Date June 12, 2023

The Values of Medicare

How do we value the care of vulnerable Americans?

For much of the 20th century, Americans lived without a health care safety net. Many, particularly the elderly and vulnerable, had no health insurance. They paid out of pocket for care, and when care became too costly, they struggled, fell ill, and often died. For millions of Americans, the value of care was determined by the contents of their bank account.

In 1965, the federal Medicare program established a new social safety net. It ensured that older Americans and those living with disabilities would not go without the care they need, by paying for hospital care through deductions on every paycheck in the country. Medicare—which President Joe Biden recently called a “rock-solid guarantee that Americans have counted on to be there when they retire”—is a rare example of bipartisan consensus. Even fiscal hawks are reluctant to cut benefits in such a broadly popular program.

The Medicare and Medicaid Act essentially set out a new national value: that the care of older Americans is worth enough that it would now be guaranteed by the national GDP through payroll taxes, with an initial rate of 0.35%.

Medicare costs have ballooned in the last two decades, threatening to bankrupt the federal trust funds that pay for care. Policymakers must make hard choices: finding opportunities to manage costs without limiting benefits or undermining care. Those who study Medicare say that such opportunities exist, particularly in privately-administered Medicare Advantage plans.

“ These are private plans—they want to maximize profits. One of the ways that plans maximize revenue is to increase the payment rate for each enrollee, based on how sick people are. So if you document more illness, you get more payments. ”

Amal Trivedi M.D., MPH professor of health services, policy and practice

Researchers at the Brown School of Public Health have dedicated themselves to understanding the value of the care that Medicare beneficiaries receive. “The goal for policy going forward is to thread the needle to come up with a more rational way to pay, to potentially reduce spending in a defensible way,” says Dr. Amal Trivedi, professor of health services, policy and practice.

The Value of Medicare Advantage

Medicare has evolved considerably since 1965. The most consequential change was the move to allow private insurers to offer benefits to those eligible for Medicare. When it was first launched, Medicare faced significant opposition from the American Medical Association and others, on the grounds that it would yield “socialized medicine.” But over time, and in the face of growing public support, criticism of Medicare targeted two areas of concern—efficiency and innovation. Proponents of privatization argued, with some evidence, that in a country as large and diverse as the United States, private plans would be more efficient and innovative than a large federal bureaucracy.

In 1997, a trial program was launched allowing private care plans to fulfill the commitments of Medicare. Under what is now known as Medicare Advantage, rather than paying for the care of beneficiaries directly, the federal government paid private plans to take on the responsibility of ensuring beneficiaries received care. To incentivize innovation and efficiency, plans were permitted to keep a portion of any savings from lower costs.

At first, Medicare Advantage uptake was slow. Medicare was popular, and there was considerable backlash against the idea of “managed care,” as Americans worried that Health Maintenance Organizations (HMOs) and other forms of private insurance would limit access to certain kinds of care. The first Medicare Advantage beneficiaries tended to be healthier, and often more financially secure. But, as envisioned, Medicare Advantage plans innovated, expanding their benefits to include gym memberships, dental care, and vision. These advantages have been the centerpieces of extensive marketing campaigns to drive enrollment—another key differentiator between private and public enterprises.


Private enterprise values profitability, and Medicare Advantage plans have been highly profitable, says Andrew Ryan, professor of health services, policy and practice. The question is whether Medicare Advantage plans are delivering quality care as well as shareholder value. “The way I look at this is, there’s no problem if plans are making money,” says Ryan. “If they’re doing something that’s socially useful— innovating, providing great benefits, making people healthier, and reducing spending.”

Medicare Advantage is definitely not reducing spending—indeed the cost of care for beneficiaries has climbed steadily. “Medicare Advantage is roughly 5% of the federal budget, and over 1% of the nation’s GDP,” says Trivedi. But the quality of care provided to Medicare Advantage beneficiaries is much harder to study. Ryan and other researchers at Brown and around the country are sifting through data from millions of Medicare beneficiaries and billions of health care encounters to answer one of the most pressing questions facing health care and the federal budget: Are our payments to Medicare Advantage plans well-spent?

Growth in Medicare Advantage enrollment has not resulted in the efficiency and cost-savings that proponents had anticipated. Instead, per-participant costs have grown faster than costs for participants in traditional Medicare.

