The Bare Truth About Medicare Advantage — The Data Is Accurate, The Costs Are Lower and The Care Is Better
November 20, 2021
Medicare Advantage has Better Benefits
Medicare Advantage has better benefits, higher levels of service, much more extensive use of care teams, far better data linkages, much better care, and is lower in cost for both the government and for Medicare Advantage members and patients than standard fee-for-service-based Medicare.
Standard traditional fee-for-service Medicare has no quality measures, no quality programs or expectations, and traditional fee-for-service Medicare does not keep, collect, use, or share quality-based data.
Standard traditional fee-for-service Medicare only pays for care by the piece — and the negative functional reality is that fee-for-service payment approach not only does not improve quality, it pays many caregivers more money when their quality is inappropriate, inadequate, ineffective, flawed or actually fails because failure often creates more pieces of care and the caregivers for standard Medicare are all directly paid by the piece for whatever claims they file for that care.
Medicare Advantage is paid by the month for each patient rather than by the piece. Medicare Advantage plans are paid a capitation each month for each member who chooses them, and the plans can use that money to provide a more complete benefit package than standard Medicare and they can and do use that flow of money in flexible ways to provide significantly more effective care.
Care quality is a central and important component of the Medicare Advantage program.
Medicare Advantage has an extensive five-star quality program that looks at 46 categories of care and service and that ranks plans based on their performance in those areas and pays the plans with the highest levels of performance up to 5 percent more dollars each month for providing better care.
The five-star program creates a very intentional, valuable and useful focus for the caregivers along the categories of care that are included in the program and it is financially relevant to the care teams because it actually pays more for better care and pays less to the plans that do not do as well in those categories. The star ratings of the plans are also highly visible, so patients can see which plans perform well in those areas.
Hypertension, diabetes, and other chronic conditions that are important to patients have care that is continuously improving in the context of the five-star system. The measures not only create better care for the patients, they serve as a strong motivation and extremely useful management tool for the people running care systems because they create a context for actual functional care improvement and they give teams of caregivers aligned momentum and support in those areas.
The five-star alignments improve both the process of care and the culture of care in those care sites. That quality expectation and care outcome specification approach is an extremely valuable purchasing tool for care and there has been good evidence from a couple of studies that the spillover benefits from that better care often extends beyond the Medicare Advantage patients to the other patients in those care settings.
Many care sites use the star program as a motivational tool, and it is common when the care teams achieve or renew a high star rating to use that information to create celebrations within the care teams. Care teams that become four- and five-star plans tend to have celebrations and recognition moments and events for their achievements — and that is obviously good for morale and for patient care and service experiences in those sites.
It’s also a good and positive thing for our caregivers to have that awareness that our government and our congress wants care to be very good and also wants care to improve. It says good and positive things about the care culture of our country and about the leadership of our country that the five-star program exists and does what it does to improve care and to reward the caregivers who make care better.
By contrast, traditional standard fee-for-service Medicare does not do quality for care.
Standard traditional fee-for -service Medicare has absolutely no support or payment process agenda or benefit related goals for improving care.
Fee-for-service traditional Medicare does not even measure quality of care in any way.
In fact, the reality is that fee=for=service Medicare far too often actually and directly pays the care sites who deliver bad care more money.
If a care site delivers failing, inadequate, bad or wrong care in a fee-for-service Medicare setting, that bad care too often actually increases the amount of money that is paid to that care site because the additional care that is needed for those failed patients in those settings is simply charged as more services to Medicare and Medicare directly pays each of the poorly performing providers for each of those additional services more money because that’s how the Medicare fee-for-service program buys care.
Everyone in the country should understand those differences and those outcomes and should know their linkage to each kind of payments. But those realities seem to be invisible to our news media and they are not referenced of discussed in most of our public and political debate about health care Quite a few of the people who discuss health care policy in various settings who do understand those differences tend to either not make those issues very visible or choose to duck them entirely.
The people who wrote the major official report to MedPac last year about Medicare Advantage said that they could not include quality in their report and they could not compare the quality of the two programs because they admitted that there are no quality measurements for traditional fee-for-service Medicare and therefore, the MedPac authors contended, it would not be appropriate to mention quality in their analysis of the Medicare Advantage program either other than have vague concerns about some aspects of the process.
The authors of the MedPac report argued that you can’t compare “no program” to an actual program and they concluded that it’s not fair or credible to talk about the Medicare Advantage quality program with no direct and current data available to them about fee-for-service Medicare care quality.
They actually make that same point with those same carefully chosen words to duck that issue every year.
That is bad, sad, wrong, inadequate, incomplete, inept, and more than slightly and very intentionally prejudicial and skewed and probably deliberately misleading analytical work by the MedPac writers relative to Medicare Advantage relative to the quality issue.
They are very wrong and they make that same set of mistakes on that issue every year.
There are vast steams of easily available, valid and extremely useful data and easily available public information showing that the quality program for Medicare Advantage is robust, effective, and a far superior approach — and is clear that quality program and what it accomplishes for Medicare Advantage members should be a key and open part of the MedPac discussions rather than being avoided and both misrepresented and misunderstood in those comparative reports and settings.
The Five-Star Program Clearly Works
The five-star program for Medicare Advantage obviously works.
We know that the five-star program works and we know that it is actually changing care for the better for many people because the quality and service measurements are rigorous, legitimate and verified and because the number of plans who are earning higher stars is increasing every year at a very good and encouraging rate.
Only a couple of plans achieved the very highest star ratings in the first years of the program. This year, with extremely effective and highly intentional work done in care sites across the country, slightly over 71 percent of the enrollees were able to choose to get care from a four- or five-star plan.
That might be one of the biggest quality improvement agendas to ever happen in health care anywhere in the world, and anyone looking at the impact in those sites can easily see that targeted care improvement in that range of settings would not have happened on that time frame and in those ways if that five-star program had not been in place and influencing those care sites.
The people at MedPac who say every year they have absolutely nothing to look at to evaluate the program could easily look out at all of the seminars and programs and conferences and gatherings that featured care improvement learnings and teaching with an explicit Five Star focus to know that the program is very seriously improving care. Those agendas, programs and speakers on those quality issues have been clearly visible for years and MedPac knew that they were being done.
For them to say they have no information source to use to get a sense of the actual care site impact of the Five Star program in the face of an entire obvious industry that works to help the plans improve their results by improving their care is a clear abandonment of common sense and of direct observation and saying they have no clue about the scope or impact of that Five Star effort is insulting everyone they say it to because that entire industry exists.
Some MedPac people actually say they would like to end the Five Star program and they would like to replace it with something else because they don’t know if it works.
That clearly very badly informed but very clear recommendation by those writers to abandon all of those efforts is almost frightening in its potential danger and threat to the quality of care for the Medicare Advantage members and for that targeted care improvement program.
The good news on that issue is that the people who actually run Medicare see and know how powerful and effective the Five Star program is and the people who run CMS actually use it to steer care in good directions. The people who run CMS continuously enhance the program and they are looking particularly now at the expectations being created for the special needs plans patients at Medicare Advantage as a way of having a high impact on those very high need people and are using Five Star leverage to make that happen.
The people who run CMS clearly understand the program.
They actually use the program. They are enhancing it annually — and they are currently looking at what needs to be done to reflect the damage and the care circumstances created by the Covid pandemic.
So even though MedPac doesn’t support or even understand the tool, CMS clearly does and that team at CMS is now using it well.
That quality recognition and funding program is a good component part of the overall Medicare Advantage payment approach that is based entirely on buying care through capitation by the month and not by the piece. Having quality expectations is an important part of the specification package when you use Capitation to pay for care because it helps structure the care that is delivered in effective ways.
Capitation is an important and useful tool for buying care and it has its highest potential impact when it is linked with expectations both about the quality of care and about the levels of service that provided to people who enroll in the program.
It’s a very basic system.
Medicare Advantage plans are each paid a capitation amount every month for each member instead of being directly paid for each piece of care by the piece as the traditional Medicare fee-for-service program buys all of their care.
Capitation has great effectiveness, leverage, impact and power when it is well used.
Capitation Enables Much Better Care
There are multiple areas of care and multiple care sites where care is significantly better because the capitation has created care agendas, care strategies, care support teams, and care tools to improve care.
Patients benefit very directly from that capitation cash flow.
The Medicare Advantage plans have lower rates of diabetes complications, lower rates of asthma crisis and lower levels of congestive heart failure crisis. The Medicare Advantage patients also have much higher use of electronic connections to their caregivers and direct connections with their care teams because of the quality programs that are anchored in part in the five-star system and because the financial reality is that when plans are capitated, they have a major direct financial incentive to make care better and more effective.
