The Medicare Advantage Program: Enrollment Trends and Budgetary Effects

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Abstract:

Mr. Chairman, Senator Grassley, and Members of the Committee, I am pleased to
appear before you today to discuss the Medicare Advantage program. My testimony
focuses on several themes:
B Unexpectedly strong growth in enrollment in the Medicare Advantage program
during 2006 and the beginning of 2007 led the Congressional Budget Office
(CBO) to increase its projections for both enrollment in and spending on the
program.
B Medicare’s payments for beneficiaries enrolled in Medicare Advantage plans
are higher, on average, than what the program would spend if those beneficiaries
were in the traditional fee-for-service (FFS) sector. As a result, shifts in
enrollment out of the FFS program and into private plans increase net Medicare
spending. Policymakers need to weigh that additional cost against any differential
benefits provided by Medicare Advantage plans.
B The rate of growth in enrollment and the cost differential with the traditional
fee-for-service sector are particularly large in private fee-for-service (PFFS)
plans, whose enrollment is concentrated largely in rural and some suburban
areas.
B Reducing the payment differential between Medicare Advantage and the feefor-
service program could result in substantial savings to the Medicare program
but also in a reduction in the supplemental benefits and cash rebates that Medicare
Advantage plans can offer to enrollees and reduced enrollment in those
plans.
B Many Medicare Advantage plans offer disease management, care coordination,
and preventive care programs, but little information is available on the degree to
which the plans generate better health outcomes than the traditional Medicare
program. Expanded reporting of health outcomes would be helpful in assessing
the value of the care management services provided by the plans.
B The central long-term fiscal challenge facing the nation involves health care
costs. Policymakers face both challenges and opportunities in addressing those
costs. Over long periods of time, cost growth per beneficiary in Medicare and
Medicaid has tended to track cost trends in private-sector health markets. Many
analysts therefore believe that significantly constraining the growth of costs for
Medicare and Medicaid is likely to occur only in conjunction with slowing cost
growth in the health sector as a whole. A variety of evidence suggests opportunities
to constrain health care costs without adverse health consequences. So a
basic challenge will be to restrain cost growth without harming incentives for
innovation or Americans’ health (and perhaps even improving it). Moving the
nation toward that possibility—which will inevitably be an iterative process in
which policy steps are tried, evaluated, and perhaps reconsidered—is essential
to putting the country on a sounder long-term fiscal path. Changes to the Medicare
program should be evaluated with that broader perspective in mind.