Personal Finance

Why Are Dying Seniors Changing Their Medicare Coverage?

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Seniors with Medicare Advantage plans are more than twice as likely to leave their plan and switch to traditional Medicare during their last year of life, a recent government analysis shows.

This may indicate potential issues with access to medical care or quality of care under Medicare Advantage plans, according to the U.S. Government Accountability Office (GAO), an independent federal agency.

The higher rate of Medicare Advantage disenrollment among patients nearing death — who tend to need more care and costlier care — also leads to higher costs for the federal government, the GAO found.

The agency’s findings, detailed in a 40-page report to Congress, are based on its analysis of Medicare disenrollment and mortality data for 2015 through 2018, which was the most current data available at the time.

Medicare Advantage versus Original Medicare

The GAO’s findings potentially have implications for anyone who is or soon will be covered by Medicare, which is the federal health insurance program that primarily serves people age 65 and older.

But to understand these potential implications, you first must understand the difference between the two main types of Medicare coverage: Original Medicare (also known as traditional Medicare) and Medicare Advantage.

Original Medicare coverage is provided directly by the federal government’s Medicare program. In other words, the government pays health care providers like doctors and hospitals directly when they care for people with Original Medicare.

That coverage is often described as fee-for-service Medicare because the amounts paid to providers are based on the cost of the services they provide to people with Original Medicare.

Medicare Advantage plans, on the other hand, are offered by private health insurance companies that contract with the federal government’s Medicare program. These plans most commonly are health maintenance organizations (HMOs), which comprised 60% of Medicare Advantage plans as of 2019, and preferred provider organizations (PPOs), which comprised 35% of those plans.

The government pays these private insurers a fixed monthly amount for each person enrolled in their Medicare Advantage plans, a payment system known as capitation.

These payments are risk-adjusted, meaning the amounts are based on health status and demographic factors like age. For example, Medicare Advantage payments are higher for older beneficiaries and those diagnosed with chronic conditions like cancer and diabetes.

Still, capitation payments have their downsides. As the nonprofit Medicare Rights Center explains it:

“In theory, capitation has the potential to reduce costs by creating incentives for plans to curtail unnecessary spending. But such an incentive has risks as well. Insurers may benefit by denying needed care, finding ways to drive up their capitation rates that do not reflect reality, or structuring their coverage in such a way that it appeals to people who need less care and dissuades those who need more — such as offering gym memberships to attract healthier enrollees.”

What this means for Medicare enrollees

The GAO’s recent findings are not the first to suggest that seniors in poorer health may be better served by Original Medicare.

A 2017 GAO report found that under some Medicare Advantage contracts, enrollees in poor health were “substantially more likely” — 47% more, on average — to leave their plan when compared with enrollees in better health.

The 2017 report concluded:

“Such disparities in contract disenrollment by health status may indicate that the needs of beneficiaries, particularly those in poor health, may not be adequately met.”

So, if you are in worse health than the typical senior, this may be something to consider when first enrolling in Medicare or during Medicare open enrollment periods.

Medicare Advantage plans have become increasingly popular in recent years, as they tend to offer enrollees lower costs and more benefits than Original Medicare.

To control enrollees’ utilization of services, however, Medicare Advantage plans may require referrals and prior authorization. They also tend to restrict enrollees to a particular network of health care providers — which often means higher costs for enrollees if they seek out-of-network care.

Someone in great health might not notice or be bothered by these downsides of Medicare Advantage, finding that the benefits outweigh them. But for people who are more dependent on the health care system, the downsides of Medicare Advantage could become barriers to care or could delay care.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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