Plans have managed to reduce the number of broken bones in their oldest patients in some settings by over 40 percent by using a combination of social worker support, in-home nursing care, and care plan monitoring services for targeted high risk patients and the sad reality and the cold truth is that those sets of service and those caregivers are all actually forbidden and excluded for payment by the traditional Medicare fee-for-service fee schedule and payment approach for the patients they cover.
That limited set of covered service and that lack of care coordination is why some elements of care are so bad and so expensive in too many traditional fee-for-service Medicare care sites.
Patients over 80 who break bones are more than 30 percent more likely to die in the next year — and standard fee-for-service Medicare very explicitly refuses to add any of those support services for those seniors who are at high risk of breaking bones to their Medicare fee schedule because those explicit services to help those patients violate their traditional Medicare rule set for caregivers and for sites of care.
Congestive heart failure patients get much better care when they are enrolled in Medicare Advantage. Congestive heart failure crisis can be extremely painful events. Intensive care units are often needed to save lives in those crisis and the hospital ICUs used for those patients don’t always succeed. Patients with CHF die.
Even for the survivors, the congestive heart failure crisis events often create major and obvious dysfunctional impacts on the patient’s lives. They can hurt a lot, and they can be terrifying for too many patients in actual crisis who don’t know if they will survive the attack.
Medicare Advantage plans can and do cut those terrifying experiences for people by 40 percent or more by very intentionally and explicitly identifying all of the high-risk patients and then by using a team of doctors, nurses, in home monitoring and other care support resources to keep those crisis events from happening.
Fee-for-service traditional Medicare does not support those CHF crisis prevention processes for patients. The financial reality is, however, that the traditional fee-for-service Medicare care sites can and do make between $20,000 and $40,000 for each of those patients and that money is paid without hesitation or challenge to the care site for any of those payments.
Fee-for-service Medicare generally does a good job for those patients when they are actually in the hospital — with the same survival rates as the Medicare Advantage plans for the hospitalized patients — but fee-for-service Medicare does a horrible, inadequate and unfortunate job of not keeping people out of the hospital for that condition.
Most of the steps, many of the procedures and many of the caregivers who are involved in preventing those horrible life damaging experiences happening for Medicare Advantage patients are very explicitly not paid for by fee-for-service Medicare.
Capitation cash flow for Medicare Advantage allows for that level of care and that type of care to happen and capitation often creates a financial reward to the plans for delivering better care for those patients because better care actually very often costs less in important and relevant ways.
We need everyone looking at the future of care delivery for Medicare to understand those processes and issues. It has a major impact on both cost and care.
Those same patterns of care expenses and the same reality of cash flow differences between patients extend to all of the chronic conditions that now make up more than 60 percent of the cost of care in America today.
Preventing a congestive failure admission to an ICU can clearly save a lot of money. ICU’s are very expensive. A Medicare Advantage plan that prevents that attack can avoid a hospital bill that currently runs close to $20,000 using just the Medicare DRG payment model for that condition.
So preventing that CHF admission just saved the plan $20,000. However — it you are the fee-for-service Medicare hospital who would have admitted that patient, then losing that same CHF admission because of that intervention just cost you $20,000 in immediate, direct and unquestioned cash revenue.
Every piece of health care expense is someone else’s health care revenue.
No businesses in any industry in America ever re engineer processes against their own financial self-interest. That’s why the process engineering that has made so many improvements and that has brought down costs in so many industries hasn’t been used very often in health care settings in our country.
That underlying reality is one of the most important principles and realities of health care economics and it explains a lot about many major elements of our health care delivery system in America.
It clearly explains why capitation actually works to improve care. It is not against the financial interest of capitated providers to make care better and they actually make money when they enhance care outcomes for those patients.
Capitated plans are strongly incented to deliver better care to reduce costs. Preventing every kind of heart attack, every kind of major asthma attack, and preventing every kind of diabetic complication makes sense for a capitated plan because it is better care and because it costs less money.
All of the people who run health plans all clearly understand those expenses and those opportunities and those processes — and care is much better in those areas and those settings as a result because the cash flow actually rewards better care under the capitation model used by Medicare Advantage.
At the other extreme and the other end of the cash flow continuum — the people who run all of the fee-for-service care sites and who take care of traditional fee-for-service Medicare patients also clearly understand that their cash flow is damaged, reduced, possibly impaired and directly diminished if the patients don’t need those pieces of care and those fee-for-service care sites all know that their cash flow is enhanced if more people do need their care.
The seminars, conferences and industry gatherings for the people who run those fee-for-service care sites tend to teach the sites effective ways of increasing both the volume of their care and the prices and the enhanced referral patterns for their care.
People’s Lives Are Better with Medicare Advantage
The capitated Medicare Advantage plans respond overwhelmingly to those very clear and direct incentives, and they end up with significantly lower rates of hospitalization, and measurably lower use of emergency rooms because the things that you can do with asthma patients, for example, to avoid those crisis events make great sense to do when you are paid a capitation each month for each patient.
People who are looking at both health care costs and health care coverage need to understand that those kinds of patient focused care improvement approaches tend to be done in the Medicare Advantage plans because the capitation exists and because it both pays for the additional process steps and rewards the positive outcomes with a cash bonus by the month for their patients.
Medicare Advantage plans tend to have about a 30 to 35 percent lower use of emergency rooms than fee-for-service Medicare because they have those kinds of intervention programs in place and they often succeed.
People’s lives are much better.
An asthma attack can have that same kind of extremely painful, frightening, and dislocating sets of impacts on people’s lives as a congestive heart failure crisis — and capitated health plans tend to work hard with each asthma patient to keep those attacks from happening as well.
Plans tend to cut those crisis by half or more for some asthmatic adults and, understandably, it’s also visible that health plans often cut them by two-thirds or more for asthmatic children. It’s increasingly clear that capitated Medicaid plans tend to be particularly good in that area of asthma attack intervention and some capitated Medicaid care teams have been known to hand deliver the right medications directly into people’s homes and into their in-person and individual patterns of care in very intentional, effective and supportive direct ways that have cut the attacks in some settings by up to 70 percent.
For Medicare Advantage, crisis prevention is a core goal, a continuous and explicit strategy, and it is overwhelmingly both an aspiration and a core competency of the Medicare Advantage plans.
There are varying levels of success between the plans in doing that work, but the reality is that even the lowest performing plans do that work far better than it is done in fee-for-service Medicare.
That care improvement process is all fed and supported by data.
Plans Use Diagnostic Data and Health Records to Enhance Care
Plans work with multiple levels of information and tools to make care better in those areas and, as a result, the plans tend to have very complete patient records and more complete sets of data than fee-for-service traditional Medicare care sites to support that process.
Some critics of the Medicare Advantage plans have pointed with alarm to that significantly more extensive array of data than the standard fee-for-service Medicare settings and some critics have actually explicitly and directly accused the plans of having that level of patient data primarily to increase their risk level score cards to increase their capitation payment levels and not to provide care
People who do not understand the entire care improvement agenda and who do not like the idea of having Medicare Advantage plans for ideological or political reasons have said and written in multiple settings that the plans collect diagnostic data primarily to be able to achieve high scores on the risk level data that creates the capitation levels for the plans and that the higher level of plan data and information isn’t there to enhance or deliver care.
They make that accusation in the context of the factors that create the capitation level for the plans.
The monthly capitation level paid to the plans does now vary significantly from patient to patient based on the age, gender, geographic location, and health status of each member.
The goal of the overall capitation development process is to have a payment level that reflects the appropriate payment for patients when all of those basic factors are included in the mix for each patient. That’s a very good and highly functional and equitable approach, because in the fee-for-service Medicare world, the reality is that patients with diabetes are much more expensive than patients who only have asthma and patients who have no current acute or chronic diseases cost less than patients with various sets of diseases and there is value in having those deficiencies in cost reflected in the capitation paid to the plans.
The goal is to save money by using capitation to buy care.
The overall goal of using Medicare Advantage to buy care is for Medicare to pay at least slightly less, on average, for the patients who enroll in Medicare Advantage.
The overall Medicare trust fund is headed for future financial difficulties, and one of the overarching goals is to spend slightly less for the Medicare Advantage patients than those patients would have cost if they had remained in fee-for-service Medicare in order to have the lower cost help make the Medicare Trust Fund survive longer.
To achieve that goal and to use capitation to achieve it, the approach and strategy is to look at the costs of fee-for-service Medicare in each county in the U.S. and to have the plans make a capitation bid in each county that is lower than those patients would have cost Medicare if they had not enrolled in the plans. The goal and strategy is to have a capitation payment that is lower than traditional Medicare costs would have been for the enrolled people in each county.
They vary the capitation paid to Medicare Advantage for each patient in order to achieve that goal for each county.
