Who Benefits From Medicare Advantage?

For indispensable reporting on the coronavirus crisis and more, subscribe to Mother Jones' newsletters.


When Congress passed the Medicare prescription drug plan in 2003, it provided two ways for seniors to get access to pharmaceuticals: they could enroll directly in a prescription drug plan or, via Medicare Advantage, they could enroll in an HMO that offered drug coverage.  Medicare Advantage, of course, has long been controversial because the government provides subsidies to HMOs to participate, which means that it’s more expensive to taxpayers than standard Medicare.

Still, Medicare Advantage enrollees enjoy extra benefits.  The program also provides incentives for HMOs to enter new areas and compete with each other.  So it’s not as if the subsidies are being completely wasted.

But it does turn that they’re being mostly wasted.  Austin Frakt, a health economist at Boston University, provides the dismal numbers:

My work (with Steve Pizer and Roger Feldman) shows that for each additional dollar spent by the federal government (taxpayers) on the program since 2003, just $0.14 of it can be attributed to additional value (consumer surplus) to beneficiaries….

What do we make of the other $0.86? That goes to the insurance companies but doesn’t come out “the other end” in the form of value to beneficiaries. In part it pays for the additional benefits themselves and in part it is captured as additional insurer profit.

Conversely, standard prescription drug plans provide more than a dollar of benefit for each dollar spent.  Roughly speaking, these plans cost taxpayers about 75 cents for each dollar of value they provide.

Bottom line: if healthcare reform cuts back on Medicare Advantage, the effect on retirees would be tiny.  Putting even half of the cuts back into standard prescription drug plans would almost certainly make everyone better off except for insurance companies.  The full paper is here.

Thank you!

We didn't know what to expect when we told you we needed to raise $400,000 before our fiscal year closed on June 30, and we're thrilled to report that our incredible community of readers contributed some $415,000 to help us keep charging as hard as we can during this crazy year.

You just sent an incredible message: that quality journalism doesn't have to answer to advertisers, billionaires, or hedge funds; that newsrooms can eke out an existence thanks primarily to the generosity of its readers. That's so powerful. Especially during what's been called a "media extinction event" when those looking to make a profit from the news pull back, the Mother Jones community steps in.

The months and years ahead won't be easy. Far from it. But there's no one we'd rather face the big challenges with than you, our committed and passionate readers, and our team of fearless reporters who show up every day.

Thank you!

We didn't know what to expect when we told you we needed to raise $400,000 before our fiscal year closed on June 30, and we're thrilled to report that our incredible community of readers contributed some $415,000 to help us keep charging as hard as we can during this crazy year.

You just sent an incredible message: that quality journalism doesn't have to answer to advertisers, billionaires, or hedge funds; that newsrooms can eke out an existence thanks primarily to the generosity of its readers. That's so powerful. Especially during what's been called a "media extinction event" when those looking to make a profit from the news pull back, the Mother Jones community steps in.

The months and years ahead won't be easy. Far from it. But there's no one we'd rather face the big challenges with than you, our committed and passionate readers, and our team of fearless reporters who show up every day.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.