Gaming the Medicare Advantage System

While Medicare has contracted with private insurance companies since the national health insurance program was formed as part of the Social Security Act in 1965, the current iteration of Medicare Advantage has only existed since 2003. Similar in policy design to charter schools, Medicare Advantage offers people the choice of private insurance plans instead of traditional Medicare. Medicare Advantage plans offer baseline benefits, and insurers are paid to provide them by the government.

Utilization of Medicare Advantage has grown steadily since it was launched. According to health policy experts, that’s largely because private insurers invest in marketing tactics to draw people to their plans, highlighting perks like extra benefits that aren’t covered by Medicare and an annual cap on out-of-pocket costs. More than 40 percent of Medicare recipients now receive their coverage through Medicare Advantage.

For insurers, meanwhile, the business is increasingly lucrative.

“One of the reasons why they are so focused on Medicare Advantage is they are finding that the commercial insurance market, private side, is not growing,” said Potter, the former insurance executive. “It hasn’t been growing for years. The unsustainable increase in premiums year after year and their constant shifting of out-of-pocket costs, is making health insurance unaffordable for businesses, so there is no growth there.”

Ahead of the current open enrollment period for Medicare plans, which began on October 15, major insurers including UnitedHealth Group, Humana, and Aetna announced new expansions into the Medicare Advantage space.

Profits come from the generous reimbursement structure for Medicare Advantage. The federal government calculates a “benchmark” rate for benefits, based on what it spends on those services under traditional Medicare coverage.

Private insurers submit estimates as to how much it will cost them to provide the average Medicare Advantage customer with the benefits of traditional Medicare, and the federal government reimburses them at a rate that is slightly higher than that estimate but below the benchmark.

This calculation results in considerable profits. In 2019, when the most recent data is available, private insurers averaged 4.5 percent profit margins on their Medicare Advantage plans. Between 2016 and 2018, Medicare Advantage plans reported nearly double the profit margins per customer compared to individual and employer plans.

The returns are so high in part because Medicare Advantage providers have devised ways to spend less on their customers than traditional Medicare. “They’ve figured out how to game the system in ways that enable them to make outsized profits,” said Potter.

One stratagem is that Medicare Advantage, unlike traditional Medicare, is allowed to require prior authorization for procedures. And high denial rates can deter people from seeking care in the first place, which saves insurers money. The federal Health and Human Services Department has found that “there are persistent problems related to denials of care and payment in Medicare Advantage,” and that in most cases when denials are appealed, insurers overturn their own denials.

At the same time, taxpayers spend more per person for Medicare Advantage plans than they do on traditional Medicare plans. A recent analysis by the Kaiser Family Foundation found that in 2019, the federal government spent $321 more per Medicare Advantage enrollee than traditional Medicare enrollee.

Another method insurers utilize is a shady practice known as “upcoding,” in which they manipulate the government’s system for coding diagnoses in order to get larger reimbursements from the government. The Department of Justice has brought lawsuits against multiple insurers in recent months for upcoding.

In some cases, insurers simply illegally underspend on their customers, for which they face few consequences. Last month, UnitedHealthcare was penalized by the Centers for Medicare and Medicaid Services (CMS) for having spent too small a percentage of premiums on providing benefits for three years in a row. In response, the company has been banned from enrolling new subscribers in certain plans in a handful of states, which represent a small fraction of the insurers’ overall enrollment.

Hundreds of Billions in Savings

Adding dental, hearing, and vision benefits to traditional Medicare through the reconciliation bill could make Medicare Advantage plans less attractive to consumers, cutting into private insurers’ profits. Such an expansion of the national insurance program would likely cost the federal government more than $350 billion over the next ten years.

However, a proposal to include those benefits in Medicare without increasing the rate at which the government reimburses Medicare Advantage plans could cut that cost by 41 percent, according to a recent analysis by Matthew Fiedler, an economist at the USC-Brookings Schaeffer Initiative for Health Policy and former chief economist on President Barack Obama’s Council of Economic Advisors. With corporate Democrats demanding a smaller reconciliation bill, such a drastic cost savings should, in theory, be a very attractive move.

“Most of the federal savings from excluding the cost from the benchmark would be coming out of reduced plan profits,” Fiedler told the Daily Poster.

More than 98 percent of Medicare Advantage plans already offer dental, vision, and hearing benefits. While some of those plans could be required to improve their dental, vision, and hearing benefits to meet the new proposed standards for traditional Medicare, and a few would be required to expand their coverage to include those benefits, the plans can afford to do so without the government increasing the benchmark, Fiedler explained.

If the new benefits were included in a new Medicare Advantage benchmark calculation, it would contribute to already high profits for private insurers — with very little of that funding going to people on the plans. Past research has found that when Medicare Advantage increases its reimbursement rate, only one in every eight dollars of reimbursements is passed along to customers in the form of savings or better coverage. A larger share is passed to insurers in the form of profits.

On the other hand, said Fiedler, expanding Medicare benefits without changing the benchmark calculation would only lead to modestly lower profits for insurance companies.

