From Disappointment to Predominance: Medicare Advantage’s Ascendancy and Transformation of Medicare

From 2004 to 2024, Medicare Advantage (MA) went from being a “policy disappointment,” covering 12% of all Medicare beneficiaries, to predominance, covering more than one-half (52%), with more growth predicted in the future. Drawing on an extensive review and synthesis of the literature, Medicare Payment Advisory Commission (MedPAC) reports, congressional committee hearings, and Centers for Medicare and Medicaid Services (CMS) data, this paper analyzes the evolution of Medicare and managed care in three parts. First, it briefly traces the early efforts to build an integrated managed care option to the traditional, fragmented fee-for-service Medicare program and highlights four key changes in federal policy that set the stage for the significant expansion of MA after the passage of the Affordable Care Act (ACA) in 2010. Second, it outlines the current structure of MA and contrasts it with traditional Medicare (TM). Third, it reviews a few major changes that could reform and improve MA, including the standardization of MA plan types for which private health plans would competitively bid. It concludes with the observation that the growth of MA, which integrates and expands TM benefits, has resulted in a program that now annually costs an estimated $84 billion more than what Medicare would spend if its enrollees were in TM. This differential in payments has significantly advantaged MA relative to TM and transformed the Medicare program by corporatizing it for tens of millions of beneficiaries. Additionally, it has raised the specter of interest group capture of MA by the largest health plan providers that can outmaneuver government regulators on behalf of senior beneficiaries to whom policymakers are beholden.