Medicare Advantage Savings Spread Far And Wide

by Alicia Caramencio

September 19, 2016

Tailored care coordination, disease management programs, comprehensive benefits, market competition – these are all part of what makes Medicare Advantage the foundation for care delivery innovations across the health system. By increasing provider efficiency in the delivery of clinical care, the innovative, cost effective practices implemented by Medicare Advantage plans are reducing spending in the fee-for-service Medicare program. If you needed more proof, in addition to a recent Milliman analysis and article published in the Journal of Health Economics, a study in the latest issue of Health Affairs finds that the cost-saving techniques employed by Medicare Advantage plans “spillover” into traditional Medicare.

According to the Health Affairs study, growth in Medicare Advantage penetration (meaning the proportion of Medicare beneficiaries enrolled in Medicare Advantage) is correlated with a slowdown in Medicare fee-for-service spending growth. In counties where Medicare Advantage penetration is highest, a 10 percentage point increase in Medicare Advantage penetration is associated with a $154 drop in annual per capita costs for traditional Medicare. By implementing best practices and care guidelines with their contracted network providers, Medicare Advantage plans are changing practice patterns not just for their own members but also for all patients seen by these providers, including those in the traditional Medicare program.

Consistent with the Milliman analysis, the study authors argue their estimate of the spillover effect is large enough – despite the conventional wisdom Medicare Advantage costs more than FFS – that the Medicare Advantage program in reality costs less than traditional Medicare on average, and has been contributing to the recent downward trend in national Medicare fee-for-service spending.

These findings go hand-in-hand with another recent peer-reviewed study by researchers at Stanford University that found Medicare Advantage plans are more efficient purchasers of hospitals services than the Medicare fee-for-service program. Medicare Advantage plans are estimated to pay hospitals 8 percent less on a per admission basis than the fee-for-service program, after accounting for geographic areas and mix of patients, by negotiating better prices through market dynamics and competition. These researchers found that plans achieved discounts on hospital procedures identified by the Medicare Payment Advisory Commission (MedPAC) as having shorter average lengths of stay, and conclude that, “Medicare Advantage plans pay prices that better reflect the value of services than FFS Medicare prices do.”

The Health Affairs study also found no evidence of plans selectively enrolling healthier, less expensive patients. In fact, the highest Medicare Advantage enrollment growth from 2007 to 2014 occurred in larger, poorer counties in the Northeast or South that have larger minority populations. Such findings echo an AHIP report from earlier this year showing Medicare Advantage remains a vital lifeline for diverse, low-income populations – many of whom are more likely to have multiple chronic diseases and benefit from Medicare Advantage’s comprehensive, coordinated approach to care.