Growing cost of MA further adding to Medicare financial woes

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As enrollment rises in Medicare Advantage, the private plan alternative to traditional Medicare, so does spending on those beneficiaries, further contributing to Medicare's solvency and affordability challenges, according to a Kaiser Family Foundation report released last week.

The study found that in 2019, Medicare spent $321 more per person for MA enrollees than it would have spent for the same beneficiaries had they been covered under traditional Medicare, while higher Medicare payments per MA enrollee increased total Medicare spending by an estimated $7 billion in 2019.

Further contributing to the rise in MA spending is the expansion of extra benefits -- such as vision, dental and hearing coverage -- not traditionally covered under the standard Medicare plan. 

That expansion of benefits has also led to increased enrollment in MA, which reached 26 million this year -- more than four out of every 10 beneficiaries. Spending on MA continues to rise and is projected to hit $664 billion by 2029, driven in part by growth in enrollments. 

However, the study found that if spending per Medicare Advantage enrollee were 2% less each year than the amount projected by the Medicare actuaries, total Medicare spending would be $82 billion lower than projected between 2021 and 2029.

WHY THIS MATTERS 

Medicare spending is projected to grow faster for MA enrollees -- 5.3% a year on average between 2021 and 2029 -- than traditional Medicare beneficiaries (4.3%), though a faster than expected increase is possible, the report noted. 

The Biden Administration has expressed support in its 2022 budget for reforming payments to private plans as part of efforts to extend the solvency of the Medicare Hospital Insurance (HI) Trust Fund and improve affordability for beneficiaries. 

THE LARGER TREND

Medicare Advantage supplemental benefits grew in 36 out of 41 categories for 2021, with vision, hearing, fitness and dental care among the most widely offered benefits, while preliminary data at the end of Medicare open enrollment showed more consumers chose MA plans for 2021 due to their supplemental benefits, including telehealth and COVID-19 supplemental benefits.

A recent report from the Medicare Payment Advisory Commission warned of the growing risk of insolvency to Medicare and said moving to an alternative benchmarking approach is increasingly important as MA encompasses a growing share of Medicare expenditures and enrollment.

ON THE RECORD 

"Although taking steps to address the fiscal challenges facing Medicare are not front and center in current Medicare policy discussions, policymakers may soon be on the lookout for options to achieve Medicare savings to fund other spending priorities or extend the solvency of the Medicare HI Trust Fund," the KFF report concluded.