Medicare Advantage Plans are under attack in Congress for costing more than traditional fee for service Medicare. In a previous post I have argued that critics of Advantage are comparing apples and oranges and that Advantage plans offer additional net value over FFS Medicare. One of the reasons for this has to do with the nature of Medicare cost inflation. We now know that virtually all of these spending increases are related to beneficiaries with numerous health problems. They don’t just have congestive heart disease, diabetes or asthma. They are likely to have them all. These very sick individuals need to be treated by integrated health plans where specialists can work together to deal with the patients many health challenges.

The ability to do this in a cost effective manner allows for the possibility of better health outcomes with lower costs. Recall that Advantage Plans bid for business and compete with each other to sign up enrollees. Trying to cut costs by denying care would ultimately lead to patients enrolling in competing plans. Since they operate in a real market place, the plans have to do what other private sector firms do, namely innovate over time. This means developing methods and techniques to increase the quality of health outcomes while doing that in a cost effective manner. These ongoing innovations will reduce the long-run growth rate of Medicare spending and make the program more sustainable.