NCPA - National Center for Policy Analysis

Market Based Reforms Could Improve Obamacare

June 1, 2015

Medicare Advantage (MA) offers seniors the option of private health plans as an alternative to traditional Medicare. The private plans in Medicare Advantage provide more comprehensive coverage and are typically more generous than traditional Medicare. Today, more than 30 percent of Medicare beneficiaries are enrolled in an MA plan.

As ACA implementation continues, MA plans will continue to implement changes to cope with the reduced payments, eventually affecting all enrollees. Yet how plans will change and how beneficiaries will react cannot be predicted with certainty. Therefore, Congress should focus on a new approach to reforming the MA payment system. Specifically, Congress should:

  • Rescind the ACA's MA payment changes. Although the ACA makes major changes to the MA payment calculations, it perpetuates a flaw of the prior law by connecting the methodology to the costs of traditional FFS Medicare
  • Use market-based bids for benchmark payments. Congress should delink benchmark payments from FFS and instead base payment solely on the bids that MA plans submit to the CMS to provide the traditional Medicare benefit (Parts A and B) to MA beneficiaries.
  • Allow rebates to flow directly to the beneficiary. If a plan bids below the benchmark payment, a portion of the difference between the benchmark and the bid is rebated back to the plan. The rebate can be used to reduce the Part B premium and out-of-pocket expenses or to provide extra benefits, such as drug coverage.

Congress should replace the ACA's star-rating system for rebates and instead rebate 100 percent of the difference directly to the senior. Beneficiaries could receive the rebate as they do today in some mix of reduced premiums and cost sharing or additional benefits, or as a deposit in a health account to pay for out-of-pocket health expenses

 Source: Alyene Senger and Robert E. Moffit, "Medicare Advantage Under the ACA: Replace Payment Cuts with Market-Based Reforms," Heritage Foundation, May 28, 2015. 


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