By David Nash , MD, MBA, FACP

From a clinical quality perspective, it's not complicated; Medicare Advantage (MA) works. As anyone with a television knows, MA ("also known as Part C") is the privately operated version of federally funded health insurance coverage that is available to all Americans age 65 and older. The inclusion of extra benefits (e.g., vision, hearing, dental services, lower out-of-pocket costs) in these plans have likely helped drive a dramatic enrollment shift to MA versus traditional Medicare. National statistics show that today MA covers more than half of all Medicare beneficiaries, including a disproportionately large share of socioeconomically disadvantaged populations.

The evidence suggests that this is a good thing! All MA plans include active care management by healthcare professionals and, after adjusting for enrollment differences across the two programs and for pre-existing disadvantages faced by some MA members (e.g., demographic, clinical, and socioeconomic risk factors), research comparing MA versus traditional Medicare fee-for-service found that MA enrollees have:

-70% fewer hospital readmissions

-24% fewer preventable hospitalizations

-59% fewer preventable acute admissions

-21% lower rates of high-risk/inappropriate medication use

From a business perspective, the story is quite different. Typically, investors have viewed publicly traded companies with MA plans as growth opportunities. According to a Moody's Investor Service report, MA has been even more profitable than other forms of health insurance, and MA company profits in 2022 were 45% higher than for commercial or employer-sponsored plans.

In 2023, unexpectedly large increases in enrollees' use of health care services ate into MA plan profits. Humana cited this as the probable cause of a $591-million 4th-quarter loss and subsequent 12% stock plunge. Many in the industry expected CMS to incorporate this recent uptick in healthcare services volume in its calculations for MA funding.

Things get more complicated from the government's funding perspective. There is considerable evidence of long-standing overpayments to MA plans with estimates of up to $140 billion annually, and a projected overpayment of $88 billion in 2024. Taking this into account, CMS proposed a 3.7% ($16 billion) increase for 2025 MA and Part D payment rates – a modest decrease compared with this year's rate of increase. The insurance industry characterized CMS' attempt to rein in overpayments as a "cut" in funding that would necessitate their raising out-of-pocket costs and reducing benefits for enrollees.

Related changes announced by CMS have rattled the industry further. One change that allows the government to recover past overpayments will almost certainly reduce insurers' profits. Another adjustment -- an annual update to rates paid to MA insurers -- will lower base payments and offset these reductions with other modifications that are expected to yield a 1% increase in MA spending per enrollee in 2024.

Other finalized rules include:

-Limits on compensation for brokers selling MA plans to assure that beneficiaries are steered toward plans that meet individual beneficiary needs.

-Changes in CMS star ratings to reward MA plans that provide high quality care and appropriate reimbursement/bonuses, and penalize plans with poorer performance.

Following the finalization of 2025 rates, there was an immediate drop in shares for major MA companies like Humana and UnitedHealthcare. Critics claim that the changes are "shrinking MA" by driving investors away and driving enrollees back to Medicare/Medigap by raising out-of-pocket costs.

The "truth" is that more heat than light has been generated in the past six months about the future of MA. As every policy maker and CMS staffer knows all too well, the issue is really a symptom of a larger "disease" trend - the "baby boomer" generation aging into Medicare. We need to find a way to make this work and, as CMS intends to build equity measures into the reimbursement formula for MA plans, my bet is that these plans will thrive and demonstrate their superiority to traditional Medicare.

The broader issue concerns the dollars we spend, the health of beneficiaries, and the subsequent "health" of the Medicare Trust Fund in which all taxpayers participate. As a Medicare- eligible "boomer," I am watching this very closely!!