Savings in Medicare Advantage related to lower spending before beneficiaries enroll

The savings that Medicare Advantage plans can bring to the table may have been over-weighted after a recent study revealed seniors who switch from traditional Medicare plans already have lower healthcare costs before they join an MA plan. The study undermines the assumption that profits by MA plans have been due to their abilities to reduce healthcare spending by managing patients or changing patterns of care, rather than selection bias.

In 2016, people who switched from traditional Medicare to MA spent $1,253 less in 2015, on average, according to the study by Kaiser Family Foundation. The finding was adjusted for health risk, but the savings were consistent even among traditional Medicare beneficiaries with specific heath conditions. People with diabetes who switched to MA in 2016 had lower healthcare costs of $1,072 in 2015, while beneficiaries with asthma cost $1,410 less, and those with breast or prostate cancer had lower costs of $1,517.

The findings have significant implications for the cost estimations of MA beneficiaries. The study comes as MA has eclipsed more than one-third of all Medicare beneficiaries and is expected to continue growing in share.

“Even after risk adjustment, the results indicate that beneficiaries who choose Medicare Advantage have lower Medicare spending––before they enroll in Medicare Advantage plans––than similar beneficiaries who remain in traditional Medicare, suggesting that basing payments to plans on the spending of those in traditional Medicare may systematically overestimate expected costs of Medicare Advantage enrollees,” the study reads.

While lower healthcare spending was consistent across beneficiaries who switch to MA, the question remains why higher utilizers of healthcare are less likely to go into MA and remain in traditional Medicare. The study also raises the question of how effective MA plans actually are in lowering costs.