Brief Understanding Medicare Advantage Payment
How the Program Allows and Obscures Overspending
Robert A. Berenson, Bowen Garrett, Adele Shartzer
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Enrollment in Medicare Advantage (MA) will soon be larger than enrollment in traditional Medicare. Although MA was supposed to generate Medicare program savings, it never has. There is growing consensus that MA plans are overpaid relative to traditional Medicare when viewed on comparable terms. Meanwhile, the Hospital Insurance trust fund that finances Part A of traditional Medicare (hospital services) is estimated to be exhausted in 2028, leaving Part A insolvent with enough dedicated financing to pay only 90 cents on the dollar for promised services. The way Medicare pays MA plans is complicated and difficult to describe, which can hinder reform efforts. In this brief, we describe the three major components of the MA payment system (bidding benchmarks, quality bonuses, and risk adjustment), how they contribute to overpayment to MA plans, and why the magnitude of overpayment is difficult to directly observe. We also describe reform proposals that would improve MA and generate program savings that could help shore up Medicare's financing or reduce federal budget deficits.

Research Areas Health and health care
Tags Medicare
Policy Centers Health Policy Center