Medicare Offers Advantage to Private Plans

Separate from utilization, prices for healthcare services continue to be a significant factor towards increased spending in the United States. Multiple efforts have been made to curb prices by means of financing structures, including Medicare Advantage plans. As they were privately managed, these Medicare Advantage plans were not expected to meet the benchmarks of traditional Medicare. The Medicare Advantage plans were permitted to have different reimbursement structures and were expected to be differentiated through different quality incentive programs. The expectation was that, like commercial group rates, Medicare Advantage plans would rely on market forces to manage spending. New research, however, shows that Medicare Advantage prices are similar to traditional Medicare fee-for-service prices for office visits and for certain procedures such as EKGs. 

The authors posited that consumer behavior drives Medicare Advantage plans to stay in line with traditional Medicare. Market forces have no impact on reimbursement rates as patients and providers are able to opt out of the Medicare Advantage plans and enroll with traditional Medicare as their failsafe option.

The authors highlight important policy implications that have far reaching consequences. Policy changes affecting traditional Medicare reimbursement do indeed affect Medicare Advantage prices. In addition, not only are private insurers succeeding in Medicare due to the similarities in prices between traditional Medicare and Medicare Advantage but the efficiencies that private insurers introduce have the potential of bolstering confidence in the program overall. Private payers have different customer service approaches and other characteristics that arguably attract consumers due to improved interactions with payers. 

The efficiencies gained through privately managed Medicare Advantage plans are more likely to be realized in decreased administrative burdens of a non-governmental operational basis. These payers have IT development and infrastructure, flexibility in human resource development, and decreased overhead margins all due to their work in the commercial sector. The role of traditional Medicare remains critical in the policy setting for these private payers; however, their advantages have additional impacts on the marketplace that cannot be ignored and may potentially decrease utilization of government based, traditional structures.

Abstract

OBJECTIVES: To compare the prices paid to physicians by employer-sponsored Medicare Advantage (MA) plans with those paid by traditional Medicare (TM) and to determine whether the relationship between MA and TM prices is affected by the generosity of MA benchmarks.

STUDY DESIGN: Descriptive analysis of medical claims data from the 2014-2015 MarketScan Medicare Claims Database.

METHODS: We focus on claims for low-complexity office visits with an established patient (Current Procedural Terminology [CPT] code 99213) and electrocardiograms (CPT code 93000). For a given service, we identify the prices paid by MA plans and by TM in a metropolitan statistical area (MSA), which is our definition of a market. We then construct an MA-to-TM price ratio for each MSA and report the median price ratio. In a subanalysis, we disaggregate the result for office visits by MA benchmark generosity.

RESULTS: For both services, the estimated median price ratio is close to 1.00. We also find that even as MA benchmarks (relative to local fee-for-service spending) increase, the median price ratio for office visits remains close to 1.00.

CONCLUSIONS: After analyzing claims for common physician services, we find that employer-sponsored MA plans pay prices that are similar to TM rates. This holds even as the generosity of MA plan payment changes. Similarity between MA and TM prices appears to be stable over time, despite recent policy changes. Our findings emphasize the important role that TM plays in the MA market and that TM payment changes could have a spillover effect on MA prices and spending.

PMID: 30020754

Chen, JL, et al. Am J Manag Care. 2018; 24 (7): 341-344.