The variety of folks enrolled in Medicare has elevated steadily lately, and together with it, Medicare spending. Specifically, enrollment in Medicare Benefit, the personal plan different to conventional Medicare, has greater than doubled during the last decade. Notably, Medicare spending is larger and rising quicker per particular person for beneficiaries in Medicare Benefit than in conventional Medicare. As enrollment in Medicare Benefit continues to develop, these traits have essential implications for complete Medicare spending, and prices incurred by beneficiaries. In its 2022 funds, the Biden Administration expressed assist for reforming funds to non-public plans as a part of efforts to increase the solvency of the Medicare Hospital Insurance coverage (HI) Belief Fund and enhance affordability for beneficiaries.
This evaluation examines Medicare spending per particular person for beneficiaries in Medicare Benefit, relative to conventional Medicare. We construct on prior work revealed by the Medicare Fee Advisory Fee (MedPAC) and the Facilities for Medicare and Medicaid Companies (CMS) Workplace of the Actuary (OACT) to offer estimates of the quantity Medicare would have spent for Medicare Benefit enrollees had they been coated underneath conventional Medicare in 2019 (the latest 12 months for which information can be found). We use publicly obtainable information from CMS that features spending for individuals who had been enrolled in each Half A and Half B of conventional Medicare, by class of service, in addition to data on common danger scores and enrollment by county. This permits us to calculate per-person spending for beneficiaries in conventional Medicare on a foundation similar to federal funds per enrollee in Medicare Benefit. We additionally look at the extent to which the projected development in Medicare Benefit spending is attributable to the expansion in enrollment and the rise in spending per particular person. We then illustrate potential financial savings to the Medicare program between 2021 and 2029 underneath two different eventualities the place Medicare Benefit spending per particular person is decrease or grows slower than underneath present projections. (See Methodology for extra particulars on the information and analytic strategy.)
Our evaluation finds:
- Medicare spending for Medicare Benefit enrollees was $321 larger per particular person in 2019 than if enrollees had as a substitute been coated by conventional Medicare. The Medicare Benefit spending quantity contains the price of additional advantages, funded by rebates, not obtainable to conventional Medicare beneficiaries.
- The upper Medicare spending per Medicare Benefit enrollee, in comparison with spending for comparable beneficiaries underneath conventional Medicare, contributed an estimated $7 billion in extra spending in 2019.
- Development in Medicare Benefit enrollment explains half of the projected improve in complete Medicare Benefit spending between 2021 and 2029 and half is attributable to development in Medicare funds per Medicare Benefit enrollee, after accounting for inflation.
- If spending per Medicare Benefit enrollee was 2 % much less every year than projected by the Medicare actuaries, just like the projected influence of a suggestion made by MedPAC, complete Medicare spending could be $82 billion decrease between 2021 and 2029. If as a substitute Medicare funds per Medicare Benefit enrollee grew on the identical charge as is projected for spending per particular person in conventional Medicare (4.4% vs 5.3%), complete Medicare spending could be $183 billion decrease between 2021 and 2029.
Background on Funds to Medicare Benefit Plans
Medicare beneficiaries have the choice to obtain their Medicare advantages by means of both the normal Medicare program or by enrolling in a personal well being plan, equivalent to an HMO or PPO, that contracts with Medicare, referred to as Medicare Benefit. Medicare pays Medicare Benefit plans a set quantity for every enrollee. The fee is set by means of an annual course of wherein plans submit “bids” for a way a lot they estimate it’s going to price to offer advantages coated underneath Medicare Elements A and B for a median beneficiary. The bids submitted by every plan are in comparison with a benchmark, which is an quantity primarily based on a set share of the projected common spending for beneficiaries in conventional Medicare in the identical county. The benchmarks vary from 95 % in excessive spending counties to 115 % in low spending counties. The benchmarks are topic to caps, which means they can’t exceed the benchmarks that had been in place earlier than the Reasonably priced Care Act. As well as, the benchmarks are elevated by 5 % for plans that obtain at the least 4 out of 5 stars underneath the standard bonus program, and 10 % in sure “double bonus” counties.
Plans that bid under the benchmark obtain a portion of the distinction between the bid and the benchmark as a “rebate” (50 % for plans with 3 or fewer stars, 65 % for plans with 3.5 or 4 stars, and 70 % for plans with 5 stars). Rebates have to be used to cut back price sharing, subsidize the usual Half B and/or Half D premium, or pay for supplemental advantages (equivalent to imaginative and prescient, dental, and listening to). A portion of the rebate might also be used for administrative prices or retained as revenue. Plans that bid above their benchmark obtain the benchmark quantity, and enrollees pay a further premium equal to the distinction between the bid and benchmark. The funds to plans are danger adjusted, primarily based on the well being standing and different traits of enrollees, together with age, intercourse, and Medicaid enrollment. Medicare funds are larger for plans with larger common danger scores as a result of their enrollees are anticipated to incur larger prices.
