Higher and Faster Growing Spending Per Medicare Advantage Enrollee Adds to Medicare's Solvency and Affordability Challenges

The number of people enrolled in Medicare has increased steadily in recent years, and along with it, Medicare spending. In particular, enrollment in Medicare Advantage, the private plan alternative to traditional Medicare, has more than doubled over the last decade. Notably, Medicare spending is higher and growing faster per person for beneficiaries in Medicare Advantage than in traditional Medicare. As enrollment in Medicare Advantage continues to grow, these trends have important implications for total Medicare spending, and costs incurred by beneficiaries. In its 2022 budget, the Biden Administration expressed support for reforming payments to private plans as part of efforts to extend the solvency of the Medicare Hospital Insurance (HI) Trust Fund and improve affordability for beneficiaries.This analysis examines Medicare spending per person for beneficiaries in Medicare Advantage, relative to traditional Medicare. We build on prior work published by the Medicare Payment Advisory Commission (MedPAC) and the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary (OACT) to provide estimates of the amount Medicare would have spent for Medicare Advantage enrollees had they been covered under traditional Medicare in 2019 (the most recent year for which data are available). We use publicly available data from CMS that includes spending for people who were enrolled in both Part A and Part B of traditional Medicare, by category of service, as well as information on average risk scores and enrollment by county. This allows us to calculate per-person spending for beneficiaries in traditional Medicare on a basis comparable to federal payments per enrollee in Medicare Advantage. We also examine the extent to which the projected growth in Medicare Advantage spending is attributable to the growth in enrollment and the increase in spending per person. We then illustrate potential savings to the Medicare program between 2021 and 2029 under two alternative scenarios where Medicare Advantage spending per person is lower or grows slower than under current projections