November 6th, 2014
Since enactment of the Affordable Care Act (ACA) in 2010, much of the attention in the policy community has been on modernizing Medicare’s traditional fee-for-service (FFS) program. Through Accountable Care Organizations (ACOs), larger “bundles” of payments to fee-for-service providers for episodes of care, and tests of pay-for-performance models, the hope is that the traditional Medicare model can be remade through sheer force of bureaucratic will. The stated intent is to find a way to pay for value, not volume.
These efforts may or may not bear much fruit, but, over the longer term, it’s not likely to matter much. That’s because a more important transformation of Medicare is already well underway and is occurring despite more resistance than assistance from the program’s bureaucracy. According to the 2014 Medicare Trustees’ report, enrollment in Medicare Advantage – the private plan option in Medicare — has been surging for a decade. In 2005 there were 5.8 million Medicare beneficiaries enrolled in MA plans — 13.6 percent of total enrollment in the program. Today, there are 16.2 million beneficiaries in MA plans, or 30 percent of program enrollment. (See Table IV.C1) In addition, the Medicare drug benefit, which constitutes about 12 percent of total program spending, is delivered entirely through private plans. (See Table II.B1)
As MA enrollment has surged, so has recognition of its improved value. A recent, comprehensive review of the evidence conducted by Joseph Newhouse and Thomas McGuire of Harvard University makes a compelling case that MA plans are providing higher value services at less societal cost than the traditional FFS program. Based on their findings, Newhouse and McGuire argue for policies that would provide incentives for even more beneficiaries to enroll in MA plans in the future.Read the rest of this entry »