The complete version of this testimony is available here as an Adobe Acrobat PDF.

My testimony makes a number of points. First, Medicare Advantage (MA) health plans play a critical role in bringing greater value to our overall health care system, in terms of enabling beneficiaries to get more up-to-date, higher-quality care at a lower cost. Second, policy reforms to address the looming Federal government entitlement crisis should start with not shifting costs from the Federal government to Medicare beneficiaries with limited means, and they should seek to avoid reducing access to benefits like preventive services, more comprehensive drug coverage, and care coordination services that both reduce costly complications and help beneficiaries lead healthier lives. In fact, such changes may meet the definition of reduced efficiency, properly defined from the standpoint of the overall value of the care provided in our health care system. Third, any differential payments for most types of MA plans may well be smaller in 2008 and beyond than some recent estimates based on 2007 data would suggest. As a result of recent changes in law and regulation, MA plans overall will have relatively modest payment increases in 2008 and possibly in subsequent years. Remaining differences in payment rates are largely the direct result of bipartisan Congressional action to address concerns about reduced access to up-to-date coverage options in rural and certain urban areas. Thus, any changes should be approached cautiously. Fourth, while the MA program is a key element in achieving the overall policy goal of improving the quality and efficiency of Medicare and our health care system, there are some important opportunities to improve it and help reduce Federal costs.

The Value of the Medicare Advantage Program

Before discussing the efficiency of Medicare Advantage plans, I would like to start with a comment on the importance of considering value--which is the way economists define efficiency--in the context of our health care system. Economic efficiency is not simply reducing costs to the government. For example, consider two kinds of health care coverage. One kind generally pays for complications of health problems after they happen, but limits coverage of preventive care, services to help people with chronic disease stay well, and other benefits that improve health, resulting in higher costs to patients. The other kind of coverage is more in line with 21st-century health care: it provides more personalized medical services, such as helping people understand their risk factors, comply with drug therapies and other treatments to prevent complications, avoid duplicative services, and as a result it achieves better health outcomes. Even if these two kinds of coverage cost the same amount to the government, they are by no means equally efficient. Because the latter type of coverage achieves better quality for the same amount of government payment--because it delivers greater value--it is the more efficient approach. In fact, even if the more up-to-date coverage were somewhat more costly, because it delivers better health, it may still be the more efficient plan. Moreover, economic efficiency cannot be determined simply by looking at costs to the government. Efficiency depends on overall costs, including costs paid by beneficiaries as well as the government. Coverage that shifts costs to beneficiaries without lowering overall costs--or perhaps increasing them--does not increase efficiency.

If we want to achieve a high-value, efficient health care system, then Federal policies must encourage high-value health care. With this background in mind, I would like to describe how the Medicare Advantage program overall is performing. . . .

 The complete version of this testimony is available here as an Adobe Acrobat PDF.

Mark B. McClellan, M.D., is a visiting senior fellow in health policy studies at the AEI-Brookings Joint Center for Regulatory Studies.