Uwe Reinhardt explains the complexities in pricing of Medicare Advantage plans

The Complexities of Comparing Medicare Choices

By Uwe E. Reinhardt
The New York Times, January 4, 2013

The roughly 50 million Americans covered by the federal Medicare program have a choice of receiving their benefits under the traditional, free-choice, fee-for-service Medicare program or from a private, managed-care Medicare Advantage plan. The private plans have a steadily increasing number of enrollees — currently 13 million, or 27 percent of beneficiaries.

A fundamental question that has engaged health-policy researchers and commentators for some time is whether coverage of Medicare’s standard benefit package under Medicare Advantage plans is cheaper or more expensive than it is under traditional fee-for-service Medicare.

The answer is yes.

At the risk of going over ground already covered in Economix and in the scholarly literature on the subject, this answer may warrant some explanation.

(At this point, Professor Reinhardt provides an excellent explanation, with numerous helpful links, of the complexities in pricing of the Medicare Advantage plans. If you wish to understand this topic better, and understand why his answer is "yes," the full article is well worth reading. DMc)


Don McCanne, MD

The only correct "yes" is that Medicare Advantage plans are more expensive. The extra cost is invisible to beneficiaries because it is borne by taxpayers. The plans can be considered less expensive only if you believe that it is fair for taxpayers to provide the private plans with extra funds for their ability to cheat through well documented favorable selection (HSR DOI: 10.1111/1475-6773.12006) and the gaming of risk adjustment (GAO 12-51, Jan 12, 2012 and NBER Working Paper No. 16977).

While we're at it, we should also mention the profound administrative waste of not only the Medicare Advantage plans but also the private Medigap plans (the latter paid by excessive premiums), and the administrative burden that they place on the health care delivery system.

Congress should stop wasting our public funds in these efforts to push us into private plans. If they took the same public and private funds already being spent and used those to improve the benefits of the traditional Medicare program (especially reducing cost sharing and capping out-of-pocket spending), then we would have an even better Medicare program. In fact, it could become the basis of the Improved Medicare for All that many of us long for but has remained elusive to a large extent because of the elevated stature that the private insurance industry holds in the Halls of Congress.