As presidential candidates like Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA) make the case that eliminating private insurance is the only way to put Americans’ health care cost concerns to rest, privately-managed Medicare Advantage (MA) and Part D plans are delivering considerable savings for millions of seniors.
The Centers for Medicare and Medicaid Services (CMS) announced this week that the average MA plan’s monthly premium will be $23 in 2020, a 14.4-percent decline from 2019 and a 23-percent decline from 2018. The last time MA plans had an average monthly premium this low was in 2007, when George W. Bush was president, the iPhone was just being introduced, and The Sopranos was still on television.
CMS also announced recently that average monthly premiums have declined for Part D, Medicare’s prescription drug benefit, from $34.70 in 2017 to $30 in 2020. As NTU has noted before, Part D premiums are decreasing as enrollment in the program is increasing, and program costs for the government are coming in significantly less than originally projected.
What MA and Part D have in common, and what makes them different than Medicare Parts A (hospital insurance) and B (physician and outpatient services), is the significant role that private insurance plays in MA and Part D.
Medicare Advantage plans are managed by private insurers, and usually provide all the services of Parts A, B, and D in one package. MA plans are reimbursed by the government at a capped rate per person, and that rate is determined by county and by the demographics and health history of a plan’s enrollees.
Importantly, this rate is not a price control. If a private plan’s bid to Medicare (what they propose Medicare pays them for covering enrollees) comes in under the capped rate, then the private plan passes on the savings to customers in the form of lower premiums or cost-sharing. If a private plan’s bid to Medicare comes in over the capped rate, then the plan’s customers pay the difference in the form of a premium.
But MA plans with $0 premiums are widely available. According to CMS, there are 43 states (plus Washington, D.C.) in which 100 percent of Medicare beneficiaries have access to a MA plan with a $0 premium.
MA plans are a win-win-win for patients, taxpayers, and the free market for health care:
Patients benefit from dozens of MA plans competing for customers; plans seek to offer either the lowest premiums, unique and tailored benefits (such as telehealth services or meal delivery), or some combination of the two.
Taxpayers benefit from the predictability of capped payments, and from the incentives that private insurers have to manage health care costs for their customers.
The free market benefits because private insurers are competing across the nation to hold down costs, innovate, and win more customers to their MA plans.
Indeed, CMS pointed out in their announcement this week that enrollment in MA plans is projected to increase to 24.4 million people in 2020, up 10 percent from 2019. If 24.4 million people enroll, around 40 percent of Medicare beneficiaries will have chosen a MA plan.
As more seniors enroll in MA plans, the number of plan offerings have also increased. According to CMS, the average number of MA plan offerings per county in 2020 will be 39, up 18 percent from 2019.
Most importantly, both patients and taxpayers are benefiting from free-market competition in MA and Part D. CMS estimated that premium declines in both programs have saved beneficiaries $2.65 billion since 2017, and taxpayers around $6 billion (due to lower premium subsidies).
Rising health care costs continue to dominate the conversation in Washington. Many of the proposals released as of late would have a singular entity, the federal government, taking an aggressive role in the provision and payment of care. Government price controls, though - whether through a single-payer system, or steep taxes on prescription drugs - will only lead to fewer options for patients and higher costs for both patients and taxpayers.
In contrast to these disruptive plans are the savings that seniors and taxpayers are realizing right now from robust competition in MA and Part D. The free-market success stories of MA and Part D make clear that policymakers should be pursuing solutions that increase competition in health care, rather than create one-size-fits-all policies for a nation with 300 million people.