Who Benefits From Medicare Advantage?

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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.

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THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

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