Age Factors are Important
Age factors are an important functional part of that patient targeted capitation payment process, because the biological and medical reality is that an 85-year-old patient tends to be almost twice as expensive as a 65-year-old patient.
Men and women also have different cost levels — and that can vary significantly by age as well.
Patient health status is now a major component of that payment calculation because health care costs vary by health care condition for obvious reasons at multiple levels.
The goal of the Medicare Advantage approach is to pay each plan a capitation that fits the health status of each patient using diagnosis information to identify the risk category by age and by gender for each county.
There tends to be consistency over time in the age and gender information for each patient but patients do vary regularly and significantly based on the diagnostic information.
The actuarial expertise of CMS and years of data have been used to build a payment model and payment levels based on various diagnostic status for the patients that seem to be very accurate and to be relevant patterns of expense for patients at this point in our history.
There is a sense of comfort today based on extensive and credible data that a diabetic who also has arthritis should trigger a particular payment level and a heart failure patient should generate a different payment level — and the goal is that the actual capitation should be set at a level that is slightly below what fee-for-service Medicare would have cost for that same patient.
Calculating those numbers and building that increasingly sophisticated and continuously improving purely logistical and actuarial science part of the process for each patient hasn’t been controversial. What has been controversial is that some Medicare Advantage critics believe that some of the plans have reported incorrect and inflated diagnosis levels for their patients and there have been accusations that some of the reporting processes about risk levels for patients have been inflated by the plans in order to increase their cash flow for the plans.
A number of critics have expressed negative opinions about some plan performance relative to risk coding and diagnostic reporting issues and some observers have written that “the primary business model of the plans is to inflate codes and not to deliver care.”
Even Health Affairs has published some of those contentions and those accusations.
A number of academic pieces have been written analyzing the accuracy of the risk coding process and there have been a number of reports claiming that the entire payment process is undermined by coding inflation happening in at least some of the plans.
That has been a subject of some media attention for a couple of years. A number of Medicare Advantage critics have believed that “coding inflation” exists and that it has resulted in plans gaining too much money on their capitation levels.
That set of accusations was tied to the fact that each of the plans have done their own risk level diagnosis code reporting for the capitation calculation.
MedPac has believed that coding inflation by the plans happens at a very consistent level and they have been estimating the impact of the inflation to be about 9 percent of total costs each year.
There is no research done by MedPac to support that number but they strongly believe it to be true as a consensus of expert opinions and they report it very consistently in their observations about plan performance. The plans have responded that there has been very little coding distortion and that they are reporting diagnosis more accurately and not incorrectly.
An audit done by the Office of the Inspector General for 2016 filings looked at a wide range of coding practices across the plans and the OIG concluded in that year that “Some Medicare Advantage Companies Leveraged Chart Reviews and Health Risk Assessments to Disproportionately Drive Payments.”
That was the actual headline of their report.
“Disproportionately” driving payments is an interesting conclusion and it is a very careful choice of words. Plans had different practices in gathering that diagnostic information for their reports. Some of the plans normally and routinely send nurses into the patients’ homes to help deliver care, and the OIG report discovered that the plans who had those nurses going into the homes actually reported more disease diagnosis more quickly than most other plans.
Some plans also had extensive computer systems and those plans had computer analysis done of patient records to look for patterns of care that might represent a target diagnosis and they then did follow-up inquiries with the primary doctors for those cases to see if that particular diagnose was an accurate suspicion. The doctors looked at the actual medical record to answer those questions.
The plans who had complete information about prescription drugs from their own owned pharmacies looked to see if they had patients who were getting insulin who had not been reported on their prior year risk coding for Medicare Advantage as being diabetic.,
The OIG discovered that the plans who did that level of work in those areas ended up with higher risk scores than the plans who did not go down those paths in those first two years of the program — and the OIG report and headline called that “disproportionate” success.
That was a very careful term of reference. They did not call it fraud. They did not call it wrong information. They did not call it inaccurate data.
They found no inflation inaccuracy at any level.
They found no instance of created and wrong diagnostic information.
It turned out that all of the nurses who said they had a diabetic patient actually had diabetic patients. Those plans with nurses and counselors and various support teams going into patient homes just got credit for their full set of diabetic patients a couple of years faster than the plans who did not make that level of information gathering a priority and the OIG called that success by those plans — “disproportionate.”
That disproportionate advantage in coding completeness has eroded over time even for those plans.
As the coding process rolled out for several years, the plans all tended to end up with more complete sets of diagnosis than the prior reporting years and practices and they all ended up with much more complete sets of diagnosis information than the fee-for-service Medicare providers in the counties who had often extremely weak, incomplete and inadequate data sources and files and who usually had no compiled patient information for large numbers of their fee-for-service patients.
Critics of the Medicare Advantage program accused the plans who gathered the more extensive information to complete the risk coding reports of distorting the data flow and they made serious accusations that the plans who reported higher levels of those patients were “Up Coding” to a wrong, damaging and expensive degree.
Some critics accused the plans of massive “Upcoding” to the point where some critics and even some economists literally said that if that continued to that degree, the additional revenue to the plans that would result from “Upcoding” every year might actually ultimately “endanger and deplete the Medicare Trust Fund.
The somewhat alarmist predictions about the long-term cost of upcoding done at that point either overlooked or chose to ignore the fact that the human body has only a limited possible set of diagnosis for each person and that process had inherent top levels of inflation for each person — but some critics produced some estimates that said the plans would upcode by at least 9 percent every year and they would do it forever.
The functional truth is that the plans do tend to have much more extensive diagnostic information than the fee-for-service Medicare care sites because that data is used to deliver care — so the diagnostic patterns from the plans were not the same as the data profile from the basic fee-for-service care sites. That difference is, however, actually more accurate coding — not “upcoding.”
The critics who say that the plans will continue to do upcoding at an expensive and even dangerous levels are wrong — and they are wrong because CMS literally just took steps to make upcoding impossible.
Inflating revenue for health plans by distorting the risk codes for patients is now completely off the table.
Those critics of the plans who fear upcoding should relax entirely today because CMS actually made a massive change in the Medicare Advantage risk coding system for 2022 that completely and they totally removed that risk and completely removed that upcoding possibility from the plans.
CMS actually very intentionally, completely, purely and totally eliminated the coding opportunity and system for the plans.
CMS now gets that information about the patients from a different source.
The actuaries and accountants at CMS still need to know for CMS processes what the diagnosis are for each patient in order to pay a capitation to each plan based on the risk levels of the patient, but they now get that information about the diagnosis from the best possible and the most timely source — the actual patient encounter data that gets filed when each patient has an encounter with the care system.
Patient encounter reports that are filed by the care site with CMS identify the diagnosis used for each patient encounter by each care giver — and that information can’t be fudged or modified or influenced or shaped in any way by the plans because the plans are not in the loop for that piece of data.
The diagnosis for each patient is now correct as the Medical record that feeds the encounter report them to be.
We now have extremely accurate and almost real time data about the diagnosis from the encounter reports and there is no way of the plans up coding anything that could result in the wrong payment levels for the plans.
MedPac knew and understood that CMS now only uses encounter data for their diagnosis information, and they still managed to say in their annual report that they were worried this year that the plans would still somehow manage to upcode something this year and MedPac predicted clearly that the upcoding it would still cost over 9 percent against the Medicare Trust Fund when it inevitably still happened.
They did not give a clue about how the Plans would somehow achieve that goal this but the current report included several pages of points in history a decade ago when they believed upcoding had actually happened.
They did that because that long standing 9 percent overpayment number accusation was too hard for MedPac writers to give up because it is a core part of the urban legend about plans being over paid.
Some of the most persistent Medicare Advantage critics who wrote that report did not want to finally admit that the data that shows every month that Medicare Advantage obviously and provably and measurably costs less than fee-for-service Medicare in all of those capitated counties now and the data shows that significant savings level has been true for multiple years.
They have only been able to make that accusation about Medicare Advantage actually somehow costing more than Medicare in spite of all of the data each month that shows it costs less if they could look at the real savings numbers from the discounted capitation and say — "obviously that isn’t true because the 9 percent coding inflation number completely offsets those apparent savings every year.
The Medicare Advantage Savings are Very Real.
Our core baseline data that we need to understand for Medicare is the actual current cost of fee-for-service Medicare in every county. Those numbers tend to be extremely consistent from year to year in every site. We know what the average cost of fee-for-service Medicare is in every county and that is the number we need to improve to know that we are saving money for Medicare.
That information about the average cost of fee-for-service Medicare is very accurately compiled each year — and that number is given to the plans every year as part of the process to have the plans each make their own bids for their capitation levels in every county.
That is real and accurate Medicare data for every county. It is compiled by Medicare from their own expenses. It is arithmetic — not actuarial physics or economic approximations.
