Saving Medicare Advantage from Itself

The Medicare program, while quite popular with beneficiaries, has been groaning under the weight of an ever-increasing budgetary impact. Both the spending per beneficiary and the number of beneficiaries itself are rising well above the rate of growth of the overall population. 

From 2013 to 2023, total enrollment grew 27 percent, resulting in 65 million total beneficiaries and a total expenditure of $839 billion, according to the Center for Medicare and Medicaid Services. The Kaiser Family Foundation estimates Medicare spending grew 71 percent over the same decade, or 31 percent in real (inflation adjusted) terms. During that time period, the U.S. population has grown only 6 percent, and the number of workers to Medicare beneficiaries fell from 3.4 workers per beneficiary to 2.8 from 2010 to 2020. This concerning trend has resulted in many diverse efforts at cost containment, to little effect.

Medicare Advantage was first proposed in the Balanced Budget Amendment of 1997 and further incentivized in the Medicare Modernization Act of 2003. The basic structure involves private administration by for-profit insurance companies, paid by the Center for Medicare and Medicaid Services (CMS) with public funds. The early rationale for such a program was both to give beneficiaries more options and to serve as a cost control measure, with the discipline and competition of the private market constraining bloat, waste, fraud, and abuse. 

Traditional Medicare mainly paid for health care services on a fee-for-service (FFS) basis, meaning if a service was billed by a healthcare provider, CMS paid for it. Medicare Advantage was a novel attempt to change that payment structure. In its early years, Medicare Advantage remained a modest portion of overall Medicare enrollment, with 19 percent patient share in 2007, but this year 54 percent of all beneficiaries are enrolled in private Medicare plans.