Democrats’ plans to expand Medicare benefits put pinch on Advantage plans’ funding

"Did you think we wouldn’t notice?" an older woman says, speaking into the camera. "You thought you could sneak this through?" an older man later adds. Others warn that Washington is "messing with" their Medicare Advantage health coverage and trying to raise their premiums.

But the television ad, paid for by Better Medicare Alliance, a research and advocacy group for Medicare Advantage plans, doesn’t spell out what cuts congressional lawmakers might be trying to slip past unsuspecting seniors.

Concerned that viewers could be confused and alarmed about coverage changes, we asked the Better Medicare Alliance for specifics about the sneaky moves the organization aims to alert people to. It’s not just one ad. The organization has launched a $3 million TV, radio and online advertising campaign, according to advertising tracker AdImpact.

In response, the group offered this emailed comment from its president and CEO, Mary Beth Donahue:

"Better Medicare Alliance is airing messages encouraging Congress to guard against cuts to seniors’ Medicare Advantage coverage, whether through benchmark policies in the reconciliation bill or other avenues."

While still light on specifics, Donahue’s comment offered an important detail not mentioned in the ad. The group is concerned about coverage cutbacks through "benchmark policies in the reconciliation bill."

Now we were getting somewhere. In the Democrats’ climate and social-spending bill being hammered out in Congress, one key health care proposal would add dental, hearing and vision coverage to the traditional Medicare program.

The provision, championed by Sen. Bernie Sanders, I-Vt., is estimated to cost $350 billion over 10 years. As Democrats have labored to winnow their $3.5 trillion social-spending bill to make it palatable to moderates in the party, it’s unclear whether the Medicare benefits expansion will make it into the final version.

Assuming it does, here’s where benchmark calculations, and presumably the Better Medicare Alliance’s concerns, come into play.

First, some background. Most Medicare beneficiaries are in the so-called traditional Medicare program, in which members generally pay 20% of the cost of medical services after meeting a deductible. A separate plan covers prescription drugs. Enrollees can visit any doctor, hospital or other medical provider participating in the program, the vast majority of whom do nationwide. Many beneficiaries buy supplemental Medigap policies that cover their cost-sharing obligations and fill in other financial gaps.

However, a growing number of Medicare beneficiaries — more than 26 million, or 42% of Medicare enrollees — are in Medicare Advantage plans. Cost sharing is generally lower in these private-sector managed-care plans than in traditional Medicare, but the networks of doctors and hospitals are smaller, too. Many Medicare Advantage plans offer supplemental benefits such as dental, vision and hearing coverage, although the level of coverage varies widely.

"Traditional Medicare is a lousy program, and that’s why Medicare Advantage has really taken off over the last five or 10 years," said Joseph Antos, a senior fellow at the American Enterprise Institute. "Medicare Advantage looks like the coverage you used to have (before joining Medicare) and there (isn’t) confusing cost sharing that most people don’t understand. Whereas with traditional Medicare, there are different deductibles and holes in coverage."

The federal Medicare program pays Medicare Advantage plans a set amount per member. Medicare Advantage health plans submit bids annually to federal officials that reflect how much they estimate it will cost to provide a package of benefits covering hospitalization (Medicare Part A) and outpatient services (Medicare Part B) to enrollees. Those bids are compared against a "benchmark," which is based on the average spending per beneficiary in the traditional Medicare program, with geographic adjustments.

Plans that bid below the benchmark, as most do, receive a rebate they can use to reduce beneficiary cost sharing, subsidize premiums or pay for supplemental benefits like dental, vision and hearing.

Groups like the Better Medicare Alliance say they support providing dental, hearing and vision coverage to all Medicare beneficiaries. But they’re worried that congressional leaders won’t factor the cost of new traditional Medicare benefits into the benchmark, resulting in lower rebates from the program, which could threaten other supplemental benefits that Medicare Advantage members enjoy, such as meals and transportation services, gym memberships and in-home care.

It’s not evident that lawmakers are considering excluding the benefit from the benchmark, however.

"I feel like this is the industry flexing its muscles and sending loud signals, but it’s not clear that Congress has any intention to modify payments as part of this legislation," said Tricia Neuman, executive director of the program on Medicare policy at KFF.

Still, excluding the new benefits from the Medicare benchmark has generated interest as one way to pay for the pricey new benefits. According to one analysis, excluding the cost of the new benefits from the benchmark would reduce the fiscal cost by an estimated 41%, compared with a scenario that included the cost in the benchmark.

"This is because federal payments to [Medicare Advantage] plans would rise only modestly if the benchmarks excluded the new benefits, whereas they would rise substantially if the benchmarks included them," according to the analysis by Matthew Fiedler, a fellow at the USC-Brookings Schaeffer Initiative for Health Policy.

Since rebates would fall, Medicare Advantage plans would have less to spend on supplemental benefits. But dental, vision and hearing would no longer be considered supplemental and would need to be incorporated into plans’ estimate of regular Medicare coverage costs, Fiedler noted.

That shift would mean that the rebate dollars that plans currently devote to dental, vision and hearing could be used for other supplemental benefits, which could shield those other benefits from substantial reductions, Fiedler said.

An analysis commissioned by AHIP, an industry group, estimated that incorporating a dental, vision and hearing benefit without adjusting the benchmark would have a substantial impact, resulting in a 48% decline in the national average rebate amount, or $58 reduction per member per month.

Critics of the Medicare Advantage program have long argued that the government is too generous in paying the private plans. When the Medicare program began incorporating private plans in the 1970s, part of the rationale was that the private plans could provide care more efficiently and save the program money. That hasn’t happened. In a June report to Congress, the Medicare Payment Advisory Commission estimated that the government pays 4% more for beneficiaries enrolled in Medicare Advantage than for those in traditional Medicare.

MedPAC recommended a 2% reduction in capitated payments to Medicare Advantage plans.

In addition, in a September report, the Office of Inspector General for the Department of Health and Human Services found that 20 of 162 Medicare Advantage companies used patient chart reviews and health risk assessments to boost their payments disproportionately compared with their enrollment size.

A big selling point for Medicare Advantage plans has been that they provide coverage for valuable benefits that the traditional Medicare program does not. In 2021, 94% of Medicare Advantage enrollees in individual plans are in plans with some level of dental coverage, according to an analysis by KFF. (KHN is an editorially independent program of KFF.)

But "some" coverage doesn’t necessarily mean comprehensive coverage. In a separate analysis, KFF found that Medicare beneficiaries faced high out-of-pocket costs for dental and hearing services, no matter what type of plan they had. In 2018, average out-of-pocket spending on dental care for traditional Medicare enrollees was $992. Medicare Advantage members spent modestly less out-of-pocket: $766.

In 2010, when the Affordable Care Act reduced Medicare Advantage plan payments to bring them in line with traditional Medicare, some in the industry predicted plans would pull out and benefits would be cut. That didn’t happen.

"The truth is Medicare Advantage has grown rapidly since then and extra benefits have proliferated," Neuman said. So, if the payment methodology changes because of the addition of dental, hearing and vision benefits, "it’s hard to say what would really happen."