Medicare Advantage vs Fee-for-Service: Is One More Susceptible to Fraud?

medicare advantage vs fee-for-service

We’ve all heard horror stories about exorbitant medical bills no ordinary person could ever hope to pay. A 20% copay on a $7 million hospital bill or the cost of life-saving medication skyrocketing overnight? These situations are gut-wrenching to say the least.

The typical American simply can’t afford routine care and medication, let alone hospital stays and life-or-death procedures, without quality health insurance. But as we all know, sometimes health insurance just isn’t enough. Something’s gotta give!

What are the problems with Medicare Advantage?

Senator Elizabeth Warren recently called for reforms to Medicare Advantage (MA) plans citing known cases of fraud, waste and abuse by some of the nation’s leading providers of Medicare services. These reforms would make risk adjustment practices (like the ones used in MA to place patients into risk tiers) more difficult to abuse.

When Medicare providers falsely represent patients’ risk levels, they can easily overcharge for medical services to line their own pockets. This is fraudulent, and unfortunately, many unscrupulous insurers and providers have adopted this practice.

Warren also pointed out that private investors and insurance companies have started acquiring healthcare providers. Although legal, this clear conflict of interest creates a structure that incentivizes these companies to abuse Medicare.

Senator Warren brought up a lot of great points about the flaws of Medicare, but she was wrong about one thing. These flaws aren’t unique to Medicare Advantage. All Medicare plans, including fee-for-service (FFS) plans, are vulnerable to abuse. But when considering Medicare Advantage vs Fee-for-Service, is one more susceptible to fraud? First, let’s look at the details of each one.

What is Fee-for-Service?

FFS plans, also known as Original Medicare, cover hospital insurance and medical insurance. These plans work by having your providers bill your insurance plan based on the actual cost of the care supplied. On an FFS plan, you’re responsible for the deductible, while Medicare Advantage covers 85% of approved medical and/or hospital costs.

Original Medicare has the same minimum coverage requirements as Medicare Advantage. But anything more complicated like emergencies, surgeries, hospital stays or home care isn’t covered under basic Original Medicare plans.

For that reason, many Medicare beneficiaries purchase supplemental plans to cover those unforeseen costs. FFS plan holders tend to spend more per person on care than holders of MA plans.

What is Medicare Advantage?

Unlike Original Medicare, Medicare Advantage providers are paid using benchmarks. The benchmarks are based on average FFS spending in a geographic area. So if you’re on an MA plan, you’re assessed for risk factors, then broken out into tiers of pre-negotiated flat fees. Providers charge insurers and patients for care provided based on the risk level and corresponding fee tier of the patient.

MA eligibility requirements are far less strict than those for FFS plans. MA plans also offer more coverage outright than a standard FFS plan, without the addition of supplemental coverage. They’re a great option for healthy beneficiaries with few risk factors.

Medicare Advantage patients usually spend less money on care than FFS patients. But to Senator Warren’s point, MA patients receive up to 30% less care than FFS patients. This is particularly true for expensive, labor-intensive healthcare, like at-home and hospice care.

Medicare Advantage vs Fee-for-Service. Is Medicare Advantage more susceptible to fraud?

Usually, Medicare Advantage is not more or less vulnerable to fraud than Original Medicare. But there are several factors to consider. (For more information on Medicare Advantage, click here.) Fraud, waste, and abuse will remain a risk to Medicare as long as healthcare is a business. Bad actors use both MA and FFS to game the system for personal gain.

Questions or concerns about your Original Medicare, Medicare Advantage or supplemental plan? Call us at 877.255.6273. We’re happy to help!


image credit: shutterstock/FHPhoto

Pete Blasi