Misleading Ads and Mounting Industry Opposition

In August, Politico reported that an insurance industry source said proposals to add benefits to Medicare had insurers “freaking out,” because they “worry that seniors will drop their private plans en masse and migrate to traditional Medicare once the new benefits are in place.” Politico added that their source “said the industry is mindful of the optics of publicly opposing coverage of eyeglasses, dental care and hearing aids, and is largely lobbying behind the scenes.”

To do so, the insurance industry has turned to the BMA, a dark money group representing insurers and business groups. Health insurance giant Humana and CVS Health, which owns Aetna, each donated $2 million to the organization last year, according to company disclosures.

The BMA has spent nearly $3 million on TV and radio ads since the beginning of September, according to data from AdImpact.

Those ads included paid spots on cable news in Arizona this month that featured the faces of elderly people who, according to a voiceover, are among the more than 625,000 people in the state who “have come to rely on something vital: Medicare Advantage.”

The raspy masculine voice warns, “Now there’s talk in Washington of cutting Medicare Advantage and raising our premiums.” But, the voiceover says, “Senator Kyrsten Sinema has fought for seniors and Medicare Advantage.” The advertisement ends with an image of the senator’s face alongside the phone number for her office, encouraging viewers to thank Sinema “for fighting for us.”

In West Virginia, viewers are seeing a similar ad, featuring Manchin.

Since September, BMA has spent $516,000 on ads in Arizona and $266,000 in West Virginia, as well as nearly $550,000 in the Washington, DC area. They have also targeted conservative Democrats in the House, including Representatives Stephanie Murphy (FL), Jared Golden (ME), Kurt Schrader (OR), and Cindy Axne (IA).

In reality, there is no proposal in Congress to “cut Medicare Advantage” or raise premiums, and moreover, no evidence that Sinema or Manchin have “fought for seniors.”

Instead, the BMA is running ads thanking Manchin and Sinema because they have become the most prominent obstacles to passing Democrats’ social safety net legislation — and because they do not support the party’s plan to expand Medicare to cover dental, vision, and hearing benefits.

As a supposed fiscal hawk, Manchin might be expected to welcome the cost savings that would come with expanding Medicare benefits without changing the reimbursement rate going to private insurers — but instead, he appears to be parroting the talking points of his corporate allies, who don’t want the benefits expanded at all, much less without scoring a better reimbursement rate.

Manchin has said he thinks Democrats need to shore up Medicare’s finances before expanding the program, and he also wants any new benefits to be means tested and only help poorer Americans — an idea that would undermine Medicare’s draw as a universal program.

Sinema, meanwhile, refuses to say anything about Democrats’ plans publicly, but Axios recently reported that she is “less interested in offering new dental and vision benefits in Medicare.”

Sinema does appear interested in protecting the Medicare Advantage payouts to private insurers, however. On October 15, she sent a letter, cosigned by Manchin, to CMS “to express our support for the Medicare Advantage (MA) program.” The letter continued, “To ensure this continuum of care, we stand ready to protect MA from payments cuts, which could lead to higher costs and premiums, reduce vital benefits, and undermine advances made to improve health outcomes and health equity for MA enrollees.”

The BMA subsequently issued a press release thanking the signatories for their “unwavering leadership.”

In addition to the BMA advertisements, the health insurance lobbying group America’s Health Insurance Plans (AHIP), the right-wing think tank American Action Forum, and UnitedHealth Group’s employee lobbying arm have been mobilizing to ensure that taxpayer dollars continue to prop up the Medicare Advantage program.

AHIP commissioned a study that showed that adding dental, vision, and hearing to Medicare without including them in the benchmark calculation would leave Medicare Advantage with fewer rebate dollars to be spent on supplemental benefits.

The American Action Forum — a think tank affiliated with the American Action Network, a dark money group that bankrolls House Republicans — has opposed adding new benefits to Medicare on the grounds that Medicare Advantage already provides those benefits.

“If Democrats are really looking for pain-free ways to cut back on their $3.5 trillion spending spree, scrapping the dental, vision, and hearing additions to Medicare would be a good place to start, because the benefits are already available through Medicare Advantage. Perhaps advocates for enhanced Medicare coverage should instead focus on bolstering MA, which already provides a range of tailored benefits to the Medicare population,” wrote the organization’s health policy analyst in a blog post earlier this month.

At the same time, UnitedHealth Group has pushed its employees to call Congress and ask them “not to cut Medicare Advantage” through its internal political engagement platform, called United For Action.

“While action is entirely voluntary, consider lending your voice to protect seniors in Medicare Advantage,” noted a September 16 email sent to employees by management of the company, which was found to have been spending too little on seniors’ care for years.

“Policymakers are currently debating and considering proposals that may impact the Medicare Program and other health policies,” the email said. “To protect Americans enrolled in Medicare Advantage, ask Congress to ensure any reforms to Medicare maintain stability for the 27 million seniors currently served by Medicare Advantage.”

On an earnings call last week, the company announced that it had surpassed $4 billion in profits last quarter, $1 billion more than the same quarter last year. UnitedHealth Group’s chief financial officer John Rex pointed to Medicare Advantage as a source of ongoing growth, and said the company plans to bring on nine hundred thousand more customers through Medicare Advantage this upcoming year.