Whereas conventional Medicare spending is used to ascertain benchmarks, precise funds to Medicare Benefit plans might be larger or decrease than spending for comparable beneficiaries in conventional Medicare. Adjustments within the Reasonably priced Care Act initially decreased Medicare Benefit benchmarks. Nevertheless, since 2017, benchmarks have risen on common, which will increase the utmost attainable fee a plan can obtain. When benchmarks improve, plans that bid under the benchmark might be able to retain the identical quantity of rebate {dollars}, and thus provide the identical stage of additional advantages, whereas rising their bid for Half A and B companies. Alternatively, these plans might bid the identical (and even barely much less) and obtain larger rebate funds because the distinction between the benchmark and bid widens as a result of the benchmark is larger. Both response will increase the fee Medicare Benefit plans obtain as benchmarks improve. One cause for the latest improve in benchmarks is that extra plans are in bonus standing, and thus have 5 % (or 10 % in double bonus counties) added to their benchmark. In 2021, 81 % of Medicare Benefit enrollees are in plans that obtain a bonus fee. Equally, rebates improve as star scores improve, as a result of plans with larger star scores retain a bigger % of the distinction between the benchmark and bid as a rebate.
As well as, danger adjustment can result in larger funds for Medicare Benefit enrollees than would have been spent in conventional Medicare. It is because danger scores are largely primarily based on diagnoses, and extra diagnoses typically improve a beneficiary’s danger rating, offering an incentive for diagnoses to be coded extra comprehensively for Medicare Benefit enrollees than happens for conventional Medicare beneficiaries. MedPAC estimates that this extra complete coding of diagnoses in Medicare Benefit elevated danger scores 9.1 % relative to conventional Medicare in 2019. There may be additionally some concern that Medicare Benefit plans submit inaccurate diagnoses that improve danger scores and lead to overpayments. The Well being and Human Companies Workplace of the Inspector Basic is at the moment conducting a focused evaluation of documentation submitted by Medicare Benefit organizations to find out whether or not diagnoses and related danger scores adjust to federal rules. And in July, the Division of Justice introduced that they had been intervening in a False Claims Act lawsuit alleging that Kaiser Permanente had submitted inaccurate diagnoses codes for Medicare Benefit enrollees.
Findings
Spending per particular person
Medicare spent $321 extra per particular person for Medicare Benefit enrollees than it will have spent for a similar beneficiaries had they been coated underneath conventional Medicare in 2019. After adjusting for variations in well being standing and the geographic distribution of Medicare Benefit enrollees and conventional Medicare beneficiaries, spending per particular person for companies coated underneath Elements A and B totaled $11,523 in 2019 for beneficiaries in conventional Medicare. This estimate for conventional Medicare displays the classes of spending which might be coated by Medicare funds to Medicare Benefit plans, and so excludes spending on hospice and funds for graduate medical schooling however contains administrative bills. As well as, it adjusts for the influence of extra intense coding of diagnoses in Medicare Benefit relative to conventional Medicare, as estimated by MedPAC, which makes Medicare Benefit enrollees appear like they’re in worse well being. (See Methodology for extra dialogue.)
In the identical 12 months, federal funds to Medicare Benefit plans had been $11,844 per enrollee, or $321 extra per particular person than Medicare would have spent if these beneficiaries had as a substitute been coated by conventional Medicare. In different phrases, Medicare Benefit funds had been about 103 % of spending for comparable conventional Medicare beneficiaries. The upper spending occurred regardless of modifications in regulation made by the Reasonably priced Care Act that decreased funds to plans over time (which MedPAC estimated at 114 % of conventional Medicare beneficiary spending in 2009).
As described above, Medicare funds per Medicare Benefit enrollee embody two parts: bid-based expenditures, which replicate the plan’s anticipated prices for offering companies coated underneath Medicare Elements A and B (adjusted for well being danger), and rebates, which pay for the price of advantages not obtainable to conventional Medicare beneficiaries, together with decreased price sharing, sponsored Half B and Half D premiums, and protection of extra advantages, equivalent to imaginative and prescient, dental and listening to. In 2019, the bid-based portion of the Medicare Benefit fee was $10,848 and the rebate portion was $996.
