In an Op Ed last March, I covered the differences between Traditional Medicare and Medicare Advantage (MA) plans and how the latter are reaping large profits that cost Medicare and taxpayers. Where do things now stand?
Physicians for a National Health Program (PNHP), a leading critic of MA, concluded in their October 2023 position paper “Our Payments, Their Profits:”
“By our estimates, and based on 2022 spending, MA overcharges taxpayers by a minimum of 22% or $88 billion per year, and potentially by up to 35% or $140 billion.”
In perspective, these overpayments could have paid for either all Medicare Part B premiums ($131 billion in 2022) or the entire federal dollar amount spent on Part D drug benefits ($126 billion in 2022).
Originating in the 2003 Medicare Modernization Act, MA was created to prove that its private plans could reduce costs, improve patient choice, and provide higher-quality care than Medigap, the private insurance supplement to Traditional Medicare. Since 2007, MA enrollees have tripled, and for the first time, in 2023, more than 50% of Medicare beneficiaries have MA plans.
These goals for MA have never been reached, now 20 years in. The Medicare Payment Advisory Commission (MedPAC), created by Congress to give advice regarding Medicare payments, has provided conservative estimates that payments to MA plans have always been higher than if the same beneficiaries had been cared for by Traditional Medicare (with Medigap supplements).
Furthermore, MedPAC has not been able to conclude that MA plans provide better quality outcomes. On the claims of greater choice for patients, most MA plans limit their beneficiaries to networks of physicians and healthcare systems. Most plans also use prior authorizations to limit the care provided their enrollees (and therefore their costs).
How do private insurance companies overcharge Medicare? How have they made Medicare their “cash cow?”
“Favorable selection:” Plans utilize strategies to enroll Medicare candidates who have less expensive health needs. However, the insurers are paid as if all Medicare participants’ needs are the same. The end result is overpayment of 11-14%, about $44-56 billion per year based on total MA spending in 2022.
“Favorable deselection:” People whose healthcare costs more tend to migrate back to traditional Medicare plans if possible. This category includes dual-eligible patients who qualify for both Medicare and Medicaid.
“Upcoding:” Here, insurers game patient diagnoses for profit. Studies have shown that the average risk score in MA plans is 20% higher than in Medigap plans. The higher the risk score of the patient, the higher the payment to the insurer. Based on MedPAC’s 2021 calculation of 5% overpayment in 2021, in 2022 this amounts to about $20 billion.
Benchmarks and Bonus policies in the Medicare program were initiated by the Affordable Care Act. These somewhat complicated policies are explained further in the PNHP position paper. PNHP’s conclusion, based on MedPAC estimates, is that these policies have caused an additional 6-7% excessive payments to MA insurers — in 2022, another $24-28 billion.
“Induced Utilization,” a term originated by an article by Richard Gilfillan and Donald Berwick, refers to a concept that people with supplemental coverage tend to use more healthcare because their traditional supplemental insurance pays more of the cost for that care. MedPAC’s data supports this concept. The average advantage to MA insurers is $108 per beneficiary per month. Across all MA beneficiaries, this adds up to approximately $36 billion in 2022 (9% of total MA payments in 2022).
Without induced utilization, overpayments range from 22-26%, $88-104 billion in 2022. If one adds induced utilization, overpayments climb to 31-35%, $124-140 billion in 2022.
The PNHP position paper concludes that a Congressional Budget Office (CBO) analysis of a 2019 bill which would have provided dental, hearing and vision benefits to all Medicare and Medicaid beneficiaries would cost $84 billion.
Ed Weisbert, a family physician and officer for PNHP, stated, “If seniors understood that the $165 coming out of their monthly Social Security checks was going essentially dollar for dollar into profiteering of Medicare Advantage, they would and should be angry about that. We think that we pay premiums to fund Medicare. The only reason we have to do that is because we’re letting Medicare Advantage take that money from us.”
Encourage your legislators — Bob Casey, John Fetterman, and John Joyce — to support efforts to reign in overpayments to MA plans and to utilize our taxpayer dollars to provide better healthcare benefits to all Medicare beneficiaries. Better yet, encourage them to support Improved Medicare for All.
Dwight Michael, M.D., a retired primary care physician, is a member of the Gettysburg DFA Health Care Task Force. He lives in Gettysburg.