­­­­The Real Cost of Medicare Advantage Plan Success

Featuring: Stacie Sutter | Senior Director, Payor Performance

MA Plans Cost Taxpayers More, But Pay Hospitals Less, Than Medicare

Nearly half of the Medicare-eligible population is now enrolled in a Medicare Advantage (MA) plan. By 2032, MA enrollment is expected to grow above 60 percent. These plans are funded by the government but managed by private-sector insurance companies. They’ve proven to be so lucrative Humana plans to exit the commercial business entirely and go all-in on government-funded programs like MA. Unfortunately, they’re proving to be more costly to taxpayers and providers.

Medicare Advantage (MA) plans have never cost taxpayers less than traditional Medicare, despite that being the entire goal of the program. According to the Medicare Payment Advisory Commission’s 2021 Report to Congress, aggregate MA payments are 4 percent higher than Medicare spending levels, meaning these plans are 4 percent less efficient than the fee-for-service model they were designed to improve.

In addition to costing taxpayers more, MA plans are paying hospitals less than traditional Medicare. Instead of paying 102 percent or more as outlined in their contracts, MA plans are actually paying less than 90% of Medicare rates to the organizations delivering care to their patients.

Medicare reimbursement rates have never covered the total cost of care, so when MA reimbursement falls below that already-low baseline, hospitals are left to absorb the difference. With rising costs, record inflation and dwindling labor, many hospitals simply can’t afford to cover the difference anymore. Providers across the country continue to face near-zero operating margins, forcing many to reevaluate the services they’re able to offer their communities, forego upgrades to facilities and equipment, and consider consolidation.

To address this critical issue, providers continually attempt to renegotiate rates and hold payors accountable for paying what they’ve agreed to and paying on time. If successful, these negotiations typically result in slight rate increases under the commercial insurance plans, not MA plans. Since the majority of commercial plans are self-funded by employers, business owners fund the rate increases, preventing any erosion to insurance company profits.

Calling for a real solution:

We need a system overhaul that requires all stakeholders to come to the table and work together to define a sustainable path forward. Here are a few ideas:

  • We need to reinforce efforts to hold MA plans accountable to the same standards as Medicare. No more loopholes on what services will be covered. No more ambiguity on what information is required before a service can be authorized. No more denials for care that is clearly medically necessary. We urge providers to hold MA plans accountable for the changes CMS is enacting to require MA plans to follow traditional Medicare rules for coverage decisions. We hope to see additional legislation that enforces common standards, eliminates undue administrative burden caused by variability, and prevents unnecessary care delays and deferrals.
  • We need to eliminate inequitable agreements between MA plans and providers. Healthcare organizations must put a higher price on the value of their network and stop accepting MA participation without the right guardrails in place. Agreements should follow the Medicare standards, outlined by the provider’s contract terms, not the payor’s. Rates should be set to sufficiently offset the impact of burdensome administrative practices imposed by these plans that far exceed traditional Medicare standards. Consider partnering with only the top few MA plans that strategically align with your organization’s goals and are willing to agree on equitable terms.
  • We need to educate communities about the real economics of Medicare and MA plans. Inform patients about the difference between coverage options, plans and costs during the open enrollment period. Share information about how often care is denied under Medicare compared to MA plans. Help shape the public narrative to combat the PR campaigns currently being driven by payors regarding the value of these plans.

Equip your organization with the information needed to hold payors accountable and improve negotiations.

Ensemble offers comprehensive revenue cycle managed services to clients, including strategic guidance for health system executives and managed care departments to improve payor relationships.

Stacie Sutter brings nearly 20 years of healthcare experience in managed care and revenue cycle operations to Ensemble Health Partners as the Senior Director of Payor Performance. 

These materials are for general informational purposes only. These materials do not, and are not intended to, constitute legal or compliance advice, and you should not act or refrain from acting based on any information provided in these materials.Neither Ensemble Health Partners, nor any of its employees, are your lawyers.Please consult with your own legal counsel or compliance professional regarding specific legal or compliance questions you have.