Increased Medicare funds per Medicare Benefit enrollee elevated complete Medicare spending by an estimated $7 billion in 2019. Throughout the roughly 22 million folks enrolled in Medicare Benefit in 2019, larger spending of $321 per particular person led to about $7 billion in extra spending in that 12 months. That is the same as about 3 % of all Medicare Benefit spending in 2019.
Projected development in Medicare Benefit spending
Development in Medicare Benefit enrollment explains half of the projected development in Medicare Benefit spending between 2021 and 2029, after adjusting for inflation. Between 2021 and 2029, federal spending on funds to Medicare Benefit plans is projected to extend by $316 billion, from $348 billion to $664 billion. After accounting for inflation (which represents $108 billion of this improve), the remaining $208 billion is defined by development in funds per particular person ($105 billion, or 50 %) and development in enrollment ($104 billion, or 50 %) (Determine 1).
Notably, the rebate portion of Medicare Benefit funds, which have to be used to cowl the price of extra advantages not obtainable to conventional Medicare beneficiaries, is projected to develop between 2021 and 2029. Rebates account for about 10 % of Medicare Benefit funds in 2021 ($35 billion of $348 billion) and are projected to rise to 12 % ($80 billion of $664 billion) in 2029.
Medicare spending is projected to develop quicker for Medicare Benefit enrollees than conventional Medicare beneficiaries. Spending per particular person in Medicare Benefit is projected to develop 5.3 % a 12 months on common between 2021 and 2029, an quantity which has similarities throughout plan varieties (primarily based on KFF evaluation of knowledge from the 2020 Medicare Trustees Report). The projected development in Medicare Benefit spending per particular person is considerably larger than the 4.4 % common annual development projected for beneficiaries in conventional Medicare (see Methodology for particulars on information and strategies).
In line with the Medicare actuaries, the upper projected development in Medicare funds per Medicare Benefit enrollee are partly defined by quicker projected development within the rebate portion of the fee. Rebates are projected to develop practically 8 % a 12 months on common, which the actuaries attribute to “assumed will increase in high quality bonus funds and will increase in benchmarks.”
It is usually attainable that the quicker anticipated improve in spending per particular person in Medicare Benefit in comparison with conventional Medicare by means of 2029 is due partly to an assumption that sicker and better price beneficiaries, equivalent to these dually eligible for Medicare and Medicaid, will enroll in Medicare Benefit at a better charge than in conventional Medicare. For instance, the variety of Medicare Benefit enrollees in particular wants plans (SNPs), which included simply over half of all dually eligible beneficiaries in Medicare Benefit in 2019, is anticipated to extend barely by 2029. Nevertheless, the change is comparatively small, and even when it represents solely half of the full improve in Medicare Benefit enrollment by dually eligible beneficiaries, it suggests the projected improve in spending per Medicare Benefit enrollee is being pushed by different elements, equivalent to Medicare Benefit fee methodology. Moreover, beginning in 2021, all Medicare beneficiaries with end-stage renal illness (ESRD) are eligible to enroll in a Medicare Benefit plan. Although beneficiaries with ESRD have considerably larger prices than the typical Medicare beneficiary, they symbolize lower than 1 % of all Medicare beneficiaries, and so elevated enrollment by beneficiaries with ESRD is prone to clarify a comparatively small portion of the expansion in per-person spending in Medicare Benefit.
Various projections for Medicare Benefit spending
If Medicare Benefit spending per particular person was 2 % much less a 12 months than projected, just like the simulated impact of really useful fee modifications from MedPAC, complete Medicare spending could be $82 billion decrease by means of 2029. MedPAC has proposed modifications to how Medicare Benefit benchmarks are calculated and estimate these modifications would lead to a 2 % discount in Medicare Benefit funds in a single 12 months. Making use of this fee discount to the projected Medicare Benefit funds per enrollee in every year between 2022 and 2029, complete Medicare Benefit spending could be $82 billion decrease by means of 2029 (Determine 2). The lower is roughly 1 % of complete Medicare profit spending over these years (and a couple of % of Medicare Benefit spending).