Some of the Medicare Advantage critics create a fantasy number that says we should not look at actual measured and reported costs per county because they argue that the current 9 percent upcoding factor from Medicare Advantage tells us what the actual fee-for-service Medicare number for each county actually is.
That is either hoo doo economics or voo doo economics, but it isn’t basic accounting or actuarial science.
What we need to look at as a nation is the fact that those average costs are a very real number about the current cost of Medicare in each county.
The plans look at their own information about their costs for each county and they look at the likelihood that they will be paid a quality bonus under the Five Star program, and they each then bid a capitation amount for each county that is the only amount of money they will be paid by Medicare for those patients.
Those bids are always significantly lower than the very real and highly relevant average cost of fee-for-service Medicare in every county for those patients. So the plans begin their cash flow each year by creating very real and absolutely guaranteed savings for the Medicare Trust Fund because the plans can’t charge Medicare one penny more than that discounted fee if their plan costs exceed that discounted amount and the Trust Fund spends less for those patients with the lower capitation immediately.
The situation gets even better after that.
That guaranteed lower cost is not the end of the savings and the benefits for the Medicare Trust fund. Medicare benefits directly if the plans achieve a surplus.
If the plans provide and pay all of the required baseline Medicare benefits and if they also pay all of the additional benefits for their members that they create for their members with the lower costs that exist in the plans from better care — often 40 percent lower chronic care hospitalizations — then they create a surplus — and that surplus created by that process for each plan needs to be split between plan profits, CMS, and the members themselves.
That payment cash flow is already less money than fee-for-service Medicare would have cost the Trust Fund for those services — and that discounted payment then creates a surplus that is used to benefit those members.
That is a much better use of Medicare money. Members save significant amounts of money being in the plans and it’s a very good thing when people get to save money.
The total cost savings each year for Medicare Advantage members now runs slightly over $1900 per member. The Medicare trust fund immediately saves the amount of the capitation discount for each plan and then the members each get another $1900 in lower personal expenses from that discounted Medicare expense.
Some Medicare Advantage critics actually tell lies and expound economic falsehoods about that point and they shamelessly, malevolently or maybe just very ignorantly — say to the world that the additional benefits given to the Medicare Advantage members actually somehow put the Medicare Trust Fund at risk by creating some new levels of expenses that were not in the original package.
Some of the critics — including some of the MedPac members — have said that they are opposed to the low income beneficiaries in Medicare Advantage getting the additional vision, dental, and hearing benefits from the plans because that expanded benefit set creates “expectations” for those low beneficiaries that were not part of the original design of fee-for-service Medicare and those critics also believe it’s bad form for some Medicare members to get more benefits from the Medicare Trust Fund than the other fee-for-service Medicare members get from that same source of money.
They literally sometimes say that it’s ethically and morally wrong and inequitable for some Medicare members to get more benefits than other members just because they choose to become Medicare Advantage members and some economists in come credible settings have argued that economic justice should require all beneficiaries to have the same set of benefits to make the purchasing process absolutely equitable for all Medicare members.
That thought process is wrong at multiple levels, but it has persistent support over time, and it needs to be addressed because inequity accusations always should be respected and discussed when they are raised.
The truth is — the people who enroll in Medicare Advantage are not getting additional benefits from the Medicare dollar. They are each getting much more effective purchasing impact from the Medicare dollar because they each chose to select a Medicare provider that is a far superior Medicare provider.
That isn’t unfair. It’s very good judgement by those beneficiaries. They should be entitled to benefit from their own good judgment.
Standard fee-for-service Medicare obviously buys care badly and it is a very weak, ineffective, often inadequate and too often clearly inept purchaser of care.
That isn’t true of all Medicare providers. There are also a number of Accountable Care Organizations who have reached contracts to provide better care through standard Medicare — and the ACOs in those settings also tend to deliver much higher quality of care because they also tend to do team care and to do Medicare Advantage like patient focused care that does not exist for traditional fee-for-service Medicare.
But the rest of the Medicare fee-for-service beneficiary population costs so much because so much of it is just bad care.
Medicare Advantage very directly saves money. It does not increase the costs of Medicare. It makes much better use of the Medicare dollar and it uses fewer dollars from the Medicare Trust Fund from day one for each patient.
The savings are very real. The plans all bid significantly below the average cost of fee-for-service Medicare for every bid county. The plan bids last year ran about 85 percent of the fee-for-service average cost in every county. The 85 percent bid directly saves money immediately for Medicare in those counties.
The plans eat any losses and if they take that 85 percent and spend less on care and benefits for the members than that capitated amount, that creates a surplus that is lower than Medicare costs, and the plans share that surplus with the members by having lower premiums and additional benefits.
It’s important for everyone to understand, recognize, and appreciate the fact that the average Medicare Advantage member saved more than $1,900 last year compared to fee-for-service Medicare members.
That is an extremely good use of the Medicare dollar for the government and for the members.
Medicare Advantage starts out with a capitation payment for each member that guarantees immediate savings to the Medicare trust fund because it is below the average cost of Medicare in every county and then they take that lower payment level and the plans spend it so well that they actually generate a surplus that they share with the members as a much better use of the Medicare dollar and the members end up each saving over $1900.
That’s up from a $1600 average savings per member last year and almost $1400 savings per member two years ago.
Medicare Advantage is getting better each year and fee-for-service Medicare is either doing nothing or getting worse. Bad care in fee-for-service Medicare creates the cost burden that allows the plans to bid below the average Medicare cost in every country.
The basic patterns of bad care in too many care sites are easy to see.
Those patterns of care are expensive for the Medicare Trust Fund. The numbers exist in plain sight.
Fee-for-service Medicare has thirty to 35 percent higher use of emergency room days.
Fee-for-service Medicare providers are also more than 40 percent more likely to have patients with chronic conditions in the hospital. It is bad care to have a fee-for-service Medicare chronic care patient in the hospital — and those people in hospital beds are expensive bad care that makes the average cost of fee-for-service Medicare so high that all of the plans can bid less than the average cost of fee-for-service care in every county.
People who want to attack and impede plans blame the cost differences between the two sets of caregivers on upcoding by the plans.
Upcoding obviously did not create that positive result in all of those counties for the plans.
It is fake news at a fairly high level to say that the Medicare Advantage surpluses that exist in all of those counties for the plans came from plans upcoding anything.
The truth is — they don’t need to upcode anything. Fee-for-service Medicare far too often is bad care and those higher expenses create the opportunity for plan surpluses to happen in all of the counties. There is no reason for the plans to upcode anything because the available capitation from the bad care already allows the plans to bid with 80 percent capitation levels and upcoding at 9 percent would only force the plans to bid 70 percent of the average fee-for-service costs.
The plan profits are limited by contract and by law, so upcoding that increased the risk level literally can’t achieve anything positive in a financial way for the plans because they already have way more bidding room opportunity than they can use.
The surpluses that exist happen when the plan expenses are below the average cost of Medicare Fee-for-service in each county. Almost every county had surpluses and every one was a savings for the Medicare Trust Fund. The plans share the surpluses with the members through better benefits and lower costs of care — and there’s no opportunity in that process to increase plan profits — even though the Medicare Advantage critics and some of the economists who have been worried about the plan coding levels seem to think that there’s some way of turning higher codes into profits.
Those critics should look at how the cash flows and profit opportunities for the plans actually happen. Surpluses need to be shared with members — not taken to the bank by the plans.
There is some poetic equity and balance in the fact that the top use of the surplus money that is created by so many fee-for-service Medicare care sites managing blood sugar so badly for too many patients and creating the number one cause of blindness in our country and having the plans actually using that surplus money to give vision benefits and eye glasses to Medicare Advantage enrollees.
Those eye glass benefits are purchased by being a much better user of the Medicare dollar.
The MedPac people who say those eye glass benefits are potentially a new and additional expenses for the Medicare Trust fund should be honest with the world and they should both understand and explain that the lower costs of Medicare Advantage create that benefit and there is no new money of any kind in those eye glasses.
Those savings are not the biggest, most valuable, and most immediate benefit of the Medicare Advantage program.
Low income people need Medicare Advantage.
More than two out of three of our lowest income Medicare beneficiaries are now in Medicare Advantage plans.
Less than a third of our highest income Medicare beneficiaries are currently in plans and we now have reached the point where more than two out of three of our lowest income members are in plans.
More than half of the African American and more than 65 percent of the Hispanic Medicare beneficiaries are now plan members.
The average net worth of the Hispanic plan members is under $14,000. That is a fraction of the net worth of the non-Hispanic and non-African American Medicare member.
When your net worth is under $15,000, the extra vision benefits and dental benefits and hearing benefits that are available only for the Medicare Advantage patients are extremely important assets — almost life changing for some people.
