Executive Order on Medicare Advantage Plans: Few Details but Important to Monitor

In October, ahead of the Medicare open enrollment period, President Trump issued an executive order in response to the “Medicare for All Act” recently introduced in the Senate. While short on details, the executive order’s direction is concerning: making Medicare increasingly privatized by favoring private Medicare Advantage plans over the traditional Medicare program and  undermining Medicare’s ability to keep health care prices low. While it is not yet clear how many of the ideas in the executive order will be implemented, advocates should be concerned about harmful consequences for beneficiaries and the health and sustainability of Medicare generally.

To fully understand the implications of the executive order, it is important to understand how the Medicare program currently operates. The Medicare system is separated into two distinct programs of traditional Medicare (also known as fee-for-service (FFS) Medicare) and Medicare Advantage (MA). In traditional Medicare, the federal government pays providers based on set rates for individual services that are updated every year. Beneficiaries in traditional Medicare can go to any provider who accepts Medicare patients. Medicare Advantage is comprised of private plans that contract with the government to provide Medicare services. MA plans often have a more limited set of providers and different rules, restrictions, and costs associated with the plan. About two-thirds of Medicare consumers use traditional Medicare, while one out of three beneficiaries opt for Medicare Advantage. Medicare Advantages plans are highly profitable and tend to cover healthier individuals; as a result, private insurers heavily promote Medicare Advantage during the enrollment period, and MA plans have skyrocketed in popularity in recent years.

While Medicare Advantage can be a good option for some beneficiaries, it’s important to retain traditional Medicare as an option for consumers who do not wish to participate in a managed care plan. Traditional Medicare also has important benefits for the financial sustainability of the overall Medicare program. The executive order instructs the Secretary of Health and Human Services (HHS) to take steps to “ensure that, to the extent permitted by law, FFS Medicare is not advantaged or promoted over MA with respect to its administration.” However, there is no concern about the opposite scenario: that Medicare Advantage is already advantaged by the fact the payment rates are disproportionately higher, leading to bigger profits for insurers at the detriment of the federal Medicare budget. Because of the way plans code their enrollees’ health status, the Medicare Payment Advisory Commission estimates that MA plans are overpaid by about one percent compared to traditional Medicare. These issues mean Medicare Advantage is lucrative for insurers but costly to the Medicare program.

While the favoring of MA plans is troubling enough in its impacts on Medicare sustainability, the executive order takes it one step further and proposes to “modify Medicare FFS to more closely reflect the prices paid for services in MA and the commercial insurance market.” Currently, private plans pay rates significantly higher than that of traditional Medicare. Making traditional Medicare pay more could bankrupt Medicare sooner by negating Medicare’s purchasing power and eliminating one of the most important levers for keeping Medicare sustainable.

In addition to the extremely concerning impacts on Medicare’s sustainability, there are also concerns that the administration could undermine important consumer protections for Medicare beneficiaries. The executive order proposes eliminating regulations that “create inefficiencies or otherwise undermine patient outcomes.” Without knowing the exact regulations the executive order is alluding to, these statements give the federal government a dangerous amount of leeway to end regulations that serve as critical consumer protections.

While the current proposal is vague and seems to serve more as a campaign messaging document than an actual articulation of health policy, it raises some serious red flags. Advocates should keep a close eye on developments to ensure that consumers can count on Medicare as a source of affordable, reliable coverage that will be around not just for us, but for future generations as well.