The privatization of Medicare has reached a significant milestone. In a groundbreaking development this year, more than half of all Medicare beneficiaries are now enrolled through private insurers, a system known as Medicare Advantage.
According to the healthcare nonprofit and think-tank, the Kaiser Family Foundation, "In 2023, 30.8 million people are enrolled in a Medicare Advantage plan, accounting for more than half, or 51 percent, of the eligible Medicare population, and $454 billion (or 54%) of total federal Medicare spending (net of premiums)."
The transformation is remarkable considering that just 16 years ago, privatized Medicare plans only accounted for 13% of beneficiaries. Projections indicate that by 2033, this number will surpass 60%.
Medicare, originally designed as a government program, has shifted its focus significantly. Today, over half of its beneficiaries are under the care of private insurers rather than the government itself.
Though private Medicare plans have existed since the 1970s, their popularity has surged in recent decades. The Affordable Care Act, commonly known as "Obamacare," introduced by President Obama, played a pivotal role in this growth. It not only enhanced the system but also encouraged insurers to improve their plans by implementing a star rating system and awarding annual bonuses for meeting quality targets.
Kaiser reports that these bonuses are set to skyrocket by 30% this year, reaching a remarkable $12.8 billion. This amount is over four times the figure paid out by the government in 2015. To put this into perspective, it constitutes just over 1% of the colossal annual Medicare budget, which is expected to exceed $1 trillion this year.
Surprisingly, the process of privatizing Medicare has been relatively free from controversy thus far. Perhaps its complexity does not lend itself to a concise TikTok video.
Is Medicare Advantage Really a Good Thing?
Consumers are showing their approval by choosing Medicare Advantage plans, which typically operate through HMO or PPO networks, granting them better cost control. Most Advantage plans offer additional benefits such as free prescription drugs, vision, hearing, and dental coverage, not available with traditional Medicare. However, hospice care is not always covered, and some evidence suggests that those who require extensive care may switch back to traditional Medicare.
Thanks to regulations introduced by Obamacare, insurance providers offering Medicare Advantage plans must allocate at least 85% of their revenues towards actual care. This means that profits and overhead expenses are limited to 15%. Therefore, if companies providing Medicare Advantage truly offer superior insurance compared to traditional Medicare, they are doing so at a 15% reduced cost.
Harvard's T.H. Chan School of Public Health and health tech company Invalon are currently conducting a comprehensive analysis of the mechanics and economics of Medicare Advantage. Initial findings are inconclusive. Interestingly, they have also discovered that individuals enrolling in Medicare Advantage tend to have lower socioeconomic status compared to those enrolled in traditional Medicare. Advantage enrollees are more likely to be people of color, have lower income and wealth, and reside in less affluent neighborhoods.
Can Medicare Advantage deliver better health outcomes for its customers at a lower cost? Only time will reveal the answer.