The MedPac critics who continue to oppose the additional benefits for Medicare Advantage because they worry that they will create expectations for people should look up from that coldhearted decision leaning and from that rigid and badly flawed micro economics and look at the lives of real people and they should be doing everything they can to get those needed benefits into the hands of more people who really need them as quickly as they can make that happen
The Medicare Advantage critics who say that the plans only exist to amplify their risk code can see from the annual television enrollment campaigns by the plans that business model obviously isn’t true.
The plans have had aggressive, innovative and creative advertising campaigns featuring their language proficiency and extended services and extra benefits for the highest need people — and the MedPac analysts who say that those benefits create an unfair advantage for Medicare Advantage plans over fee-for-service Medicare should grow a heart and open their eyes for what impact those benefits have for real people and recognize how bad the care can be in fee-for-service Medicare for extremely low income people who can’t afford eye glasses even as they are going blind.
Medicare Advantage is Now Doing Wonderful Things
The reality is, Medicare Advantage is now doing wonderful things for some of the people who need it the most.
The people who are benefiting the most right now from the Medicare Advantage program are actually the people labeled Dual Eligibles.
Some of the people with the highest care needs and the lowest income people in the country are people who are eligible for both Medicaid and Medicare. Those people have multiple medical conditions and very much need extensive care. We have damaged many of those people with inadequate care in the past.
The harsh realities of the Social Determinants of Health inequity issues that we see in far too many of our cities have many people in our country who have been underserved by decades of inadequate and unavailable care.
The Medicare Advantage critics who continue to say in public settings that the business model of Medicare Advantage plans is to optimize diagnosis codes and harvest excess profits, should look at the fact that almost four million of our highest need and our lowest income Americans are in Medicare Advantage Special Needs Plans and servicing that set of people could not be farther than risk skimming and risk upcoding than anything on the planet.
We have millions of people who have spent their entire lives without seeing team care and they are now getting a package of Medicare and Medicaid services that include in home care and extended care relationships that are often life changing.
Even during Covid, the Special Needs Plans managed to improve their diabetes blood sugar support levels and the satisfaction levels for those members climbed over 90 percent of the special needs plan members.
MedPac pretends in its annual relatively hostile report on Medicare Advantage that the entire extremely important and extremely relevant program does not exist. The MedPac report on Medicare Advantage also carefully avoids saying that two out of three low income Medicare Members have joined plans and they don’t talk or write about how far having plans focusing clearly on those high risk and high need low income patients is from their obsessive MedPac staff concern about coding upgrades for the plans.
Medicare Advantage is now doing extremely important work for our highest need seniors who most need care and giving some of those patients the best care of their lives and some of the most dogmatic critics of Medicare Advantage ignore that entire reality and some actually still argue and say that plans exist only to create code and to be overpaid.
The single most important thing to understand right now about Medicare Advantage is that Medicare Advantage has now enrolled two out of three low income Medicare beneficiaries and Medicare Advantage now has enrolled more than four million of our lowest income and highest need patients through the Special Needs Plans available to people who have dual eligibility to Medicare and Medicaid and that isn’t even being covered by the major news media.
Many public policy settings are becoming increasingly aware of how much damage has been done to us as a country by all of the inequities and deficiencies created by social determinants of health issues — and we need those settings and policy people with those concerns to understand how extremely important it is today for millions of people who have been damaged by those situations to be enrolled in Medicare Advantage plans who start with patient focused team based care and with very targeted patient focused work to help the people with chronic conditions who need better care so badly actually achieve that care.
Other settings talk about that social determinants situation and other settings often bemoan that social determinants situation but only Medicare Advantage plans actually do important things in real time at large scale to help deal with the results of that prior damage for millions of real people in real time and that value from the plans needs to be seen and understood.
Special Needs Plans Provide Particularly Important Care
The dual eligible patients very much need the special needs plan tool kit.
The full set of support tools for the SNP enrollees that reach into areas like home and housing support approaches are badly needed and the functional reality for us as a country is that they aren’t available today from any other source in any volume or with any functional focus.
It is an expectation of the program that the plans go far beyond just the basic Medicare benefit set and population to deliver care and it is an expectation of the plans that they use patient focused data in intelligent, effective and patient centered ways to deliver that care rather than to upcode their capitation levels as the hard-core Medicare Advantage critics contend.
Success is happening for those high need members and patients. We know from the Five Star reporting that the plans have increased their satisfaction levels with SNPs from an average of 3.2 stars in 2019 to 3.6 stars today.
If our country ever actually decided to do a single payer Medicare for All program as core way of funding care for everyone, we should make very sure that the capabilities of the Special Needs Plans are built into the Medicare For All agenda because those people need that care and support so much and they deserve to have it continue if America is paying for their care.
When we look at the big picture, we know that unmanage blood sugar levels in diabetic patients is the number one cause of blindness in the US and we know that even during Covid, the plans managed to have their adherence level for diabetics increase from 84.65 percent of the patients to 86.68 percent.
The people enrolled in the special needs plans and the people enrolled in the standard Medicare Advantage plans were all better off when Covid hit. The people who were in plans immediately had care site linkages to align with. Some of the Medicare Advantage plans were among the very first sites in the country to have testing available and to set up processes to make testing happen.
Fee-for-service Medicare completely abandoned the Covid patients, with no care strategies, connections or information flow to the members about that disease.
Fee-for-service Medicare did a good thing by allowing all of the care sites to use electronic linkages to the members for the first time — and that was in stark contrast to the Medicare Advantage plans who had been using capitation to pay for those linkages and who had some care sites who had over 50 percent of many primary care visits done electronically even before Covid happened, left to the mercy of the fee-for-service Medicare non-system.
When Covid hit, we saw that the death rate for African American and for Hispanic patients was more than double the death rate for the other patients in their care settings. We now know from good follow-up research that co morbidities for those patients were hugely responsible for those higher death rates.
So having high numbers of patients from those groups enrolled in Medicare advantage plans is a good thing and we know that the business models of the plans are set up to achieve those results in spite of the disparaging commentaries of some of the Health Affairs authors.
The advertising campaigns run by the plans very obviously and very intentionally make it clear that the Medicare Advantage plans want to serve those members — and the fact that the plans can now meet over 20 language needs for enrollees is proof of that intention, strategy skill set and inclusive approach.
Medicare Advantage Is a Kind of Social Program in Key Areas
Simply having more than 20 languages available to members is a reality that the standard fee-for-service Medicare program that some Medicare Advantage critics continue to prefer and favor can’t ever begin to address or deal with and it is clear proof of the Medicare Advantage highly inclusive Commitment to members who need and value those kinds of supports and services.
Medicare Advantage is turning out to be a kind of social program at multiple levels for a number of people.
Those support programs that are embedded in plans are well designed in many expected and unexpected ways and they are clearly aimed at the explicit needs of the broad set of patients that the plans aspire to both enroll and serve purposes.
Saying that the plan surpluses created by some coding inflation process and saying that the surpluses that are created should not be used to improve benefits for low income enrollees in the plans is a sad, unfortunate cold-hearted, short sighted, and inexplicably narrow and flawed and ethically and morally constricted way of thinking — because from both a public policy and a humanitarian perspective it’s actually a very good thing to financially help those patients in such significant need — particularly including the 4 million Americans who are in special needs plans situations in the Medicare Advantage plans.
We need people to recognize that money going to Medicare Advantage members is not being “diverted” in any way. It is being channeled from bad and expensive fee-for-service care and that high level of cash flow created by fee for service Medicare expense levels is being used by actual people with that set of extended benefits to make their lives better.
We are not seeing excessive plans profits created by that process. The critics, including some the academics who have published pieces in Health Affairs, tend to make frequent and almost alarming references to excessive plan profits as the key motivator for plan actions and behaviors and the academics don’t mention or explain the fact that type of profit maximizing can’t possibly happen because of the contracts themselves and because of the loss ratio laws that are rigidly and effectively embedded in the Affordable Care Act.
In spite of those accusations, everyone needs to understand that overall plan profits are limited by law, by contract, and by economic reality. The Medicare Advantage plan profits currently run at 4.5 percent of plan revenue. The program is set up to have higher levels of profits in any setting directly shared with plan members in a very unique surplus sharing arrangement that should be much more visible and better understood than it is.
The use of profits by the plans is handled in an extremely creative and highly functional and beneficial way.
When plans make a surplus, the surplus must be shared with the members. The critics tend not to mention how that model works or criticize it, but the members like it because they get lower costs and better benefits when their plan generates those surplus outcomes.
That is a very intelligent and very well-designed payment model. Instead of the capitation money turning only into a health plan profit, any surplus that is created is shared and that sharing means that there is actually very consistently a level of profit sharing with the members of the plans and that is popular with Medicare Advantage members.
