The Opportunity Costs of Medicare Advantage Plan Rebates
Federal payments to Medicare Advantage plans should be reviewed to ensure that all Medicare beneficiaries receive the care and coverage they need, say experts writing in the New England Journal of Medicine.
A new perspective piece by Bloomberg Distinguished Professor Melinda J.B. Buntin, PhD, Health Policy and Management alum Gretchen Jacobson, PhD ’07, and Cori Uccello of the American Academy of Actuaries, published in the New England Journal of Medicine, raises critical questions about the financial implications of Medicare Advantage (MA) rebates. According to the authors, rather than achieving reductions in Medicare spending, as might be anticipated, the current system increases government spending and imposes higher costs on beneficiaries enrolled in traditional Medicare.
Medicare Advantage is a private plan option within Medicare that has become so popular that in 2024, more than half of all Medicare beneficiaries were enrolled in the program. MA allows private insurers to bid for the delivery of Medicare services at costs below the benchmark set by the government. If the bid is less than the benchmark, the federal government pays the plan a rebate; this rebate must be devoted to additional benefits to the enrollees, such as dental and vision care or reduced cost-sharing.
But little is known about whether plan enrollees actually use these services. Moreover, the rebates increase premiums for people in traditional Medicare, and there are opportunity costs to providing extra benefits in this way, the authors note.
“From 2014 to 2024, the dollar amount of rebates paid to Medicare Advantage plans increased fivefold from $12 billion to an estimated $65.8 billion, with projected total spending on rebates reaching $1.1 trillion over the next decade,” said Buntin.
The researchers show that for less than the projected cost of rebates in 2029, Medicare could offer an expanded benefit package for all beneficiaries that includes dental, vision, and hearing care, a limit on out-of-pocket costs, coverage for over-the-counter medications, expanded mental health coverage, and reduced Part D premiums.
“Policymakers are implicitly making a trade-off by using rebates to fund additional benefits for Medicare Advantage enrollees only,” said Buntin. “Our analysis shows that extending expanded benefits to all Medicare beneficiaries could cost less than the projected MA rebates in 2029.”