Even with the discount in mixture spending underneath this situation the place Medicare Benefit funds are decreased by 2 % per 12 months, projected Medicare spending per Medicare Benefit enrollee would nonetheless be larger and develop quicker than projected spending per particular person in conventional Medicare. MedPAC expects implementing modifications to the benchmark coverage that lead to a 2 % discount in funds in a given 12 months would have solely a modest impact on entry to plans with decrease price sharing and decreased Half B and D premiums. For instance, of their simulations, the overwhelming majority (over 95 %) of Medicare beneficiaries would proceed to have entry to Medicare Benefit plans that provide decreased price sharing and Half B and/or D premium reductions. The variety of plan sponsors and plan decisions would differ throughout geographic areas, as they do underneath present coverage, however could be considerably decreased. Within the quartile of counties with the bottom conventional Medicare spending per particular person, MedPAC estimates a median of 5 plan sponsors would provide 12 completely different plans (in comparison with 6 plans sponsors who supplied 22 completely different plans in 2020). Within the quartile of counties with the best spending per particular person in conventional Medicare, a median of 8 plan sponsors would provide 22 completely different Medicare Benefit plans (in comparison with the identical variety of sponsors who supplied 27 plans in 2020).
Below another, illustrative situation, the place Medicare Benefit spending per particular person grew on the identical charge as is projected for conventional Medicare, spending could be $183 billion decrease between 2021 and 2029. For this situation, we calculated the distinction in projected Medicare spending if Medicare funds per particular person to Medicare Benefit plans grew on the identical charge as spending per particular person in conventional Medicare (4.4 %) between 2021 and 2029, quite than the upper 5.3 % development charge projection. Whereas this strategy is just not instantly pegged to a particular coverage proposal, it illustrates the potential for financial savings, of, for instance, a cap on the expansion in complete Medicare Benefit funds per enrollee. To regulate to such a cap, plans might discover extra efficiencies within the protection of Half A and B companies, cut back supplemental advantages, limit the longer term development in supplemental advantages, decrease administrative prices, cut back income, or some mixture of every. Limiting the expansion in Medicare fee per Medicare Benefit enrollee instantly or not directly is also achieved by means of different fee reforms.
Below the situation the place per-person spending development in Medicare Benefit and conventional Medicare is equal, complete Medicare Benefit spending over 2021 to 2029 could be $183 billion decrease (Determine 2). For context, the financial savings underneath this situation represents 4 % of projected Medicare Benefit spending over this time interval (and a couple of % of complete Medicare profit spending). That compares to an anticipated discount in Medicare Benefit spending of 8.9 % between 2010 and 2019 as a result of modifications within the Reasonably priced Care Act (primarily based on CBO’s estimate of the well being care regulation and its March 2009 baseline). Whereas spending per particular person would develop on the identical charge in each Medicare Benefit and conventional Medicare underneath this situation, funds per Medicare Benefit enrollee could be larger than spending per beneficiary in conventional Medicare due to larger projected spending per particular person in Medicare Benefit in 2021.
Evaluating the 2 different eventualities, the discount in Medicare Benefit spending is comparable within the preliminary years of the time interval. Nevertheless, the Medicare financial savings accrue extra quickly underneath the situation the place development in funds per Medicare Benefit enrollee is the same as the speed of development in spending per particular person in conventional Medicare. It is because financial savings from decrease development compound over time. (Toggle between the 2 eventualities to see the year-by-year financial savings underneath every situation in Determine 3).
These estimates assume no modifications to projected enrollment, which can happen if supplemental advantages, price sharing, or different options of Medicare Benefit plans change in response to decrease funds from the federal authorities. Nevertheless, whereas it’s not attainable to know precisely how plans will reply to decrease funds, earlier analyses of previous fee modifications exhibit that plans have discovered financial savings elsewhere with a purpose to keep rebate {dollars} to fund supplemental advantages that will attraction to enrollees. For instance, MedPAC examined the response of Medicare Benefit plans that misplaced bonus standing between 2018 and 2019 and located that these plans decreased their income and administrative prices, and had decrease development of their projected Half A and B prices in comparison with different plans. This allowed the plans to proceed to offer comparable ranges of supplemental advantages. Additional, regardless of predictions by CBO, Medicare actuaries, and others that enrollment in Medicare Benefit would fall following the reductions in fee to Medicare Benefit plans enacted as a part of the Reasonably priced Care Act, enrollment by no means declined and has as a substitute risen quickly. Plans provide extra beneficiant supplemental advantages in 2021 than at every other level in this system’s historical past and Medicare Benefit markets are strong, with the typical Medicare beneficiary having greater than 30 Medicare Benefit plans to select from in 2021.