“ Once patients are enrolled, plans have very strong incentives to make them look sicker. ”

Andrew Ryan, Ph.D. professor of health services, policy and practice

The Medicare Advantage Decade

In the last decade, the profitability of Medicare Advantage has driven rapid growth in the number of beneficiaries and plans offered, as well as substantial consolidation of plans. This year, for the first time, Medicare Advantage beneficiaries will outnumber those in traditional Medicare. A single firm, UnitedHealthcare, will direct the care of 28% of all Medicare Advantage beneficiaries. That expansion has been aided by expensive, public overtures: the Better Medicare Alliance’s recent multi-million dollar advertising campaign included a commercial spot during Super Bowl 57.

Yet this growth in Medicare Advantage enrollment has not resulted in the efficiency and cost-savings that proponents had anticipated. Instead, per-participant costs have grown faster than costs for participants in traditional Medicare.

Medicare Advantage’s profitability and cost growth has posed the question of the value of care in a new way. Before Medicare, society paid nothing for the care of vulnerable Americans. Are we now paying too much?

In 2023, Medicare is one of the few things most Americans can agree on—a cherished foundation of American society. But that foundation is nearing collapse, undermined by mushrooming costs of care. 60 years after the passage of Medicare, as the baby boomer generation reaches retirement age, more Americans are qualifying for Medicare than ever before. This so-called “silver tsunami” has made unprecedented demands on the trust funds that pay for Medicare, threatening them with insolvency in as little as five years. Policymakers must urgently struggle to reconcile fiscal responsibility with their commitments to older Americans and their families.

Valuing Health Care

To guide policymakers in addressing this growing crisis, Brown researchers are working to find where costs are growing, and whether greater costs lead to better care. Together with other researchers, they have documented Medicare Advantage’s higher costs, showing that in addition to higher benchmark payments, plans have worked hard to add diagnoses to the medical records of beneficiaries. More diagnoses means that plans are paid more by the government, which wants to make sure plans don’t only enroll the healthiest beneficiaries, and that sicker beneficiaries cost more. But plans have become increasingly aggressive in their efforts to add diagnoses, including using artificial intelligence to enable more sophisticated “upcoding.”

Paying more to Medicare Advantage could make sense if beneficiaries are receiving better care—if, for example, more diagnostic codes led to better health outcomes. But drawing conclusions about quality of care requires a rich understanding of the patient and their health outcomes to account for severity of disease, health status, and other key variables, including the social determinants of health.

To compare the quality of care offered in traditional fee-for-service Medicare and in Medicare Advantage, researchers need to be confident that the two groups of beneficiaries are statistically similar. But the first Medicare Advantage beneficiaries tended to be “the healthiest slice of the population,” says Trivedi—healthier than their counterparts who remained in traditional Medicare. Even as Medicare Advantage has grown and the two groups of beneficiaries have become more similar, it remains difficult to eliminate statistical differences between the two populations.

“It’s very hard to study Medicare Advantage,” says Ryan. “We don’t have a random assignment of beneficiaries going in. People choose to go to Medicare Advantage, and plans more aggressively market to, and recruit, certain types of patients.” In 2012, Trivedi helped show that Medicare Advantage plans that offered fitness memberships as a benefit had healthier beneficiaries than plans that didn’t offer such benefits.

To counteract this incentive to enroll healthier, low-cost patients, the Centers for Medicare and Medicaid Services (CMS) changed the way it paid Medicare Advantage plans. Traditional Medicare reimburses providers for the care they provide in a fee-for-service model. Under Medicare Advantage, private plans assume responsibility for providing care, and receive a “capitated,” per-participant fee from Medicare, keeping a portion of any savings. Rather than paying a standard rate, CMS paid Medicare Advantage plans more for beneficiaries whose care was expected to cost more—an approach known as “risk adjustment.”

Risk adjustment has helped diversify Medicare Advantage beneficiaries. A recent study by David Meyers, assistant professor of health services, policy and practice, found that the recent growth in Medicare Advantage enrollment included many Black and Hispanic beneficiaries, as well as “dual eligibles”—people who can receive both Medicare and Medicaid, the federal program that pays for care for Americans with lower incomes.