The critics are wrong about the plans being overpaid and that they are a risk to the Medicare Trust Fund. The exact opposite is true. The bids and the total costs of Medicare Advantage are less than the fee-for-service Medicare costs in every area and that lower stream of payments protects the Medicare Trust Fund rather than damaging it. The plans are not overpaid because the data used to determine how much should be paid to each plan comes from a good process and the numbers and formulas are both legitimate.
Some of the Medicare Advantage critics — including some published in Health Affairs and similar journals — and some of the auditors of plan behaviors and activities — often say that the upcoding functionality is done to optimize plan profits.
That is a stunningly ignorant and intellectually inadequate and factually deficient accusation. It is ignorant because the plans already have more cash flow opportunity than they can use with the current model and they have no use of any additional revenue opportunity that upcoding might create. They already bid at 80 percent of the available capitation level because they can’t keep profits beyond the current levels. If they available capitation level goes up and they increase their bids, that will only increase their profits beyond the cap and they would need to return the money.
Upcoding doesn’t create plan profits. It possibly creates a different calculation at the end of the year, but the plans already have been capped on actual profits so they would not be able to keep any additional money.
This year will be an interesting year to see that phenomena play out. When they used actual data from patient encounters for their diagnosis and added up those risk factors to get them to the most legitimate levels, CMS actually created an 8 percent higher capitation level for the counties than the number from the year before for next year. That higher number creates more money than the plans can use because they are already limited by their current expense realities and by the current surplus levels.
That seems strange and almost counter intuitive to many economists and policy thinkers, but the Medicare Advantage critics and the academic theorists and the Health Affairs theorists who contend that the plans all somehow up code their risk levels in order to increase their profits as plans completely overlook the reality that the plans actually can’t take advantage of those bidding opportunities that exist now because the limits on profits keep the plans from even using the available bid opportunities now.
The people who make the upcoding accusations ignore the logical question of why a plan would upcode to get a higher number when the plans actually already bid significantly below the currently available bid numbers and the plans can’t legally keep any profits that a higher upcoded and inflated bid would create.
Anyone who understands the current actual processes knows that there is no functional benefit to any plan from upcoding any risk levels to make that number bigger because the loss ratio restrictions and the surplus sharing requirements both combine to prevent the plans from getting that money hypothetical money created somehow by that higher code.
Even the worst critics of Medicare Advantage at MedPac agree that the plans do deliver more efficient and lower cost care — including significantly lower levels of hospital use in every major chronic care disease category — and it is clear that that the surpluses exist in proportion to that performance success in those areas of care and they are absolutely not based in any way on code inflation — as the Medicare Advantage urban legend often claims.
It is absolutely not based on code inflation.
The Cost of Medicare Advantage per Member Is Lower than the Cost of Medicare per Member
Why do people continue to object to plan profits when they are relatively low based on any standards for any industry?
The profit levels for the plans now are actually relatively low and they won’t go going up — but they still make people angry.
That’s a key point to understand. It isn’t that the profits are high that makes people angry. The simple existence of any profit for a health plan makes some people mad.
Profits — by themselves — make some people angry.
Some people simply and directly object to any level of plan profits.
Some of the fiercest critics of Medicare Advantage actually say, that even if everything else is true about the quality of the care and if everything is true about the savings for members and about the improving set of benefits, they would actually still strongly oppose the overall Medicare Advantage program because there are some health plans in that cash flow who they believe are, by definition, making “exorbitant” profits if they make any profits at all. Some critics believe and say that any level of profits for those plans makes everything else good that succeeds in the Medicare Advantage program bad because it is “the fruit of a poisoned tree.”
That is a policy and values issue and that set of positions could be debated in direct ways as a point of view and an ethical and intellectual context.
However, what can’t be debated is the claim from some critics who are attacking plans for their profit levels and actually also say that plans’ excessive profits are now somehow putting the Medicare trust fund at risk.
That clearly is not true.
It is impossible at multiple levels and it is mathematically hugely wrong.
The actual average profit levels of the Medicare Advantage plans today is 4.5 percent.
That is not a big number and it has absolutely no possibility of putting the Medicare Trust Fund at risk.
It never will be a big number because that would be illegal.
Some People Just Don’t Like Insurance Companies
An underlying reality for the situation today actually is that some people just don’t like health plans or health insurance companies and those people very clearly and explicitly do not want those companies involved in the Medicare process at any level.
Some people with that set of beliefs are actually just unhappy at a very explicit level that health plans or insurers are included in the process at any level, and their attacks on” abusive profits” that don’t exist are just codes for the fact that those people don’t want insurance plans of any kind to have any flows of cash — much fewer actual streams of profits.
There clearly are some people in the debate and discussions today who are simply and explicitly unhappy with health plans being included as any part of the agenda. That is unfortunate and dysfunctional because we need plans. We do not have any other tool kit or any other funding mechanism or any other purchasing functionality that can bring enough factors together to work with capitation and use it to optimize care. We need that mechanism to exist because we need something to capitate in order to make capitation work., Some people just don’t like insurance plans and they will probably continue to feel that way regardless of the performance levels of the plans and in spite of the low profit levels involved in the process, but we clearly need some mechanism in the process to make the capitation model cash distribution process work.
Directly capitating providers — and particularly physicians — for full risk can put huge and unfair cash flow burdens on the individual provider. Groups can be capitated if they have sufficient size of spread the risk of a given doctor or given patient across a pain smoothing volume — but the individual capitation models that have been attempted were extremely unfair to any provider who did not have enough patients to be actuarially valid.
Most of the team care sites that involve capitation have their doctors on salary and insulate them from the direct cash impact of any care decisions.
We are well served by having some organization function as a plan — and the Medicare Advantage model requires someone to hold accountable for the total set of services that are required by the risk approach.
Plan “Overpayments” Are a Fiction Based on an Erroneous Calculation
There are two very interesting Medicare Advantage overpayment urban legends that have been haunting the discussions about the program from its earliest days.
Both of the urban legends are cleverly misleading, seemingly legitimate but definitely flawed and clearly inaccurate calculations that are repeatedly used to argue that the plans are overpaid and that seem to have a mathematical underpinning that seems legitimate until you examine what it actually does.
They both end up with an estimate of the plans being paid roughly 104 percent of average Medicare. One legend looks at the actual bids done by the plans for all of the counties and says that the total cost of the bids compared to fee-for-service Medicare average costs in all the counties shows that the plans are actually paid 104 percent of average Medicare costs.
To come up with that number, they use actual numbers that compare the bids to the average costs in all counties and they calculate that somewhat surprising 104 percent — even though the bids in almost all of the counties are clearly well below the Medicare average costs.
They achieve that misleading total 104 percent number by adding in the costs of Medicare Advantage in the Urgent Needs Counties to all the other counties and then comparing that to the total cost of care for the country.
What people don’t know is that we have a very good additional program that uses Medicare dollars to improve care, and it involves only a subset of high need counties where we believe we need to make care better. It is actually We have a very good program of looking to see which counties in America have high and unmet medical needs — particularly for our children and our oldest patients. CMS has an urgent needs formula that is very well designed and appropriately used for that purpose. For the counties that have the highest medical needs, Medicare Advantage capitation is offered at 115 percent of the average Medicare cost in that county. The plan and the goal is to increase the number of caregivers providing organized and targeted care in those counties and they use the Medicare cash flow to prime that pump for those high need areas.
That very well intentioned and intentional program deserves much higher visibility as a nation. It works. We now have 20 percent of the total enrollment in Medicare Advantage members coming from those counties. MedPac is completely silent on that program but CMS loves it and gets good value from it.
The relevance here to the issue of the urban legend numbers is that 80 percent of the Medicare Advantage members from all of the other counties where the bidding process is in gear average less than 90 percent of the average cost of Medicare. That means that the Medicare Trust Fund spends less than 90 percent of the average costs on Medicare Advantage members everywhere else in the country — and it’s a guaranteed and very real savings because the payment is capitation based and it represents a cross section of the people in every county with the actuarial formula used to calculate the cost.
When you blend the numbers, the total capitation for the country comes to slightly over 104 percent of the average Medicare cost. We clearly spend less on Medicare Advantage for 80 percent of the counties and the savings are absolute and real but that fake news 104 percent average makes it appear that Medicare Advantage costs more overall.
It that 115 percent number is eliminated, then it is clear that we save money on Medicare Advantage for all of those people in all of those counties.
It’s definitely misleading, for MedPac to say that Medicare Advantage cost more everywhere without explaining or at least mentioning that very simple, very clear, and very basic set of arithmetic and the difference in costs for those people in the 115 percent pool.
