Medicare Advantage for Whom? An Evaluation of the Benefits and Shortcomings of Privately Managed Medicare

Author

Young KimFollow

Graduation Year

2023

Date of Submission

4-2023

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Reader 1

Frederick R. Lynch

Reader 2

John J. Pitney Jr.

Abstract

Privately managed Medicare Advantage will soon become the dominant form of health insurance coverage for U.S. seniors, eclipsing traditional fee-for-service Medicare. Given rising spending, popularity, and political scrutiny, it is crucial to evaluate Medicare Advantage’s benefits and shortcomings to make an assessment of whether its expansion is justified. The original policy aims of the program were to capture market efficiencies to reduce costs for the Medicare program, generate additional benefits, and increase accessibility of care. As such, the primary analysis is centered around Medicare Advantage’s abilities to generate surplus for beneficiaries to identify if it has failed to achieve its originally intended goals.

Incentives for Medicare Advantage plans to maximize profits led to a disproportionate accrual of surplus to insurers rather than beneficiaries. Incentive-alignment and flaws in the structure of assessing risk have allowed Medicare Advantage plans to code for unverifiable diagnoses, contributing to billions of dollars in overpayments from traditional Medicare to Medicare Advantage plans. Due to a high concentration of market power among a select few Medicare Advantage insurers, plans exercise their leverage to maintain their surplus. Although Medicare Advantage has higher quality of care and better outcomes than traditional fee-for-service Medicare on some metrics, a combination of a concentrated market and significant incentive-alignment to maximize cost-cutting has disincentivized beneficiary usage of care, decreasing beneficiary surplus. Cost-cutting measures disproportionately impact low-income, racial minorities, compromising equity outcomes. These findings have implications for future policy reform.

Recommended Citation

Kim, Young, "Medicare Advantage for Whom? An Evaluation of the Benefits and Shortcomings of Privately Managed Medicare" (2023). CMC Senior Theses. 3257.
https://scholarship.claremont.edu/cmc_theses/3257