But if risk adjustment has helped address adverse selection in Medicare Advantage plans, it has distorted care and costs in other ways, as plans work to maximize their financial returns. “Once patients are enrolled, plans have very strong incentives to make them look sicker,” says Ryan.

“If you document more illness, you get more payments,” says Trivedi. “So the plans have been very creative about ways to make sure that as many diagnoses are coded as possible.”

The practice of upcoding is a primary driver of Medicare Advantage’s higher costs, amounting to $321 per person in 2019 (a total of $7 billion), reflecting a nearly 10% increase in risk scores relative to traditional Medicare beneficiaries. Some of this money goes to fund additional benefits, and greater focus on diagnosis probably improves some forms of care. But there is increasing concern that many of these diagnoses are, at best, of marginal clinical value. Some Medicare Advantage plans are alleged to have committed fraud, reporting lucrative diagnoses with no clinical basis. Some firms allegedly overbilled hundreds of millions of dollars by, for example, failing to make clear when serious conditions like cancer had resolved.

A new rule announced earlier this year will allow CMS to audit more aggressively, and to extrapolate its findings from the sample of patient records reviewed to all of a plan’s beneficiaries, in an effort to claw back overpayments.

These efforts will go a long way to ensuring Medicare Advantage plans are paid in keeping with the value of the care they provide, but many hard questions remain. There is a huge gray area between diligent efforts to find clinically valuable diagnosis, and efforts to boost risk scores through codes that are not clinically justified.

It’s a question of incentives, says Trivedi. “These are private plans—they want to maximize profits. One of the ways that plans maximize revenue is to increase the payment rate for each enrollee, based on how sick people are. So if you document more illness, you get more payments.”

“ Medicare Advantage plans are overpaid due to structural factors in the program design. These factors include risk adjustment, plans’ upcoding of disease severity and inflated bonus payments for quality performance. ”

David Meyers, Ph.D. assistant professor of health services, policy and practice, in JAMA

Opening Up Access

The hope, says David Meyers, was that Medicare Advantage plans could give Americans more choices in their care. “Medicare Advantage plans can offer different benefits, additional benefits. They can offer benefits at a range of price points. So people can sign up for coverage that matches their needs.”

Many Medicare Advantage plans now offer dental and vision coverage. Some even offer transportation or food deliveries. Broader, tailored benefits—together with widespread “zero premiums,” meaning Medicare Advantage beneficiaries pay nothing to join and begin receiving these benefits—are a big part of Medicare Advantage’s popularity and growth.

Growing Medicare Advantage enrollment has led to higher per-beneficiary costs, as Medicare Advantage plans come to more closely reflect the Medicare population as a whole. But these costs do not always translate into better care because, in some instances, patients never receive the care at all. Under traditional Medicare, beneficiaries can receive care from almost any doctor in the country, though they may have a copay for outpatient care, and may need to get permission or “prior authorization” for certain prescriptions. Medicare Advantage plans have typically made much broader use of prior authorizations, requiring them for as much as 90% of the services a patient needs—particularly higher cost services. Some plans have also turned to artificial intelligence to cut short costly rehabilitation or other treatments.

Medicare Advantage plans argue that prior authorizations help them to manage costs to maximize benefits to beneficiaries, but they are an additional hurdle for both patients and providers. With over 35 million such requests filed in 2021, efforts to streamline the process—including requiring electronic submissions—are politically popular.

Prior authorizations are not the only way that Medicare Advantage plans manage costs by setting parameters for care. Medicare Advantage beneficiaries are only covered when they receive care from providers in their plan’s network. The decision about which providers a plan includes in its network is a business decision driven by quality, cost and a host of other factors. It can also have major health consequences.

Patients with end-stage renal disease, for example, typically require dialysis three times a week, and each treatment takes 3 hours or more, making access critically important. In 1972, recognizing the cost of this life-saving treatment, Congress extended Medicare coverage to end-stage renal disease patients regardless of age, but Medicare Advantage plans were not required to enroll them until 2021. In 2023, Trivedi and Meyers published a study showing that, on average, half of dialysis facilities in Medicare Advantage plans’ service area were in-network, and that Hispanic, Asian/Pacific Islander, and American Indian/Alaska Native people more often faced “narrow networks,” in which a quarter or less of facilities were covered.

