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10 Reasons Why Medicare Advantage Enrollment is Growing and Why It Matters [1]

['Tricia Neuman', 'Meredith Freed', 'Jeannie Fuglesten Biniek']

Date: 2024-06

For the first time in Medicare’s history, more than half of all eligible people with Medicare, or 30.8 million people in 2023, are enrolled in private Medicare Advantage plans. Medicare Advantage plans are offered by private health insurance companies that receive payments from the federal government to provide Medicare-covered services. People with Medicare have a choice between traditional Medicare (sometimes called fee-for-service Medicare or Original Medicare) and Medicare Advantage plans. The growth in Medicare Advantage enrollment is driven by a number of factors, including the Medicare payment system, which has served to attract and retain insurers and beneficiaries, rather than reduce Medicare spending.

Medicare Advantage enrollment has more than doubled since 2010 and is projected to grow from 54% of the eligible population in 2024 to 60% by the end of this decade (Figure 1).

While some of the larger Medicare Advantage insurers are reporting lower profits due to a slowdown in enrollment growth and higher than expected utilization and costs among enrollees this year, there are many reasons to expect continued Medicare Advantage enrollment growth in the years ahead, given the financial incentives embedded in Medicare’s payment system.

The Medicare Payment Advisory Commission (MedPAC) recently reported that Medicare will pay Medicare Advantage plans an estimated 123% of the cost of similar beneficiaries in traditional Medicare, on average, in 2024, factoring in rebates, coding intensity (i.e., how plans record the health conditions of enrollees for payment purposes), and favorable selection. This year, MedPAC made a change in its estimation methodology to take into account the effects of favorable selection, building on the work of other researchers. Favorable selection occurs when plans are enrolling healthier and lower cost enrollees than predicted by the current payment system.

MedPAC now estimates that these higher payments to Medicare Advantage plans translate into $88 billion in additional Medicare spending in 2024 and $13 billion in higher Medicare Part B premiums paid by Medicare beneficiaries in 2024. While some may take issue with the methodology used to generate these estimates, the projected impact on Medicare spending is likely to raise concerns among some policymakers. Higher Medicare spending affects the solvency of the Medicare Hospital Insurance (HI) Trust Fund and increases Medicare premiums for beneficiaries in both Medicare Advantage and traditional Medicare.

In light of these spending projections, here we lay out 10 reasons why Medicare Advantage enrollment has been growing and why we can expect more growth in the years to come.

As Medicare Advantage enrollment continues to climb, traditional Medicare is on track to diminish as a source of Medicare coverage, leaving in its place a program that looks more like a marketplace of private health insurance plans, funded by the federal government. This doesn’t come as a surprise. Policy choices made over the years have resulted in higher payments to plans relative to spending for similar people in traditional Medicare, allowing plans to reduce cost sharing and offer extra benefits that appeal to beneficiaries and have boosted enrollment well beyond expectations.

At the same time, gaps in data make it difficult to assess the impact of Medicare Advantage coverage on people who enroll in these plans, particularly those with significant health needs. Given these trends, policymakers are likely to struggle in the years ahead with how to contain the cost to the federal government of Medicare Advantage, what that means for enrollees, and what the future holds for traditional Medicare.

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[1] Url: https://www.kff.org/medicare/issue-brief/10-reasons-why-medicare-advantage-enrollment-is-growing-and-why-it-matters/

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