Beginning in 1978, Medicare beneficiaries had a second option. They could enroll in private Health Maintenance Organizations (HMOs) under a “risk contract” between CMS and the HMOs.

Over the next 25 years, many modifications to the original legislation were enacted by Congress. And in 2003, this program was renamed Medicare Advantage.

Unlike the government-run traditional Medicare option, the current Medicare Advantage program requires CMS to contract with private health plans on a prospective payment basis. These health plans then contract with individual medical groups and preferred provider networks to deliver the care that enrolled Medicare beneficiaries need.

Operating with a global budget and leveraging their capability to measure and report both quality performance and beneficiary satisfaction, Medicare Advantage plans have demonstrated increased care coordination and superior clinical outcomes.

As a result, these plans are becoming increasingly attractive to Medicare beneficiaries. In fact, 50 percent of new Medicare enrollees choose a Medicare Advantage option – enrollment in the program has tripled in a decade, and now exceeds 16 million beneficiaries.

Some experts predict that Medicare Advantage enrollees will represent 30 percent of all Medicare beneficiaries by 2016.

Let’s explore three reasons why this program is so successful. 

Reason 1: Beneficiaries Enjoy Abundant Choice and Predictable Costs

Medicare beneficiaries who select a Medicare Advantage plan obtain their care through dedicated delivery systems or provider networks.

In 2014, beneficiaries have an average of 18 Medicare Advantage options from which to select. And they can make their choice through the CMS website, which offers an online marketplace, including comparisons of quality and cost. According to recent Kaiser Family Foundation research, beneficiaries last year paid average monthly premiums of only $49 and most of these Medicare Advantage plans included Part D Drug coverage.

Unlike traditional Medicare, Medicare Advantage enrollees benefit from a limit on out-of-pocket costs. In 2014, the average out-of-pocket maximum for Medicare Advantage plans was $5,000. This gives enrollees – often living on fixed monthly incomes – more predictable costs and greater financial security. 

Reason 2:  Program Structure Provides Incentives for Superior Quality Outcomes and Service

The structure of Medicare Advantage creates incentives for providers to deliver comprehensive preventive services, achieve superior clinical quality and offer an excellent patient experience.

They know that satisfied beneficiaries will stay with the same plan and delivery system during the next annual selection process – with positive financial outcomes to boot.

And since government payments are based on the age of patients and the diseases they have — not the number of procedures performed — Medicare Advantage programs do best when the physicians and hospitals provide comprehensive preventive services, intervene early for patients with chronic illnesses, and avoid complications.

Although it’s difficult to compare overall outcomes, data from the National Committee for Quality Assurance (NCQA) show that Medicare Advantage organizations that score the highest tend to use a dedicated, integrated delivery system (including a multi-specialty medical group), and deploy a comprehensive electronic medical record (EMR).

Their results are in the top 10 percent of all programs in a broad set of areas, including managing blood pressure, reducing the risk factors that lead to heart attacks and strokes, and screening for cancer.

In addition, their structure leads to more coordinated care, increased patient convenience, and greater access to technology, including both a comprehensive EMR and a variety of mobile device applications designed for ease of use by beneficiaries.  

Reason 3: Five-Star Quality Rating System Holds Delivery Systems Accountable

An important feature of the Medicare Advantage program is the use of a Five-Star Quality Rating System.

Organizations participating in the Medicare Advantage program must report quality and patient satisfaction data to CMS on an annual basis. Based on this information, each Medicare Advantage program is awarded one to five stars. The Medicare stars program rewards the highest-rated organizations – the ones with superior quality and service results – with additional payments.

And with these dollars, they can invest further in the care of their members. Over time, this approach encourages every program to strive for higher quality and helps direct patients to those delivery systems that accomplish these goals. Most importantly, it results in patients obtaining even better medical care and more comprehensive preventive services. 

Medicare Advantage Drawing Bipartisan Support, Sign of Program Success

For decades, liberal democrats have expressed antipathy toward the financing arrangements in Medicare Advantage. They’ve worried that this approach “privatizes” Medicare and allows insurance companies to benefit from this program by operating as “middlemen.”

But it is becoming clear is that the advantages of this program far outweigh the problems. By paying for value rather than volume – and by encouraging investments in superior quality, technology and coordination of care – the real winners are the Medicare beneficiaries and their health.

There’s increasing recognition across the country of our need to move from “fee-for-service” to “pay-for-value” payment models. And a growing number of democrats who were skeptical in the past are embracing this alternative to fee-for-service.

A recent bipartisan call to mitigate planned cuts in Medicare Advantage payments may be proof of this shifting perspective – whether or not those efforts are successful. 

Learning from Medicare Advantage

A lot goes in to achieving superior performance, increased care coordination and improved quality outcomes.

For starters, care providers can’t allow patients to “fall through the cracks” when they receive treatment from multiple doctors or in multiple venues. Achieving this increased degree of safety requires a dedicated delivery system committed to seamlessly transitioning patients and their medical information from one provider or venue to the next.

It also requires the deployment and “meaningful use” of a comprehensive electronic medical record (EMR) that provides vital information at every point of contact. Having this information rapid treatment and allows gaps in prevention to be addressed immediately and by all physicians involved in the patient’s care.

And prospective payment creates incentives to provide appropriate preventive services, minimize complications and ensure patients recover as soon as possible.

The Medicare Advantage program offers a model for broader delivery system reform as we continue the journey from a fee-for-service/pay-for-volume “sick care” system to a pay-for-value/health-promoting approach.

Accountable Care Organizations – structured along the same principles of prepayment, prevention, care coordination, integration between primary and specialty care, and a commitment to measuring and improving performance – have the potential to move the country forward on the path to true health care reform. And other models are likely to be developed in the future.