Medicare Advantage – Insurance That Works

The administration just released their proposed increase for payments to Medicare Advantage (MA), and it was much less than what was expected. This should be of great interest to many seniors since over half of us are enrolled in this type of Medicare plan. They proposed a rate increase of 0.09% for 2027, significantly lower than the 4 to 5% that the administration finalized for 2026. It’s important to put some context around this proposed rate. When you include the complicated risk-adjustment and coding change trends, the expected net increase that the MA plans will see is closer to 2.5% which, based on inflation and medical utilization trends, is still exceptionally low. It’s complicated but the administration has decided to alter their relationship with this popular approach to Medicare, and it might have a significant impact on those of us who have chosen MA to administer our healthcare. It could result in fewer benefits, higher premiums, or both.

A little background, there are essentially two choices we have when we turn 65 or every year after during the open enrollment period – traditional Medicare or Medicare Advantage. Almost 90% of us who chose traditional Medicare also added some supplemental insurance to reduce our out-of-pocket costs. With MA the government allows private insurance to assume the responsibility for caring for seniors at a fixed rate. Each of us must evaluate the pros and cons of this choice depending on our own health, the plans offered in our area, and the cost of the premiums. The Medicare supplemental approach offers a broad range of medical providers and specialists. MA plans almost always have a more restricted network but often have lower or zero premiums and some benefits that Medicare doesn’t provide, including vision, hearing and dental. There are many more differences in each program that need to be evaluated, especially benefits in the Part D prescription drug program. Each year, I write one or more blogs during open enrollment, encouraging seniors to evaluate their coverage and make the best choice for them.

To understand the impact of what the administration is proposing, we need to look back at some of the reasons that the Medicare Advantage program was created. Traditional Medicare pays providers through a fee-for-service approach. A certain service is performed, and Medicare pays. There was very little emphasis put on how that affected the patient’s health outcomes, leading to the incentive to perform more tests and services. The rise in medical malpractice claims added incentives to increase the number of tests and services performed as a way to protect the doctors from being sued. We had a chance to accomplish some sort of tort reform during the writing and passage of the Affordable Care Act but, unfortunately, politics got in the way. There also wasn’t much incentive or return on investment for preventative care. These were some of the main reasons for creating the MA program.

The government pays the MA plans a fixed cost to take care of Medicare eligible patients. You can see why this approach would encourage a plan to spend resources toward preventative care like free gym memberships, vaccinations, and home monitoring devices. To preclude the migration of only healthy patients to this program, the government pays MA plans adjusting for risk, paying higher rates for patients that have multiple ailments and are significantly sicker. There are tradeoffs in choosing MA versus fee-for-service Medicare. While MA patients spend on average $3,486 less annually, plans are incentivized to manage costs through requiring prior authorization for some treatments and offering more narrow provider networks. While addressing bad plan coding behavior, inflating risk evaluation concerning the true health of the patient to collect expanded payments, is a real problem, it requires a targeted fix. While the administration is seeking to respond to this problem, broad cuts hurt the entire MA ecosystem, including the majority of plans that are doing the right thing, providers, and most importantly, us, Medicare beneficiaries.  

I’m sorry for all the boring background information, but I think it’s necessary to understand why this minimal increase in payments is counterproductive. If there are questionable risk ratings or access problems, then use a scalpel approach and deal with that part of the system. By using the sledgehammer approach of limiting overall payments you hurt beneficiaries as plans are likely to respond by pulling back benefits or increasing premiums. One of the selling points when MA was being discussed was the fact that it didn’t require the same level of government involvement to administer claims. We shouldn’t employ a “fix” that reduces the program’s inherent advantages.

We know that preventive care lowers healthcare costs in the long run. We have been striving for years to get away from the fee-for-service treadmill. We want to somehow migrate to a value-based care model for payment. Severely limiting a payment increase in the face of inflation, especially in healthcare, is not the right approach. It is evident that seniors like MA plans. It’s my experience that older Americans are informed buyers, or they know how to find someone they trust to advise them on what is best for them. Over half of us think Medicare Advantage is our best healthcare choice.

The final rate increase will be announced in April. We have a lot of time to talk with our lawmakers about this very low proposed payment increase. Tell them you want them to talk with the stakeholders, hold hearings, get information, and most importantly talk with the patients. I’ve spent equal time in traditional Medicare with supplemental insurance and with a Medicare Advantage plan. I’ll gladly talk about my experience . . . or that may be the subject of a future blog. Click here to find out the easiest way to contact your lawmakers.

Best, Thair