Medicare Advantage Cost Burden Is Lower Than in FFS Medicare

The Medicare Advantage cost burden—or the number of individuals for whom healthcare costs absorb 20 percent or more of their income—is lower than the fee-for-service Medicare cost burden even though Medicare Advantage beneficiaries are slightly more likely to have a chronic illness, a report commissioned by Better Medicare Alliance found.

“This report adds to the evidence that Medicare Advantage provides critical cost protections to beneficiaries relative to Traditional FFS Medicare, while maintaining quality and access to care,” the report stated.

In 2017, over half of all Medicare Advantage beneficiaries were living on 199 percent of the federal poverty line or below—approximately $24,280 per year for single individuals.

In contrast, nearly four in ten individuals in the traditional Medicare population (39.1 percent) were in the same income bracket, while over a third had incomes that reached 400 percent of the federal poverty line or more.

More than two in ten Medicare Advantage beneficiaries (21.9 percent) were dual eligibles who received coverage from both Medicaid and Medicare. Among fee-for-service Medicare beneficiaries, slightly more than 15 percent were dually eligible.

The report demonstrated significant cost savings among Medicare Advantage beneficiaries when compared with traditional, fee-for-service beneficiaries.

Medicare Advantage beneficiaries spent on average $3,354 on their out-of-pocket healthcare costs and premium in 2018. Traditional Medicare beneficiaries spent on average $4,994 on the same categories of spending.

Given this more than $1,600 difference in average spending, Medicare Advantage plans proved to be less of a cost-burden than fee-for-service Medicare. The researchers defined “cost burden” as a plan that required beneficiaries to spend over 20 percent of their income on health-related services.

A fifth of all traditional Medicare beneficiaries faced a cost burden in 2018. In comparison, 11.8 percent of Medicare Advantage beneficiaries experience cost burden that same year.

More specifically among low-income Medicare beneficiaries who do not have Medicaid coverage, the number of fee-for-service Medicare beneficiaries who were cost-burdened in 2018 (49.4 percent) was almost double the number of Medicare Advantage beneficiaries who found themselves in the same predicament (26 percent).

These results are particularly significant since there were no drastic differences between the health conditions of either group. If anything, the study indicated that Medicare Advantage beneficiaries may be slightly more prone to chronic diseases such as diabetes, which would normally expose them to higher healthcare costs.

Over 37 percent of Medicare Advantage beneficiaries reported having diabetes, a condition that contributed around $327 billion to the nation’s healthcare expenditures in 2017.

Congestive heart failure was also slightly more common among Medicare Advantage beneficiaries—7.1 percent prevalence in Medicare Advantage, 5.9 percent prevalence in traditional Medicare.

Still, Medicare Advantage beneficiaries and traditional Medicare beneficiaries were almost evenly matched when it came to their ability to perform activities of daily living and instrumental activities of daily living.

One area in which Medicare Advantage beneficiaries and traditional Medicare beneficiaries did not see significant differences was in their satisfaction with the quality of care and ease of access to care. Over nine in ten Medicare beneficiaries—in Medicare Advantage and traditional Medicare, separately—were satisfied or very satisfied with Medicare’s performance in these categories.

Despite the similar sentiments among beneficiaries, a previous Better Medicare Alliance study indicated that Medicare Advantage produces superior quality of care results than traditional fee-for-service Medicare.

“These successes don’t happen by accident,” Allyson Y. Schwartz, president and chief executive officer of the Better Medicare Alliance, stated in the press release.

“Medicare Advantage depends on support from policymakers to deliver consumer savings, high satisfaction, and better health outcomes for its proportionally lower-income beneficiary population, many of whom have complex chronic conditions. With this research in hand, we look forward to working with Congress and the Administration to maintain and strengthen this coverage lifeline for the 26 million Americans who rely on Medicare Advantage for their health care needs.” 

The report aligned with studies from other sources that supported Medicare Advantage plans’ capacity to produce savings for members.

UnitedHealth Group, for example, discovered that Medicare Advantage costs beneficiaries 40 percent less than traditional Medicare does.