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January 5, 2022
David Burda
Economics Policy System Dynamics

Unfazed by Unbridled Medicare Advantage Spending

You know what’s a big number? 9.7 percent is a big number. That’s how much total national health expenditures rose in 2020 due in large part because of federal spending on the COVID-19 pandemic, according to the latest NHE data from CMS. It’s the big number everyone was talking about in mid-December when CMS released the information. 

You know what else is a big number? 17.1 percent. I’m not a math major, but I’m pretty sure that 17.1 percent is bigger than 9.7 percent—almost twice as big. But as far as I can tell, no one was talking about that big number in mid-December. 

17.1 percent is how much federal spending on Medicare Advantage plans rose in 2020, reaching nearly $370 billion. That’s the fourth consecutive year federal spending on private health plans under contract with the government to insure Medicare beneficiaries jumped by double digits:

  • A 10.1 percent increase in 2017
  • A 12.6 percent increase in 2018
  • A 15.3 percent increase in 2019      

In 2016, MA expenditures represented 32.7 percent of about $675.7 billion in total Medicare spending that year. By 2020, just five years later, MA expenditures ate up 44.6 percent of about $829.5 billion in total Medicare spending that year. That’s a pretty big bite. 

So where did all that extra spending on MA plans going, he asked rhetorically?

It doesn’t look like went to Medicare beneficiaries. According to CMS, per enrollee Medicare spending rose only 1.4 percent in 2020. That’s down from a 4.2 percent increase in 2019. That would suggest that beneficiaries weren’t much sicker than usual in 2020 or at least didn’t consume much more healthcare resources than usual.  

A good guess would be all that extra spending on MA plans went to the plans themselves. Commercial health insurers have found a gold mine in Medicare Advantage, and they’re going to keep on mining MA until they tap it out or the federal government changes how it pays private contractors for taking care of Medicare enrollees.

We were one of the first to sound the alarm on MA spending three years ago in this post: “Medicare Advantage Bends Cost Curve the Wrong Way,” but the annual increases in MA expenditures keep getting bigger as commercial health insurers show little restraint in grabbing as much as they can as fast as they can. 

The only question is how big does a big number have to get before anyone pays attention?

Thanks for reading. 

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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