BMA: Medicare Advantage Offers Lower Costs, Better Benefits Than FFS

Medicare Advantage plans offer members additional benefits and require less spending from the federal government compared to fee-for-service (FFS) Medicare, according to a report commissioned by Better Medicare Alliance’s Center for Innovation in Medicare Advantage.

The management consulting company Milliman conducted the report by analyzing FFS Medicare and Medicare Advantage cost, enrollment, and benefit data from CMS records.

Milliman found that the federal government spends $949 per person per month on FFS Medicare, including administration costs. Meanwhile, the government spends a total of $943 per person per month on Medicare Advantage, which includes $110 in administration costs and $123 in additional benefits.

On a yearly basis, Medicare Advantage provides $32.5 billion in additional benefits while also offering beneficiaries lower out-of-pocket costs compared to FFS Medicare. Unlike FFS Medicare, Medicare Advantage plans feature an out-of-pocket spending limit.

Policy states that Medicare Advantage plans must offer at least the same level of coverage and cost-sharing as FFS Medicare. The report findings revealed that Medicare Advantage offers Medicare-covered services at 13 to 14 percent lower costs than FFS Medicare due to lower cost-sharing and reduced premiums.

The government spends $935 per member per month on FFS Medicare for hospital and physician services and $709 per member per month on Medicare Advantage for the same services, the report noted.

Additionally, most Medicare Advantage plans offer benefits that FFS Medicare lacks while still managing to incur lower costs. The $123 per member per month cost that the government spends on Medicare Advantage covers benefits such as dental, vision, and hearing coverage, transportation, Part D prescription drug coverage, and reduced premiums for Part B services.

Beneficiary spending is also lower in Medicare Advantage plans, the report found. The government covers Parts A and B coverage costs for both Medicare Advantage and fee-for-service, but beneficiaries are responsible for Parts B, C, and D premiums and cost-sharing expenses for Parts A and B services.

Medicare Advantage plans boast lower cost-sharing for certain services, which significantly contributes to the difference in costs between the two Medicare programs.

The program can offer the reduced Part B and D premiums, lower Part C cost-sharing, and supplemental benefits due to Part C rebates that Medicare Advantage plans achieve.

Medicare Advantage beneficiaries spend an average of $113 per month, compared to FFS Medicare beneficiaries who spend $253 per month, according to Milliman.

Medicare Advantage plans consist of a set of guidelines that help lower overall government and beneficiary spending. The program requires members to receive care from a provider that is in-network or under the plan’s care management program. Medicare Advantage also works to reduce the use of unnecessary services in order to curb member spending.

“As a result, the government’s dollar goes further with MA plans providing Medicare-covered benefits at least as generous as FFS Medicare for less than what the same benefits cost under FFS Medicare,” the report stated.

The findings revealed that the government pays 89.5 cents of every dollar for Medicare Advantage costs for Medicare-covered services and 85.2 cents for FFS Medicare costs. Medicare Advantage beneficiaries account for the remaining 10.5 cents while FFS Medicare beneficiaries pay 14.8 cents out of every dollar.

Many individuals choose Medicare Advantage despite the provider requirements because of the low coverage costs. Just over half of all Medicare Advantage beneficiaries in 2020 were low-income, compared to 44 percent of FFS Medicare beneficiaries who were low-income.

In 2020, Medicare Advantage beneficiaries spent an average of $3,558 in out-of-pocket expenses for premiums and cost-sharing. FFS Medicare beneficiaries with Part D coverage spent an average of $5,361 in out-of-pocket expenses.

With the lower costs and the additional benefits that Medicare Advantage plans offer, an increasing number of seniors are shifting from FFS plans.

“This independent, actuarial report offers an important look at Medicare Advantage’s value to beneficiaries and the federal government,” Mary Beth Donahue, president and chief executive officer of the Better Medicare Alliance, stated in a press release. 

“At a time when lawmakers are weighing important policy considerations for seniors’ health care, Milliman’s findings demonstrate that Medicare Advantage delivers additional benefits and reduced cost-sharing.”