment by almost 5 million members in the last year, as FierceHealthPayer previously reported, the additional benefits they offer often lead to unnecessary costs paid by the taxpayer.

The inefficiencies are particularly pronounced in the Medicare Advantage program, with studies showing that for each dollar insurers receive from the federal government to administer Medicare Advantage plans, their members only see a fraction of a dollar in value, the Times noted.

But if the government structured the Medicare Advantage program like the new exchanges, insurers would submit bids to cover Medicare benefits, and government officials would select one of the least expensive bids and pay that amount to all Medicare Advantage plans, according to the article. This structure would liken Medicare Advantage to the exchanges, where federal officials base premium subsidies on costs of the second cheapest silver plan. Consumers who choose plans that cost more than the subsidy have to pay out of pocket.

That scenario would force Medicare Advantage plans to compete more for business since having a lower cost would set up a strong advantage. Higher-cost plans would have to charge their members a premium, potentially losing customers to their cheaper counterparts.

To learn more:
- read the New York Times article