Medicare is a US federal health insurance program primarily for people aged 65 and older, as well as certain younger individuals with disabilities or specific medical conditions like end-stage renal disease (ESRD). It was created as a part of the Social Security Amendments of 1965 and, as of 2023, makes up up 14% of total federal spending and 3.1% of our GDP with over 60M Americans enrolled. In rough terms, half of these individuals choose Medicare Advantage (MA), while the other half choose Traditional Medicare (aka Medicare fee-for-service (MFFS)).
Comparisons between MA and MFFS are difficult to make due to the varied quality measures used across the two programs and the limited data available from MA plans. CMS is attempting to solve this problem by aligning quality measures across programs and making MA data more transparent. For example, CMS is seeking comment from the market about MA data transparency with the following RFI.
“CMS is trying to eliminate the ‘apples to oranges’ data comparison and make the entire Medicare program one type of data-related fruit.” - Andrew Schwab
Most evidence shows that the quality of care delivered through Medicare Advantage plans and through traditional Medicare is equivalent overall. That being said, some studies suggest that Medicare Advantage plans, on average, are associated with better-quality care on certain metrics (at a lower cost), particularly those related to preventive care and unnecessary hospital admissions.
“Medicare Advantage was associated with more preventive care visits, fewer hospital admissions and emergency department visits, shorter hospital and skilled nursing facility lengths-of-stay, and lower health care spending… However, the evidence on patient experience, readmission rates, mortality, and racial/ethnic disparities did not show a trend of better performance in Medicare Advantage.”
In regards to denial of care, a recent government report probed coverage denials during one week in June 2019 plans and found that 13% of denials were inappropriate and should have been covered under Medicare rules.
In a 2024 report (slides here), the Medicare Payment Advisory Commission (MedPAC) found that Medicare spends $83B more on MA enrollees than it would spend if those patients were enrolled in MFFS. America’s Health Insurance Plans (AHIP) and others were skeptical of this conclusion, but the difference is likely that drastic.
On page 377 of the MedPAC, MA Status Report
Others, like the Wall Street Journal, say that $50B was pocketed from private insurers for disease that no doctor treated. This trend points to the fact that a large portion of this payment difference is created through upcoding (or over-diagnosing patients so to get paid more) rather than reducing medical expense. Hopefully, this trend will be curbed by V28, a new and more conservative coding methodology.
Funding: Medicare Part A is funded through the Hospital Insurance (HI) Trust Fund, which is financed primarily by payroll taxes on earned income.
Coverage: Inpatient hospital care, skilled nursing facility care (after a hospital stay), hospice care, and some home health care
Cost:
Funding: Medicare Part B is funded through the Supplementary Medical Insurance (SMI) Trust Fund, supported by general federal revenues and premiums paid by beneficiaries.
Coverage: Doctor visits, outpatient care, preventive services, durable medical equipment, and some home health care