Medicare Advantage is a healthier alternative for seniors than traditional Medicare – Pacific Research Institute

Medicare Advantage is a healthier alternative for seniors than traditional Medicare


The latest federal review of Medicare is out and it says taxpayers are getting a raw deal. The review is from MedPAC— the congressionally chartered review commission that advises lawmakers on the state of Medicare.

MedPAC’s mandarins have concluded the government is paying the private insurers who administer Medicare Advantage too much. The seniors flocking to Medicare Advantage would beg to differ.

They’re getting better care and spending less out of pocket than their peers on conventional Medicare. By denouncing Medicare Advantage, MedPAC is really arguing to take benefits away from seniors— and charging them more for the privilege.

Medicare Advantage was created in 1997 as a privately administered alternative to traditional Medicare, which was signed into law in 1965 by President Lyndon Johnson.

Under the original government-administered version of the program, beneficiaries pay monthly premiums to the government for physician care. They are also responsible for an annual deductible and co-insurance for hospital care.

Medicare Advantage combines both part A and part B— hospital care and physician care— in one privately administered plan. Sometimes, advantage plans include part D prescription drug coverage, too.

The government pays the plans a set amount, and then they’re supposed to figure out how to deliver the required benefits in an efficient manner.

Medicare Advantage for seniors

The advantage for seniors is more choice and often lower out-of-pocket costs. Most of these plans are health maintenance organizations (HMOs) or preferred provider organizations (PPOs) — which offer significant savings for visiting in-network providers.

Some offer dental and vision coverage, which traditional Medicare doesn’t provide. Some come with lower annual out-of-pocket caps or additional benefits like gym memberships or meal delivery. There’s about 36 different Medicare Advantage plans for seniors to choose from.

Medicare beneficiaries like these private offerings. Enrollment in advantage plans has more than tripled, from 7 million in 2000 to 26 million in 2021. MedPAC argues that the growth has cost the federal government too much.

Its new report notes that the government spends 4% more per person per year on Medicare Advantage than traditional Medicare. But that extra cost delivered outsized value to Medicare Advantage beneficiaries.

Advantage insurers have to compete for seniors’ business, so the plans tend to be more generous than traditional Medicare. A recent report from the Center for Innovation in Medicare Advantage found that the program accounts for over $32 billion in additional benefits and savings for its enrollees.

Ninety-four percent of Advantage enrollees have access to dental benefits. Ninety-nine percent have some form of vision coverage. Traditional Medicare covers neither service. Unsurprisingly, average out-of-pocket spending on dental and vision care for Advantage enrollees was hundreds of dollars less overall than for those on traditional Medicare.

In addition, enrollees in traditional Medicare typically purchase Medigap supplemental insurance to help with co-pays and coinsurance for hospital stays and doctor visits. Such coverage averages about $160 a month.

The benefits of Medicare Advantage plans

People with Medicare Advantage plans don’t face that additional expense. In the end, Advantage enrollees spend, on average, $1,640 less annually than their peers in traditional Medicare.

The government may save money if Advantage enrollees move to traditional Medicare. But those savings will come directly from the pockets of seniors.

Now consider health outcomes. Medicare Advantage plans typically offer easier access to preventive care. Advantage enrollees tend to get vaccinated at higher rates. And Advantage patients with complex chronic conditions had a rate of avoidable hospitalization 57% lower than those in traditional Medicare.

The extra value Medicare Advantage plans offer can even deliver positive returns to taxpayers, despite its ostensibly higher price tag. The Center for Innovation in Medicare Advantage concludes that Medicare Advantage is less expensive for taxpayers because every dollar the government spends on Medicare Advantage buys more health care than one spent on traditional Medicare.

If economic efficiency and good patient health are the goals, the solution is more Medicare Advantage — not less.

Sally C. Pipes is the president, the CEO and the Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes. 

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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