Conclusion
Traditionally, one purpose of the Medicare Benefit program was to leverage the efficiencies of managed care to cut back Medicare spending. Nevertheless, this system has by no means generated financial savings relative to conventional Medicare. In truth, the alternative is true. In consequence, Medicare Benefit plans have been capable of provide an more and more strong set of additional advantages not obtainable to beneficiaries in conventional Medicare. The annual price of the rebate {dollars} used to pay for the additional advantages – $1,680 per Medicare Benefit enrollee for non-employer, non-SNP plans in 2021 – greater than offset any financial savings that Medicare Benefit plans generate by bidding under the benchmark set by CMS for masking Half A and B companies. The additional advantages enhance protection for beneficiaries who select Medicare Benefit plans and have possible contributed to the substantial improve in Medicare Benefit enrollment. However the larger funds have additionally led to larger Medicare spending than would have occurred underneath conventional Medicare and better Medicare Half B premiums paid by all beneficiaries, together with these in conventional Medicare.
Our evaluation finds that Medicare Benefit funds per enrollee in 2019 had been roughly 103 % of spending per particular person for comparable beneficiaries coated by conventional Medicare, in keeping with estimates primarily based on information submitted by personal plans as a part of the bidding course of and concurrent projections by CMS of future spending in conventional Medicare. MedPAC’s most up-to-date evaluation of the connection between Medicare Benefit funds and spending in conventional Medicare means that the distinction has widened, with 2021 funds per Medicare Benefit enrollee estimated to complete 104 % of spending in conventional Medicare. That development is partly attributed to the rise within the rebate element of Medicare Benefit funds, which elevated 14 % between 2020 and 2021. Whereas a part of the rise in rebates stems from a lower in how a lot personal plans bid to offer protection of Half A and B companies, different options of the Medicare Benefit fee methodology, together with the standard bonus program funds and benchmark coverage contribute to each the latest and projected development in rebates, and in flip, complete Medicare Benefit spending. For instance, underneath the standard bonus program, funds from the federal authorities to Medicare Benefit plans will complete $11.6 billion in 2021, at the least a portion of which was paid because the rebate.
MedPAC lately really useful modifications to how plan funds are calculated, observing that as a result of most plans at the moment bid nicely under the price of offering Half A and B companies in conventional Medicare, there is a chance for the Medicare program to share in these efficiencies. Their simulations point out {that a} 2 % discount in funds wouldn’t considerably have an effect on entry to non-public plans or supplemental advantages. A discount in Medicare Benefit funds in keeping with the simulated impact of MedPAC’s suggestions, would lead to Medicare program funds per enrollee that will stay larger and nonetheless develop quicker than spending underneath conventional Medicare. Alternatively, bringing Medicare Benefit spending development in keeping with projected development in conventional Medicare would obtain greater than twice as a lot financial savings. Below that situation, absolutely the stage of funds per enrollee to non-public plans would nonetheless be larger than spending per particular person for beneficiaries in conventional Medicare. Decreased federal funds might imply Medicare Benefit enrollees see fewer additional advantages and better price sharing and premiums in comparison with at this time (however nonetheless decrease prices than in comparison with conventional Medicare with out supplemental protection), however plans might additionally cut back income or administrative prices to make up the distinction. Additional, financial savings of this magnitude could be lower than half of these included within the Reasonably priced Care Act, which had been adopted by a interval of strong Medicare Benefit development.
Over the following decade, Medicare Benefit enrollment is anticipated to proceed to develop. As extra Medicare beneficiaries enroll in personal plans, variations in Medicare funds throughout Medicare Benefit and conventional Medicare will result in even larger Medicare spending, and extra beneficiant advantages for beneficiaries in Medicare Benefit than conventional Medicare. That larger spending will increase Half B premiums paid by all Medicare beneficiaries, together with those that aren’t in a Medicare Benefit plan, and contribute to the financing challenges dealing with the Medicare HI Belief Fund. Additional, these projections elevate questions of fairness between Medicare Benefit and conventional Medicare as a result of the quicker development in spending per Medicare Benefit enrollee, in comparison with conventional Medicare beneficiaries, is partly as a result of rising rebates to non-public plans, which cowl the price of advantages not obtainable to conventional Medicare beneficiaries. Though taking steps to deal with the fiscal challenges dealing with Medicare aren’t entrance and middle in present Medicare coverage discussions, policymakers might quickly be looking out for choices to realize Medicare financial savings to fund different spending priorities or lengthen the solvency of the Medicare HI Belief Fund. This evaluation means that lowering the distinction in funds between Medicare Benefit and conventional Medicare would generate financial savings, with the potential for reductions in additional advantages for Medicare Benefit enrollees.
This work was supported partly by Arnold Ventures. We worth our funders. KFF maintains full editorial management over all of its coverage evaluation, polling, and journalism actions.