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Researchers call for Medicare Advantage reform 

Researchers call for Medicare Advantage reform 

LOS ANGELES – A new analysis by researchers at the University of Southern California warns that overpayments to Medicare Advantage plans now exceed 20%, or $75 billion annually, underscoring the urgent need for reform. 

Researchers with the USC Schaeffer Center for Health Policy & Economics found that the millions of beneficiaries in traditional Medicare who have switched to Medicare Advantage plans have lower spending than those with similar health risks. They report this pattern of “favorable selection” more than doubles prior overpayment estimates made by the Medicare Payment Advisory Commission (MedPAC), which reflected aggressive coding of enrollee health conditions and certain easily-achieved bonus payments related to quality – but not “favorable selection.” 

“The current Medicare Advantage payment structure results in overpayments markedly higher than previously understood,” says Paul Ginsburg, senior fellow at the USC Schaeffer Center and professor of the practice at the USC Price School of Public Policy. “Our analysis highlights how Medicare Advantage currently operates and the need to reform how the plans are paid.” 

Key takeaways from the research

  • Beneficiaries with lower-than-average expenditures than those with similar risk factors were significantly more likely to switch from Fee-for-Service to Medicare Advantage. 

  • As a result, risk-score-adjusted expenditures for the 16.9 million beneficiaries who switched from FFS to MA between 2006-19 were substantially below average. Plans were overpaid because MA rates are intended for beneficiaries with average—not systematically below average—expenditures. 

  • MA plans in 2020 were overpaid by 14.4% due to this “favorable selection” phenomenon; when combined with the 6% overpayment reported by MedPAC for coding intensity and other factors, total MA overpayments were on the order of 20%. 

  • Basing MA payment benchmarks on FFS expenditures is increasingly problematic as FFS enrollment continues to decline – underscoring the need for reforming how MA payments are set, such as by decoupling MA payments from FFS benchmarks or instituting competitive bidding. 


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