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Sizing up Medicare Advantage

By Dr. Don Taylor ·
Wednesday, July 2, 2014
Posted: 4 pm ET

Does the quality of care improve under Medicare Advantage when insurers are paid more to provide that care? Wharton professors Mark Duggan and Amanda Starc, along with Wharton Ph.D. student Boris Vabson, take a look at this issue in a research paper titled: "Who benefits when the government pays more? Pass-through in the Medicare Advantage Program."

© Robert Kneschke/

According to the authors, about 52 million people are covered by Medicare. About 30 percent opt out of the traditional fee for service Medicare to enroll in a Medicare Advantage plan. With the traditional fee for service plan, Medicare pays the doctors and hospitals. With Medicare Advantage, Medicare pays the companies a monthly stipend per enrollee and then the health insurance company is responsible for managing and financing the enrollee's healthcare.

How much the insurance companies get paid by the government varies by the size of the metropolitan area they're serving. In areas with a population over 250,000, the insurance companies receive about 10.5 percent more. The authors compared areas that were just above and just below that population level to evaluate the impact of the higher payout.

The study's findings

Their key findings were that the higher payouts attracted more insurance companies and more enrollees into Medicare Advantage. Also, more money was spent on advertising. But it did not result in better patient coverage. The authors found that while there can be advantages to patients with respect to additional benefits, such as vision care or a gym membership, these may be partially explained by premium differentials in the Medicare Advantage plan. Doctor availability can be better or worse in these plans since, as the authors point out, most doctors and hospitals contract with traditional Medicare, but an insurance company can also contract with high quality doctors that don't contract with traditional Medicare.

All of this has important policy implications as the Affordable Care Act, or Obamacare, is scheduled to reduce the payments to Medicare Advantage plans. I'd guess that most seniors are worried about the impact to their finances more than the public policy implications, even though the two are related.

I'd like to hear from seniors that are in a Medicare Advantage program. Please weigh in on what you like and don't like about the program, and how you think it might change if the federal government reduces its payments to the plan providers.

Follow me on Twitter: @drdonsays

Read more on the topic: Star ratings rank Medicare Advantage plans.

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