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Cost of Medicare Advantage Plans Questioned

In a report to be issued by the Congressional Government Accountability Office (GAO), Medicare Advantage plans (Part C) often cost beneficiaries more than the Original Medicare program (Parts A & B). While many Medicare Advantage plans advertise extra benefits and low costs, the investigative arm of Congress, says that many people have higher costs for home health care, nursing homes, and some hospital stays. About 20% of Medicare beneficiaries are in Medicare Advantage plans, and Medicare estimates this will rise to 27% by 2017.

The report says that Medicare spends more per beneficiary in Medicare Advantage than it does for beneficiaries in Original Medicare, but administration officials and insurance executives say the private plans provide a bargain. “Medicare Advantage plans are offering an average of approximately $1,100 in additional annual value to beneficiaries in terms of cost savings and added benefits,” said Kerry N. Weems, the acting administrator of the Centers for Medicare and Medicaid Services. Moreover, insurers say co-payments and deductibles are generally lower in private plans than in traditional Medicare (on average about half of what they would have paid in Original Medicare).

But the GAO said that in 2007, 19% percent of Medicare Advantage beneficiaries were in plans that projected higher cost-sharing for home health services, and; 16% were in plans that projected higher cost-sharing for inpatient services. Further, while the GAO found that nearly half of Medicare Advantage beneficiaries were in plans that had an out-of-pocket maximum, certain costs are not counted toward these out-of-pocket limits, such as the cost of some cancer drugs, some mental health services, and some home health care expenses.

Critics of private plans assert that they have higher marketing and administrative costs than traditional Medicare, but figures have been elusive. The GAO found that companies offering Medicare Advantage plans allocate about 87% of total revenue to medical expenses, 9% to non-medical expenses (like administration, marketing and sales), and 4% to profit.

Insurers say that low-income people rely heavily on Medicare Advantage because it provides more comprehensive benefits than traditional Medicare, and with Medicare Advantage you don't need a Medigap supplemental policy. But the GAO said the subsidies were not well focused. “If the policy objective is to subsidize health care costs of low-income Medicare beneficiaries,” the report said, “it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost-sharing for all Medicare Advantage beneficiaries, including those who are well off.”

Source: New York Times 2/28/08

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