PhotoThe costs of Medicare are quickly rising and are likely to rise even more in the years ahead as more Baby Boomers are enrolled. It has many lawmakers and policymakers looking for ways to cut costs.

Researchers at University of California San Diego School of Medicine have a suggestion: take a hard look at how Medicare Advantage plans are funded.

In a report published in the journal Health Affairs, the researchers contend that Medicare could over-pay Medicare Advantage plans by $200 billion over 10 years.

When you sign up for Medicare, you have the option of going with Original Medicare or enrolling in a Medicare Advantage plan. These Medicare Advantage plans are provided by private health insurance companies that contract with Medicare to lump all services -- Part A, Part B, and Part D prescription drug coverage -- into one policy. Advantage plans can also cover things that Medicare doesn't.

Payment method is the problem

Medicare pays Medicare Advantage providers, but the UC researchers say how they are paid is the source of the problem. When an individual enrolls in Medicare Advantage, Medicare pays an amount into the plan based on how much medical service the individual is likely to need.

The problem is, there is really no way to know. The researchers say Medicare Advantage plan administrators "have strong incentives to find and report as many diagnoses as they can," meaning they get more money from Medicare. This is called “coding intensity.”

The researchers point to a recent study that found no evidence that Medicare Advantage policyholders use any more medical services than people enrolled in Original Medicare. Unless this payment system changes, the researchers argue, Medicare could overpay Medicare Advantage plans by $200 billion over the next decade.

Protect taxpayers

Principal investigator Richard Kronick says Congress and the Centers for Medicare and Medicaid (CMS) should establish a payment system that protects taxpayers from strategies used by Medicare Advantage plans to boost their revenue.

“The projected $200 billion in over-payments over the next ten years is stunningly large in absolute dollar terms," he said. "To provide some perspective, federal support for community health centers is approximately $5 billion per year.”

Kronick says more than 30% of people on Medicare have opted for a Medicare Advantage program. To reduce the cost to the taxpayer, he says the payment system should be adjusted to make no distinction in the health of those in Medicare Advantage plans and those on Original Medicare.


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