CMS has announced it will raise rates for insurance companies offering privatized Medicare Advantage, rather than trimming back the billions of federal overpayments as required in the Affordable Care Act.  Wall Street and the insurance industry loved the news that taxpayers will continue to overpay Medicare Advantage plans:

“WellCare Health Plans Inc. jumped as much as 12 percent on Monday after the government proposed raising payments next year for private insurers that provide Medicare coverage.Shares in Humana rose 2.6 percent. Centene Corp. and Molina Healthcare Inc. also rose Monday following the CMS’s proposals, adding 4.2 percent and 6.2 percent respectively.”

The health insurance industry’s massive advertising and lobbying campaign to keep their government subsidies has become an annual ritual here in Washington – one that’s more predictable than the timing of the cherry blossoms. To head off any chance that CMS might reduce the massive federal overpayments, as required by the Affordable Care Act, the multi-billion dollar insurance industry floods the airways and hallways of Congress with threats to cut seniors’ MA benefits unless their overpayments are protected.  Clearly, that lobbying works. 

For the second year in a row, CMS has proposed a rate increase. This year’s 1.35%  rate hike, when combined with other industry requested changes, will lead to a 3.55% increase in revenue for America’s health insurance industry.  Last year, CMS initially proposed a .95% rate cut which was reversed after AHIP’s lobbying blitz turned it into a 1.25% increase.  In 2015, Medicare paid $8 billion more to provide coverage for seniors in Medicare Advantage than for traditional Medicare. That will now continue.

The Washington Post’s analysis last year, still fits today:

“Alas, since its origins in the early ’80s, MA has proven no more immune to perverse incentives and system-gaming than any of the government’s other health programs.

First, insurers cherry-picked healthier customers, who are less costly, and hence more profitable, to treat. Congress responded with new payment formulas to reward companies for accepting relatively sick customers. But this led to rampant “upcoding,” whereby MA plans find and report as many illnesses per enrollee as they can plausibly document.

Last fall, {2014} the Department of Health and Human Services released a comprehensive analysis showing that MA costs grew faster than they would have under fee-for-service between 2004 and 2013 — and that only upcoding, not patient demographics or other neutral factors, could explain this.”

Family physician and Senior Health Policy Fellow for Physicians for a National Health Program, Dr. Don McCanne says:

“Ensuring success of the MA plans is part of the plot to eventually privatize Medicare - converting it into a premium support system (vouchers) for a market of private plans that will displace the traditional Medicare program. The value of the voucher equivalents will erode with time, shifting ever more of the costs to the Medicare beneficiaries. It will be disastrous.

They (private MA plans) have been profitable only because they have continued to be successful in enrolling healthier, less costly patients while at the same time receiving overpayments from the government.”

So how did we get here?

Medicare Advantage was created by the Bush Administration to privatize Medicare. Prior to the ACA, the federal government paid MA plans up to 14 percent more than traditional Medicare for identical services, costing taxpayers about $1,000 extra per beneficiary.  MA plans attract younger and healthier customers by offering benefits not included under traditional Medicare, such as gym memberships.  That competitive and financial advantage has paid off, as MA enrollment continues to grow.  Seniors in private Medicare say they like their plans, as do people enrolled in traditional Medicare. 

The real irony in this debate is that while traditional Medicare has been repeatedly targeted in Congress for cuts, $8 billion in overpayments to the insurance industry remain protected. Congressional conservatives claim America can’t afford Medicare yet many of these same politicians defend sending billions of Medicare dollars straight to the insurance industry, in spite of growing concerns that insurers are gaming the system:

  • Independent analysis by the National Bureau of Economic Research shows private plans are “upcoding” or manipulating patient diagnoses in order to game payment systems and generating billions of dollars annually.  
  • Risk scores have risen 9 percent faster in Medicare Advantage, on average, than in traditional Medicare for comparable beneficiaries, MedPAC estimates.  This leads to excessive payments to Medicare Advantage plans. 
  • Last year, CMS took 35 enforcement actions against MA and Part D sponsors for a range of issues, including limited provider access and charges for higher than allowed out-of-pocket costs. Among the enforcement actions last year were 25 fines in the six figures. This year, CMS has fined $1 million to Aetna for Part D directories that erroneously listed 7,000 pharmacies as being in-network. 
  • GAO investigators found Medicare officials rarely enforce rules for private insurance plans intended to make sure beneficiaries will be able to see a doctor when they need care. In Connecticut, UnitedHealthcare, the nation’s largest health insurance company, dropped more than a thousand of health care providers and doctors leaving patients desperately scrambling for care. 
  • Brown University study shows that once medical care becomes costly for seniors in Medicare Advantage and the coverage no longer meets their needs for acute care, beneficiaries are leaving private MA plans to return to traditional Medicare. 

As we wrote here last year,

“Private Medicare Advantage plans continue to see growth as they promise gym-memberships, limited optometric coverage or zero premium plans.  However, as predicted by many healthcare experts and indicated in the Brown study, seniors find that once they actually need help with more costly care, MA plans aren’t providing the coverage they need. 

Ultimately, this means that younger and healthier seniors are being lured into private insurers’ plans only to have to switch to traditional Medicare once they need coverage for more serious health issues (and isn’t that why we have health insurance in the first place – to cover when we get sick, not when we’re healthy?).  Meanwhile, private insurance companies continue to reap the benefits of annual federal subsidies to provide this limited coverage for healthier seniors – which are tax dollars that could have been used in traditional Medicare to serve all beneficiaries.”

Modern Healthcare reports Medicare Advantage has been a boon for health insurers, which views taxpayer-funded insurance as a ripe business opportunity.  Meanwhile, the GOP Congress is preparing another round of cuts to traditional Medicare in their upcoming 2017 Budget plan