Why Hasn’t Medicare Advantage Collapsed?

Milliman, the actuarial consulting firm, has published a new report on the impact of the government’s cuts to Medicare Advantage. The report was sponsored by the Better Medicare Alliance, which announced that “Seniors now face soaring maximum annual out-of-pocket costs” due to the cuts.

And yet, the purported cuts have not really bitten health insurers. Medicare Advantage enrollment is at an all-time high. Medicare Advantage is superior to traditional Medicare Parts A and B. However, insurers seem to capture more of the value than beneficiaries do.

The Milliman report explains this quite well. Looking only at Medicare’s physician and hospital benefits (and ignoring the Part D drug benefit), Milliman reports that Medicare Advantage plans reduced the average beneficiary’s share of Medicare’s costs (coinsurance, deductibles, and Part B premium) by $67.65 in September 2012 (or $811.80 annually) and gave the beneficiary $11.65 worth of non-Medicare benefits ($139.80 annually). The latter include enticements such as fitness-club memberships.

The total value, therefore was $79.30. For this, the average beneficiary paid a monthly premium of $24.23 ($290.76). The net “value added” (Milliman’s term) was therefore $55.07 ($660.72 annually).

For September 2015, the comparable figures are a total value of $69.70 ($836.40 annually), monthly premium of $21.36 ($256.32 annually), for a net value added of $48.34 ($580.08 annually).

So, the average Medicare Advantage beneficiary is worse off by $6.73 per month. I struggle to describe that as “soaring” out-of-pocket costs.

Plus, the Milliman analysis invites the question of why taxpayers are paying health insurers to buy down seniors’ Medicare coinsurance, deductibles, and Part B premium and paying for “enticements” to enroll. I have been on the record as a fan of Medicare Advantage since 2009. Nevertheless, both taxpayers and beneficiaries would benefit if the program were restructured so that beneficiaries would be rewarded for saving Medicare money, instead of just reducing their direct cost-sharing.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.