In May of 2022, we wrote a blog post addressing allegations that Medicare Advantage plans are bad for potential enrollees because the insurance companies administering the plans deny claims and authorizations for necessary care. Today, we address more recent claims that Medicare Advantage programs are flawed because insurance companies, many of which are for-profit, are more incentivized by profits than helping patients.
First, a short history lesson.
Medicare was first established in 1965 as a government-funded fee-for-service (FFS) program that covers - to some degree - costs for inpatient services (Part A) and outpatient services (Part B). The “some degree” part means that the patient may end up liable for various deductibles, co-insurance of 20%, and other expenses after Medicare limits are reached.
Without going into details, let’s just say that, with healthcare in America being what it is, out-of-pockets expenses under Medicare can add up quickly and be expensive. In order to address the gaps in coverage, Medicare Supplements and Prescription Drug Plans were developed by private insurance companies and allowed beneficiaries to pay a monthly premium to cover deductibles and copays and limit high out-of-pocket costs resulting from a catastrophic health event.
In 1997, Medicare Advantage plans were formalized, which is essentially Medicare contracted out to be administered by private insurance companies. In Advantage plans, the government pays the insurance company a monthly premium based on geographic area and the expected patient medical expenses, and then the insurer develops and markets various plans they hope will be attractive to consumers, many with attractive benfits such dental, hearing, and vision coverage, plus other perks such as transportation services and gym memberships, etc. The insurance companies, most of which are investor-owned and publicly-traded, make some degree of profit based on the difference between what the government pays them versus how much money they pay out in expenses and benefits for their insured clients.
In fact, newly released federal audits reveal indicate that the profits are actually very good, with Medicare Advantage plans typically earning insurance companies twice what they earn from their regular insurance products ($1,608/covered person for Advantage vs. $779).
The profit incentive of the insurance companies is the crux of recent criticism.
Some of the profits are legitimate, but in other cases the audits reveal widespread overcharges and other errors in payments to Medicare Advantage health plans for seniors. Out of 90 audits, 71 showied net overpayments, and 23 showed overpayments of over $1,000 per patient. Humana, one of the largest Medicare Advantage sponsors, had overpayments exceeding $1,000 on average in 10 of 11 audits.
The government pays the insurance companies based on formulas that use risk codes, with a higher risk code meaning the patient was sicker than average. If a patient is coded as having a condition such as diabetes or congestive heart failure, for example, the insurance company gets more money from the government. Most of the audited plans fell into what CMS calls this “high coding intensity group,” but the medical records supplied by the health plans didn’t always support the coded claims.
Does Medicare Advantage need more oversight?
Ted Doolittle, a former deputy director of CMS’ Center for Program Integrity, which oversees Medicare’s efforts to fight fraud and billing abuse, admitted that the agency has failed to hold Medicare Advantage plans accountable. “I think CMS fell down on the job on this,” he said.
In the wake of the audits, there have been calls for more oversight, with policymakers, journalists, and health industry analysts weighing in on how to rein in the overcharges the federal government. Some have even called for abolishment of Advantage plans.
The program no doubt has its flaws, and assessments are needed, but most experts agree Congress is gridlocked and has other priorities, which means no changes will come soon.
In the big picture, despite the government over-payments due to inflated risk coding, the fact remains that Advantages plans are gaining in popularity and are beneficial for many older adults. In spite of the overcharging and even the denied claims and over-use of authorizations, the alternatives to Medicare Advantage plans - original Medicare and Medicare Supplements and Prescription Drug Plan - have their own flaws.
Therefore, the best plan of action needs to be deliberate and objective. There’s no need to throw out the baby with the bathwater.