Medicare Advantage Impact on Plans, Seniors and Taxpayers

The proposition of Medicare Advantage as a program relies on the assumption that private insurance companies are better situated to control costs and deliver medical coverage than a sprawling government bureaucracy. After nearly a quarter of a century, the results remain unclear, with obvious advantages and disadvantages to both forms of Medicare delivery.

On one hand, seniors enrolled in Medicare Advantage enjoy the litany of supplemental benefits that accompany many MA plans. But when the program was initiated under the George W. Bush administration, MA was promised to lower costs to taxpayers. The Penn Leonard Davis Institute of Health Economics convened a panel to discuss the issues MA has with saving public money through a wide range of payment distortions. The panelists, one from the SCAN Group and Health Plan and the other from the Center of Excellence on Health System Performance at RAND, agreed that MA functions as a defacto safety net with uneven, inequitable benefits. From Cheryl Damberg, PhD, Principle Senior Economist and Center Director at RAND:

It’s certainly tamped down on utilization of services and led to cost efficiencies such as greater use of home health services rather than skilled nursing facilities. But the benefits from these improved efficiencies have largely accrued to private plans and, in some cases, their shareholders, not the government. It provided a cap on out-of-pocket spending for beneficiaries, and this was important for limiting the financial burden for low-income seniors. Lastly, it lowered the cost of coverage to beneficiaries through lower premiums, reduced cost sharing, and the provision of extra supplemental benefits — also really important to low-income seniors.

Medicare Advantage insurers are asking the Centers for Medicare and Medicaid Services (CMS) to allow them greater leeway to scale back benefits. Modern Healthcare explains that while the agency limits how much “total beneficiary cost” can rise for members, in order to prevent big swings in cost-sharing or benefits, so CMS is set to finalize a rule capping the cost threshold at $40 per member per month. From Mark Newsom, president and founder of the consulting firm Health Evaluations:

Folks are raising their hands, saying ‘There’s nowhere to hide right now. We need flexibility.’ There are all these unknowns out there, and plans are more challenged in figuring out those risks.

Some insurers are strengthening connections to health systems in order to shore up and contain sprawling costs. This week, Humana and CommonSpirit agreed to a nationwide Medicare Advantage contract that would allow Humana enrollees access to providers at all CommonSpirit facilities, reestablishing a relationship that fell through in Colorado and Texas after regional contracts lapsed in 2025, Healthcare Dive reports.

Some states are intervening on their own to curb exploitative practices by MA plans and protect enrollees and insurers. According to McKnight’s, Oklahoma Governor Kevin Stitt (R) issued an executive order last Friday that outlined state-level rules for Medicare Advantage plans, many of which directly address issues raised by nursing homes with the program’s efficiency.

Elsewhere, CMS Medicare Director Chris Clomp told STAT News that his team is considering a policy that would automatically enroll Medicare beneficiaries into Medicare Advantage plans or accountable care organizations (ACOs). Last year, Representative David Schweikert (R-Ariz.) introduced a bill in Congress that would make MA the default option, but it didn’t advance. The idea was also included in the Heritage Foundation’s blueprint for the second Trump administration, Project 2025.