MedPAC: Medicare Advantage Payments Now Equal To Medicare Fee-for-Service

by Tom Kornfield and Greg Berger

December 12, 2016

Medicare Advantage (MA) is improving quality for seniors. And while quality goes up, costs continue to go down for taxpayers. This was further demonstrated last week, when the Medicare Payment Advisory Commission (MedPAC) announced average payments to MA plans are now equivalent to fee-for-service (also called “traditional”) Medicare costs.


Since the passage of the Affordable Care Act, MA plans have consistently covered the basic Medicare benefit for less than what those benefits cost traditional Medicare. MA plan costs have fallen nearly every year, and in 2017 the average MA plan bid is 10 percent below local costs for traditional Medicare. This is good news, because it means MA plans continue to drive down costs while delivering high-quality care.

While the Medicare program now spends the same amount on average for MA as it does for traditional Medicare, MA plans offer much more than traditional Medicare, such as additional benefits, out-of-pocket spending caps, and prescription drug coverage for no additional premiums.

Seniors see – and like – the difference. MA enrollment has increased by about 60 percent since 2010, as plans have consistently demonstrated their ability to deliver value. In 2017, roughly 80 percent of Medicare beneficiaries will have access to an MA plan with drug benefits offered at no additional premium. Enrollee satisfaction is very high, with 90 percent of MA members reporting satisfaction with their plan, benefits, and choice of providers.

MedPAC’s latest findings come shortly after recent research on the “spillover” effect, which shows MA brings cost-effective improvements to the rest of the health care system and has a diminishing effect on traditional Medicare spending.

The goal of payment parity between MA and traditional Medicare sought by MedPAC has now been achieved. And evidence is growing that due to the spillover effect, the more people who enroll in MA in certain areas, the slower costs grow in traditional Medicare overall.

Tom Kornfield is Vice President, Public Programs Policy, and Greg Berger is Executive Director, Medicare Policy at AHIP.