The second distorted urban legend number is done every year by taking the actual care delivered to each of the Medicare Advantage members and pricing each piece of that care on a piecework basis against the actual Medicare fee-for-service fee schedule. Every year when they do that, they say that the cost total using that approach was less than the capitation paid to the plans for those members. When they do that calculation, they often come out at about a 5 percent lower cost for the members than the capitation number. They say, every year, that the difference between the two numbers represents a clear overpayment to the plans.
They very carefully ignore and omit the fact that the plans reduced the emergency room use by 30 percent and the capitation for each county was based on the higher emergency room use number that now does not appear as an expense when the plan care improvement makes it disappear.
That difference in care patterns happens every year. It’s what happens when people join plans. You can estimate it based on normal patterns of care change. The average care improvement number and care modification number that exists in plan estimates is around 9 percent. That number needs to be added back in as a change of care estimate — so the right way to do that calculation each year is to add up the price of actual care for those members today and then add back in the 9 percent savings from the better care. That lower cost calculation that they report now actually measures better care by the plans and they shamelessly use it to be overpayment to the plans.
They run that urban legend number every year and they say that it proves that the plans have been overpaid because they actually have somehow every single year magically managed to enroll healthier than average people.
One MedPac person actually said that the fact that the emergency room use was 35 percent lower for the Medicare Advantage members proves absolutely that healthier people join the plans every year.
Those urban legend calculations are the only two numbers that show that the payment to the plans might be higher than fee-for-service Medicare. They are cited with great frequency in policy debates on those issues, and they are needed because otherwise people look at the fact that the capitation is clearly less than the average cost of fee-for-service Medicare in all of those counties and they conclude that Medicare Advantage is actually saving that money.
They need to overpower that clear set of savings, so they say — "yes, that might look like savings in all of those countries but that obviously can’t be true because we know from our overall average number that the capitation average even with all of those seemingly large discounts is still running at 104 percent.”
They also say, “Yes, those capitation discounts in all of those counties look real and they look huge, but that isn’t a legitimate number because we know that if we paid fee-for-service prices for all of those people, they would cost less than the capitation.”.
As the Marx Brothers movie said — "Who are you going to believe? Me or your own eyes?”
Believe your own eyes.
The capitation discounts are real. The savings are real. The miscalculated fee costs from today’s patterns of care don’t represent a legitimate number for those people because their care as members of Medicare Advantage plans is too much better to have that number that represents an actual comparative cost.
Both of those numbers should be in a fake news hall of fame.
We should remove both of those clearly flawed and incorrect urban legend numbers about Medicare Advantage from the national debate on Medicare Advantage because they are just plain wrong.
Milliman just did an excellent actuarial study using the real numbers, and they show that the government pays less for Medicare Advantage enrollees and the program saves money for enrollees and Medicare.
The plans cost less than Medicare Fee-for-Service, have lower levels of fraud, and deliver much better care.
Stephen Pinker’s new book on thinking talks about the ability of very intelligent people to make a case for their own side in a tribal argument with great creativity and conviction even though they have to distort things in the process to reach their conclusion and support the tribal paradigm.
Saying that Medicare Advantage is overpaid when the data shows that the bids obviously fall below average area Medicare costs every year is a great example of that tribal thinking.
Saying that Medicare Advantage risk data is based on fraud is very much like the people who believe that the last American election had significant fraud embedded in it.
It’s tribal thinking from people who believe so strongly that fraud existed that they believe it must be there — and then they interpret something like a pharmacy system identifying a diagnosis as being fraudulent because that’s what the paradigm calls them to do.
Capitation Is a Powerful Purchasing Tool that can Give Us Complete Control Over Future Costs
As we look at the future of health care costs as a county, we would be well service to recognize the extremely important fact that the future payment model of using capitation to buy care for the people by the month could give us a payment approach that is actually completely under our control.
Capitation is an incredibly powerful tool. Even MedPac has said recently that they could eliminate the future Medicare deficit for the entire country by having a 2 percent rebasing reduction in the capitation level and by enrolling everyone in Medicare Advantage.
That would also reduce overall Medicare fee-for-service fraud significantly.
Standard Medicare has a 6 percent fraud level. They have failed absolutely for a very long time to reduce that number. We could also reduce the overall Medicare fraud level to zero by converting everyone to Medicare Advantage and optimizing and enhancing that risk process to give us the best number for our capitation payment.
We could and should do some extremely important things relative to care delivery right now. We can make care much better and much more affordable if we just upgrade some components of the tool kit we use for care.
The electronic tool kit for care is getting much better with amazing momentum and high levels of capability and we should very intentionally optimize our use of the best tools and processes.
We actually should be able to use artificial intelligence algorithms to predict, detect, and cure much of cancer in some categories within the next two years. We should be able to use remote linkages and artificial intelligence to predict more than 80 percent of adverse heart events in less than two years and we should be able to intervene to stop more than half of them from happening.
We should require all payers — all plans — to provide electronic data about each patient to the patient in real time and we should be able to have patients take their own data and meld it with fit bit types of tools and inputs to create highly patient specific enhancements in the delivery of care. There are at least 10,000 possible care apps available to people today and the usefulness of those apps will be magnified if the plans are required to give electronic data to every patient from the claims and payment data base of the plans.
We Should Be a Buyer for Care — Not a Payer
We can stop being just a payer for care and we can become a competent buyer of care for the first time in our history as a nation and we can use the care expectations we build into the next round of Medicare Advantage contracts as a major vehicle to structure some of that work and to make that happen very quickly and well.
There is absolutely no way to achieve those system supported care improvement goals with fee-for-service Medicare. Medicare fee-for-service is a dark ages for payment systems and it will only perpetuate a dark age of care delivery. Those tools will not happen with the kinds of restrictions that fee-for-service Medicare always creates for innovations and for changing patterns and pieces of care.
Medicare Advantage can mandate that those tools exist in its care sites and we should build the best of them into the Accountable Care Organization (ACO) components of fee-for-service Medicare.
We need to move beyond unfairly and inaccurately criticizing Medicare Advantage and choose to use it as a very powerful and very available purchasing tool to lead us to a new promised land for care with promises we can keep.
We could also make Medicare Advantage available to other purchasers of care. It’s possible to set up a Medicare Advantage buy in pool for the country that would allow every employer to contribute 15 percent of payroll to a next generation version of Medicare Advantage and make much better care and much better benefits be available than a lot of employers offer now.
The average employer spends more than 15 percent of payroll on health care costs now, so that cost would actually be a reduction in total expense levels.
We have talked about having a pure individual Medicare buy in. We could also have a group buy in to Medicare Advantage and the model would work if enough employers agreed to do it in a community to create the risk pool needed to pay the capitation for the plans.
If we did exactly what they do in Switzerland, Germany, and The Netherlands and if we simply impose a payroll tax on every paycheck using the same standards and tools we use for our Social Security funding process, the actuarial and economic reality is that a 15 percent tax would create a big enough risk pool fund to capitate every employed American and give everyone a choice of their own Medicare Advantage coverage.
That seems like a radical idea, but the 15 percent tax is actually lower than most employers spend now for health coverage. It could be particularly beneficial for employers with lower paid employees because it replaces high insurance premiums with lower taxes and paying capitation out of a collective fund makes coverage more affordable for low-income companies.
The lowest income employees whose employers do not buy health care coverage now because the standard insurance premium exceeds $20,000 in insurance premium costs will get better coverage for only $5000 in tax payments.
We could do Medicare for All with better coverage if we used Medicare Advantage and a payroll tax to provide the coverage and the payment approach.
That is not likely to happen now, but we can get part way there by inventing Medicare Advantage 2.0 and making the current approach available on a voluntary basis for employers.
Rather than attacking Medicare Advantage, at this point in time, we need to protect it. We need to end the misinformation about Medicare Advantage and support the program and protect it rather than damage it. Medicare Advantage gives us better care, more affordable care, better coordinated care, and continuously improving care, and does it for less than Medicare spends in each area for the people who get fee-for-service care in each area.
Let’s support that reality — and let’s not allow it to be damaged because just hurting the special needs plans part of that agenda will damage care for 3 million of the neediest patients in America.
We should be on a golden age for care and for Medicare Advantage and we should build on that foundation now and in the immediate future.
Part Two: Three Sets of Medicare Advantage Opponents
Some people have been doing some negative things relative to Medicare Advantage and we should be working to deal with each set of opponents to convert them all the supporting the plan.
We now know that there are three kinds of critics and opponents for Medicare Advantage today — and we need to understand who they each are and we should do what we need to do to help them overcome their resistance to the program.
Cold-Hearted, Uninformed, and Purely Ideological Critics
The first set of critics are the Cold-Hearted Bureaucrats (CHBs).
