A new report from the Center for Economic and Policy Research (CEPR) says Medicare Advantage plans are costing Medicare more while reducing the quality of care for its beneficiaries.

The report, “Profiting at the Expense of Seniors: The Financialization of Home Health Care,” was written by Eileen Appelbaum, Co-Director of the CEPR and a Fellow at Rutgers University; Rosemary Batt, Professor of Women and Work at Cornell University; and Emma Curchin, CEPR’s Domestic Outreach and Research Assistant.

How Medicare Advantage Plans Profit from Traditional Medicare

The September 2023 report said the current Medicare Advantage plan payment models “privilege the interests of large health insurance companies and other financial actors seeking to maximize profits over those of providers of traditional Medicare services.”

The Centers for Medicare & Medicaid Services (CMS) says the participation of Medicare Advantage plan insurers improve patient care, while reducing healthcare costs. But the report disagreed.

“The preponderance of evidence shows the opposite: Privatized senior care has led to higher costs for Medicare and a drain on the Medicare trust fund,” the study said. “At the same time, it has increased the profits of insurance companies and reduced the quality of patient care by requiring preauthorization for treatment that may be denied and limiting patient choices to a narrow provider network.”

The report quotes the Medicare Payment Advisory Commission (MedPAC) estimate that Medicare Advantage plans upcode patients to “appear to be sicker than they are.” Upcoding, MedPAC said, “costs CMS 106 percent of what traditional Medicare costs.”

Why Medicare Ends Up Paying More

Because CMS uses a “capitated” payment model that pays Medicare Advantage plans a flat fee per beneficiary, the Medicare Advantage plans “also enroll healthier Medicare beneficiaries, increasing their operating surplus by another 11 percent, making the payments to MA plans 19 percent higher than the payments to traditional Medicare.”

MedPAC also cited a 2020 statistic that CMS spent $1,538 more per beneficiary enrolled in a Medicare Advantage plan than it would have paid had that beneficiary been enrolled in traditional Medicare.

The CEPR report cited “carefully done” studies that found that beneficiaries enrolled in Medicare Advantage plans “are less likely to be cared for by high-quality home health agencies or skilled nursing facilities than are traditional Medicare beneficiaries. They are also more likely to be treated by lower-quality providers in both settings.”

Read the full CEPR report here.

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