The Medicare Advantage Dilemma: Capitated Payments, Fraud, and Quality of Care

Eileen Appelbaum, co-director at the Center for Economic and Policy Research, critically analyzes Medicare Advantage (MA), arguing that its value-based payment system, which is essentially capitated payments, creates perverse incentives. While non-profit organizations can leverage these flat fees to improve care and reduce costs by keeping patients healthier, profit-motivated insurance companies that own MA plans often find unscrupulous ways to cut costs, not necessarily to improve quality, but to pocket the difference. This fundamental difference in motivation leads to significant problems within the healthcare system and for beneficiaries.

A central issue highlighted is how MA plans exploit the benchmark system. Traditional Medicare serves a sicker population, and its costs are used as a benchmark. MA plans, which tend to attract healthier individuals, can easily "beat the benchmark" due to their healthier enrollees. This allows them to receive subsidies or "kickbacks" from Medicare. Furthermore, MA plans are incentivized to code their patients as sicker than they truly are to collect higher capitated payments, a practice described as illegal fraud. These extra funds are then kept by the insurance companies rather than being used for patient care, leading to a significant drain on taxpayer money and the Medicare trust funds.

The consequences of these practices are severe. Patients in MA plans may not receive the level of care they require because cost-cutting measures compromise quality. This is particularly detrimental for individuals who become genuinely sick, as they often realize too late that traditional Medicare would have offered better choices and quality. The system, as currently structured, is not a benefit for taxpayers or the overall Medicare system, as it funnels public money into private profits while potentially diminishing patient outcomes.

Appelbaum proposes a solution: putting traditional Medicare on an "even footing" with Medicare Advantage. She suggests creating a "Medicare Part E" as an inexpensive, comprehensive wraparound benefit for all, providing services like hearing and eye care. This could be funded by the substantial savings achieved by ceasing the overpayments to Medicare Advantage plans, which many experts agree are excessive and do not translate into commensurate quality for those who need it most. This reform aims to strengthen the public Medicare system and ensure better, more equitable care for all seniors.

Medicare Advantage is great if you don't actually need it.

value based payments are actually capitated payments and what that means is that the health provider gets a flat fee there's no payment for Individual Services just that flat fee and they spend whatever money they spend on the patient if they spend less than the capitated payment they get to keep the difference

if you're unscrupulous you have the opportunity here to find ways to cut costs that are not related to improving quality

Medicare Advantage is a huge problem because by now more than half of Medicare beneficiaries are a Medicare Advantage

people who go into Medicare generally are sicker if you know that you're going to need health care you are going to opt for traditional Medicare because you can pick your doctor you can pick your nursing home you you can choose the facilities you want and get the quality that you want

they code their patients as sicker than they really are collect the higher capitated payment but these people are are they're not as sick as they've been coded they don't require the extra Services they just pocket that money for themselves

that's illegal that's fraud that's taking advantage of taxpayers your premiums are going to go up as a result so this is taxpayer money and this is also draining the Medicare trust funds

Medicare Advantage is not a benefit for taxpayers or for the Medicare system

What I would really like to see is Medicare put traditional Medicare on an even footing with Medicare Advantage

most people who have studied it will agree they're overpaying and they're not getting the quality that they need for the people who actually get sick