Turning Point

Medicare’s looming financial bankruptcy—driven in part by the rapid growth in Medicare Advantage enrollment—has forced researchers and policymakers to take a hard look at the value of Medicare Advantage.

In a recent Journal of the American Medical Association editorial, Meyers, Trivedi, and Ryan ask, “How Much of an Advantage is Medicare Advantage?” They conclude that some early evidence of improved health outcomes in Medicare Advantage beneficiaries has reversed: beneficiaries have become more diverse and less healthy. In contrast, they argue, “extensive research suggests that Medicare Advantage plans are overpaid due to structural factors in the program design. These factors include risk-adjustment, plans’ upcoding of disease severity, and inflated bonus payments for quality performance.”

The government seems to agree. In February 2023, CMS made two announcements aimed at containing Medicare Advantage costs. First, a new rule finalized in February will provide for more aggressive auditing of patient records and diagnostic codes. The rule allows CMS to extrapolate any overpayments it finds to all records in the plan as far back as 2018—allowing CMS to potentially claw back an estimated $4.7 billion.

At the same time as it tries to clamp down on upcoding, CMS is moving to limit the overall rate at which Medicare Advantage plans are paid, announcing in February that plans would see only a 1% increase in payments per beneficiary (compared to 6.3% and 4.75% in the previous two years). Representatives for Medicare Advantage plans argued that, together with other payment changes, this smaller increase would mean plans would be forced to cut benefits—talking points repeated in the recent Super Bowl spot. The federal government has pushed back, saying that plans will still see a net increase.

The future profitability of Medicare Advantage plans remains to be seen, including because these new regulations will likely be challenged in court.

In the meantime, the question of the value of care is central. CMS tracks Medicare Advantage beneficiaries’ experiences with their plans and care with a star rating system not unlike Amazon reviews. But, as with Amazon reviews, the devil is in the details, particularly when a bad experience may mean a heart attack, not just a missed package delivery. “You don’t find out about the quality of benefits in your plan until you get sick,” says Trivedi. Meyers led a study showing that high need beneficiaries were more likely to leave Medicare Advantage plans.

Shining a Light in the Dark

The value of Medicare Advantage only comes into focus through rigorous public health research and scholarship. “Medicare Advantage as a whole is quite opaque,” says Trivedi. “We don’t have equivalent data from traditional Medicare and Medicare Advantage. We don’t have the same quality metrics. We don’t have a lot of the financial data. We have to be very creative to come up with ways to rigorously study Medicare Advantage.”

Understanding the value of care under Medicare Advantage plans is critically important not only because of the sheer number of beneficiaries. “The growth in Medicare Advantage destabilizes traditional Medicare,” says Ryan, making it harder to improve value in the care funded directly by the government through programs like the CMS Innovation Center. Given the speed of innovation by Medicare Advantage plans, driven by venture capital, researchers and policymakers are also forced to play catch up. “Medicare Advantage is what we need to be focusing on,” Ryan argues. “Five years ago I wouldn’t have said that—I think we kind of missed it, and now the horse is out of the barn.”

Americans spend nearly one in five dollars on health care—nearly twice what most wealthy countries spend, and with substantially worse health outcomes across most measures. Closing this gap in the value of care—ensuring Americans are receiving value for the money we invest in the care of the vulnerable—requires skilled and dedicated researchers to guide policymakers. Ryan and Meyers are not shying away from this challenge. In an editorial evaluating CMS’ new rules, they argue for “emboldening” and expanding the scope of federal audits of Medicare Advantage programs: “Considering the billions of dollars the agency is leaving on the table, even doubling or tripling funding for the [audit] program would produce an excellent return on investment.”

The value of care is never settled. Medicare Advantage will continue to evolve in response to new payment rules as well as the changing landscape of care. Without the work of researchers like Ryan, Trivedi and their Brown colleagues, beneficiaries, taxpayers, and policymakers alike would make difficult decisions—about care for the most vulnerable members of our society, the cost of which rivals our entire defense budget—in the dark. As these complex systems of care continue to mature, we need data to decide whether we are making the right investment in the care we value.