Medicare Is Now Profitable as a Total Program Because of Medicare Advantage – The Health Care Blog


Medicare made $83.4 billion very real dollars in 2022. The 17% discounts below the average cost of fee-for-service Medicare, that happen in every county for Medicare Advantage, have been very real and extremely successful in paying for Medicare coverage — in a way that now makes the program a profit center for the US Government.

You can see the actual financial report page from the 2023 Medicare trustee report below. It shows that the Medicare trust fund grew in 2022 for the first time in decades. More than half of the Medicare members are now enrolled in Medicare Advantage plans. Those members cost significantly less than their equivalent fee-for-service Medicare patients.

These are the actual numbers from the trustee report.

The Medicare trustee report says that the total Medicare program grows per member by 6.7% every year. They project in that report that they expect that rate of increase to be consistent over the next decade. The enrollees in the Medicare Part A and Part B programs have expenses that increase slightly above that number every year. That’s been true for a couple of decades.

Medicare loses money on every Part A and Part B member when expenses for those programs are higher than the 6.7% average.

Medicare Advantage costs for Medicare Part C are increasing at a lower rate than that number. That means that Medicare makes money and creates a surplus with the Medicare Advantage patients.

The Medicare Advantage programs that function as Medicare Part C now have expenses that increase, on average, about 4% each year. A 4% cost increase is a profitable number for the Medicare program. That lower level of cost increase is highly beneficial to Medicare. It helped create an $83.4 billion profit and surplus for Medicare as a total program in 2022.

Because Medicare Advantage is a capitation program and not a fee-based payment model, the capitation determines what the payment levels will be. CMS has determined to set the capitation increases at levels below the 6.7% number. We don’t need to guess about their process or number. They announced it publicly to the world early in the year.

CMS set the limit for those increases per member in 2024 at 4.3% for the year.

Their number guarantees that Medicare will be profitable. It also means that the trust fund is now secure from the long-term deficits and financial deterioration levels that most Medicare policy people have been predicting for decades for the Medicare program.

Critics of the Medicare Advantage program create some fantastical, misleading, unfounded, and completely wrong numbers about the relative cost of Medicare Advantage in several reports that have been written about the program. Those numbers have been published in some reputable publications in ways that have confused some people who are trying to evaluate Medicare Advantage as a program.

The critics say that the 17% discounts from fee-for-service Medicare, that are clearly paid every month, are not real. The critics say the plans somehow do some kind of coding magic that they say adds 12% to the cost of Medicare Advantage members every year, rather than the lower costs that seem to exist in the bids.

Critics and enemies of the program — with no understanding of how care actually functions at cost levels for care — completely invent and then assert that 12% “real costs” number to be the number we should use to measure the program. And they do this with no back up measurements or calculations of any kind to support that purely opinion-based number.

The critics who attack the program believe that number to be somehow inherently true. They use it with no actual measurements or calculations every year, which causes people to think that what seems to be an extremely good price for Medicare Advantage plans, is actually a bad and excessively high price for Medicare members, when you adjust it by that purely invented factor.

The 17% average discounts from fee-for-service Medicare for the Medicare Advantage plans are very real. And because they are real, the trust fund made an $83.4 billion surplus in real and actual dollars for 2022.

The $83.4 billion surplus shows that the critics are using fake news. It shows that they’re writing about, and using, completely wrong numbers for their evaluation of the relative costs of the programs.

Unfortunately, those critics have managed to damage the credibility of the program with those attacks. They should be completely ignored and rejected by everyone who looks at the real numbers and understands how the programs actually work.

The 17% lower costs are very real.

How does Medicare Advantage bid 17% below the cost of fee-for-service Medicare in every county?

They deliver much better care.

Fee-for-service Medicare has some very poor and weak care for too many low-income members. Fortunately, two out of three very low-income members have now joined plans, but the ones who aren’t in plans receive very bad care.

Amputations are a good example.

Far too many low-income Medicare patients have their legs amputated. They actually lose their limbs and they have an extremely high mortality rate after that happens.

That creates billions in revenue for those fee-for-service care programs in those communities.

That’s very bad and very expensive care for too many people.

The plans get paid a capitation for each patient rather than a fee for each piece of care.

The plans all know that foot ulcers in patients cause 90% of the amputations. And they all know that you can reduce foot ulcers by over 60% with dry feet and clean socks for patients.

Billions of dollars are saved when the plans have a much lower level of amputations — as opposed to the more than 20% of patients with foot ulcers and amputations that the Shameful Metric piece describes.

The most recent data (from the best current electronic database in care) says that the plans now have about 1.3% of patients with amputations.

Plans save billions of dollars with those lower amputation rates. The plans can bid 17% lower costs than fee-for-service Medicare, because those amputations don’t happen for their members.

We need to understand what just happened for Medicare.

The plans have a five-star quality plan that focuses on issues like low blood sugar levels for their patients. The Medicare Advantage care sites have multiple public meetings where they celebrate both the better culture of care that results from those programs and the best practices on team care, data-supported care, and patient-focused care that allows the plans to bid 17% below the average cost of fee-for-service Medicare.

We need to plot a future for Medicare that has much lower costs for their members and that lets us focus on continuously improving care, within the new culture and infrastructure of care, that’s created by having Medicare become a profit center for the country.

That’s a slam-dunk win for the country.

It means that the much higher level of benefits that exist for Medicare Advantage members are now the new normal for the Medicare program. Dental, vision, and hearing benefits — along with a wide range of in-home support benefits — are now paid for by Medicare for the majority of the members.

Some Medicare Advantage programs take the surplus that they earn from the 17% discounts and actually buy Part D drug benefits for their members. The plans who choose that path provide the Part D coverage for less than the cost of standard benefits, which is easily the most intelligent and high-value use of the Medicare dollar.

The people who don’t understand that the bulk of the new benefits are basically free money to Medicare should learn and remember that the point of the Medicare Advantage inclusion and provision in the Affordable Care Act and Obamacare was actually to save the Medicare program financially and to create far better benefits for the members.

It’s a slam dunk win for both of those goals now. That $83.4 billion surplus for 2022 is very nice icing for that cake.

The critics who hate insurance companies at an ideological level are still trying hard to cut benefits. That makes absolutely no sense when you see what the benefits do, who they serve, and how important they are to people’s lives.

The pressure on those points should be diminished by the plans saving the trust fund.

George Halvorson is Chair and CEO of the Institute for InterGroup Understanding and was CEO of Kaiser Permanente from 2002-14.

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