The coldhearted bureaucrats follow in the long-standing tradition of the traditional Medicare fee-for-service benefit limitation people and they oppose every patient and consumer linked benefit enhancements for the plans. The CHBs coldly oppose and attack expanding Medicare Advantage benefits, even though the better benefits clearly make very positive impacts on people’s lives.
Medicare Advantage has much better benefits than standard Medicare — including some levels of in-home care, dental care, and electronic care. The CHBs oppose and have objected to all of those enhancements and they earn the label cold-hearted because they don’t want government money to be used in expanded ways to help people even if individual people clearly benefit when that happens. The CHBs don’t count better care or better benefits as a positive things to do, because they believe those enhancements encourage people to enroll in Medicare Advantage plans and they don’t want the plans to be a better choice.
The CHBs say that the only benefits that should be given to Medicare enrollees are the ones created and originally given to people by standard Medicare — and they very explicitly do not believe that making lives better for people should be a use of government money.
The CHBs do not think that spending money to improve care is a good use of Medicare dollars. And the only use of government money should be to give people the traditional clearly inadequate and insufficient and inadequate original Medicare benefits
The Cold-Hearted Bs do not believe that the Medicare program should do things to save money for people because they believe Medicare should be only a payment tool and not a resource at any other level.
The Cold-Hearted Bs actually tend to be persuasive and they have a significant following — and they are not happy with Medicare Advantage at many levels today because it is helping people and not just paying Medicare Claims with Medicare Money.
The second set of Medicare Advantage critics are simply uninformed or misinformed about the program.
The Uninformed and Misinformed critics do not know or believe that the Medicare Advantage program actually costs less than standard Medicare for the members every year and they do not know or believe that the risk status information about the members was reasonably accurate from the very beginning and it is even more accurate now.
The uninformed believe in perpetual risk level inflation possibilities and they believe that it Is actually possible to invent diagnosis for people rather than discern them. Some even believe and say that some artificial intelligence types of processes can be used to expand the number of diagnosis to enhance the cash flow for plans.
They have accused plans in writing of using artificial intelligence tools to expand their risk scores and to distort the process in the plan’s favor.
The misinformed believe and say that the core business model of Medicare Advantage plans is to skim risk. They ignore the dozens of quality measurements and programs built into the five-star plan processes and they ignore the extensive and extremely successful support programs put in places through the special-needs plans for over 3 million very low-income people and they say to the public and the news media that the Medicare Advantage program is actually some kind of insurance company rip off of our tax dollars and has no positive impact on the clinical practice of care.
They tend to make colorful accusations — and the news media often take the bait on what is, in effect, fake news. The news media folk tend not to have any grasp of what Medicare Advantage actually is and too often completely swallow that bait and then sometimes pontificate about their sense of bad and damaging things being done by insurance companies flying the Medicare Advantage flag.
The misinformed also actually say and seem to believe that the Medicare Advantage plans generate extremely high levels of profits and they say frequently that those profits are both unearned and painfully excessive.
The actual profits for Medicare Advantage plans are at 4.5 percent.
The average profit level for a business in America is 11.5 percent. A number of industries and businesses have profits that far exceed those under 5 percent numbers.
The uninformed who worry most visibly about abusive levels of Medicare Advantage profits also seem not to know or care that federal law prevents the Medicare Advantage plans from having those kinds of profits.
The uninformed and misinformed critics of Medicare Advantage do not seem to know how that profit accumulation process works and they don’t know that the accusations they tend to make are both wrong and impossible to happen.
The third set of Medicare Advantage critics are the Ideologic opponents of the program.
Some people have a political ideology that does not want American businesses and American insurance companies to be included part of the health care solution set. They directly and explicitly tend to oppose insurance companies. They strongly want us to use a Canadian type of approach that has the government function as a single payer for health care and they do not want to have any insurance companies in the mix at all.
Single Payer is a mantra, a goal, a strategy, and it is both an ideological commitment and a political commitment for a number of people. Canada is almost a single payer country. They only use insurance companies for their prescription drug coverage, because they don’t include that coverage for prescription drugs in the taxpayer part of Canadian health payments and private insurers in Canada do fill that gap and sell insurance to a number of people because most Canadians do want their drugs covered.
But otherwise, Canada is a single payer system for health care.
The single payer Medicare For All advocates in our country tend to believe that other countries use that same Canadian single payer model to achieve their universal coverage.
That’s actually not true. Insurance companies are everywhere and they anchor the universal coverage in most of those countries.
Germany, the Netherlands, Belgium, and Switzerland all use what are basically Medicare Advantage plans.
They bear some resemblance to the exchanges in the Affordable Care Act.
Those countries all use only health plans for their universal coverage.
There is not only single person in Switzerland with government health insurance. Every Swiss is required to join a health plan and no one in Switzerland is allowed to be uninsured. Employers are required to offer private health plans and employers are required to pay at least half of the tax.
Those independent Dutch and Swiss and German health plans all compete with each other for customers. Competition is real and it works. That’s why there are no waiting times for doctors’ appointments in the Netherlands or the Alps and why they have both better health results and lower costs than we do here.
They link coverage to each employer in each of those countries, and the plans need to compete to win the loyalty of the employer and the employee.
So our Medicare Advantage plan critics who have an ideological opposition to using insurance plans here should take a look at what other countries actually do very successfully for their coverage and care.
They have been doing that for a very long time. Chancellor Bismarck of Germany invented health plans and competing, private payroll tax funded, Sickness Funds, and some of the plans he started continue to operate today.
Those particular Medicare Advantage critics who don’t like health plans should also remember and appreciate the fact that our basic Medicare program is already outsourced to 12 insurance companies.
Our traditional fee-for-service Medicare program actually isn’t a single payer system now in the purest sense of that term.
We have 12 insurance companies who function as Medicare Intermediates and the insurance companies with those contracts process every single claim for our Medicare program today. We actually don’t have a single payer administration person or a single functional Medicare Administration capacity anywhere in our government today.
The Medicare intermediaries do good work today.
We do need to spend time getting all three sets of Medicare Advantage critics to expand their thinking and to evolve in their sense and understanding of what we should be doing with Medicare Advantage.
We should all agree that we need great data that we trust and that we should make care improvement a priority instead of a vacuum for everyone on Medicare.
Those three sets of critics do tend to be building up a head of steam in a number of areas, and it is entirely possible that they might do some serious damage to the millions of low-income people with multiple medical conditions who are being served so well today by Medicare Advantage.
We also need our academics in far more settings to move past the rhetoric of political speeches into a functional set of research studies into what Medicare Advantage actually does and how the health care economy and tool kit is actually evolving.
Too many academics blindly attack Medicare Advantage with no real sense of what the program does or what it could do. There are rich streams of data that should be explored — but too many of our academics tend to buy the shameless assertion that Medicare Advantage is overpaid and an insurance industry scam of some kind that deserves their approbation and their rejection.
That is not Academic Economics’ finest hour in the health care arena.
Solid economists should get grounded in real information and in actual performance about every aspect of that program — and they should realize that we could save health care with the right payment model and with the use of purchasing skills rather than simply paying for care.
The Medicare Advantage program is under attack today, because some people with a distorted picture of what Medicare Advantage actually is are trying to cut the program in ways that will be very bad for patients for what are essentially manipulated and channeled emotional reasons in the context of a surprising set of fairly skilled fake news guided information flows.
We need to do better.
We need to protect the members.
If we fail, we will need to go to people who have no money and who have multiple medical conditions and who are getting in-home care and transportation support from caregivers who speak their language and we will have to say to those patients that the Medicare Advantage critics who are trying to damage the program have prevailed.
We absolutely do not want to tell those patients that their care is being eliminated because someone was alarmed that the risk level coding for their plan might not have been done functionally perfectly at one point in time and that means that their funding is being impaired now.
That’s actually a possibility.
The other side of that coin is that millions of Medicare Advantage members love their Medical Advantage caregivers and care.
Killing a program that is meeting the language needs of two thirds of the Hispanic members of Medicare — and killing a program that is providing care teams to people with multiple medical conditions who only have a $15,000 annual income would be a heartless, cruel, and completely unnecessary thing to do.
America deserves better.
Those patients deserve a lot better.
That backlash from those voters that would result from that level of damage would probably be grim.
Let’s celebrate Five-Star Plans this year — not attack them.
Let’s make the next set of Five-Star Celebrations something that we all support and enjoy.
We need the people who oppose Medicare Advantage see our successes in multiple settings and work to extend those successes to everyone.
The cold-hearted bureaucrats can end up with warm hearts if we help them think in terms of real people — and the ideologically rigid opponents can have open arms towards optimal support if we show them that our best path to universal coverage is universally competent care.