We keep hearing that Medicare Advantage is going away due to lack of funding being diverted to the Affordable Care Act.
Let’s take a different view and see why Medicare Advantage should be expanded, not shrunk.
Medicare Advantage is based on capitation fees provided to private insurance to offer HMO, PPO and PFFS plans to seniors at little or no cost. What is the reason behind these plans? It’s really quite simple. When CMS funds Medicare Advantage they technically take that person off of Original Medicare. That means that the Medicare Advantage plan takes over and provides all medical and drugs to the senior and Original Medicare has nothing except a per month fee to the insurance company. That fee is based on actuarial calculations by every county in the US. Simply put CMS does the actuarial calculation and reduces that number and then pays the insurance company the reduced amount. The insurance company then provides all the medical services to the senior.
Put another way, the insurance company gets a fixed fee per person monthly which is then used to provide the entire medical and drug services to the senior.
The benefit is multiple. Firstly, CMS no longer has to worry about processing medical claims. Consider the real cost of CMS processing claims has to include the admitted $60 billion per year in Medicare fraud, plus all the actual costs in personnel, equipment etc. Have you ever heard of an insurance company having that much fraud? Neither have I. Secondly, with no fraud, CMS can concentrate on administering Medicare at a very high level and leave the actual claims adjudication to the insurance companies where it actually belongs.
Now, consider the savings. Medicare Advantage has 17.8 million recipients. At a savings of at least $200 per month per recipient (The amount CMS reduces their actual out of pocket expenses and pays to Medicare Advantage.) times 17.8 million people. That’s $35,600,000 per month savings for CMS. Now add the admitted $60 billion in annual fraud to the equation, and you have significant annual savings. The savings are now very significant; $60,427,000,000. (That includes the $60 billion Medicare admits is fraudulent. I suspect the fraud to be almost double the $60 billion annually.) Said a different way, what would $60,427,000 buy in medical services? I suspect, quite a bit.