Better Medicare Profits

In February, the Centers for Medicare and Medicaid Services (CMS), which oversees Medicare, proposed a rule that would have reined in upcoding abuses by reducing extra payments that insurers receive for certain diagnoses, including diabetes “with complications” and a rare form of malnutrition. But in the face of widespread industry lobbying, the agency settled on a weaker three-year phase-in effort.

Even the original proposed rule might not have been enough to address Medicare Advantage overpayments. MedPAC called the initial proposal “insufficient” in a comment letter, and said that Secretary of Health and Human Services Xavier Becerra had “not taken significant action” in response to MedPAC’s analyses of fraudulent billing in Medicare Advantage.

Another way to crack down on upcoding schemes would be to limit government payments to Medicare Advantage plans, since it would send a message to Medicare Advantage providers that overall program costs are far too high. Last December, CMS did so by proposing increasing payments to Medicare Advantage plans by just 1 percent, compared to the 8.5 percent payment increase it approved last year.

In response, the Better Medicare Alliance, an advocacy group for Medicare Advantage plans, spent at least $13.5 million on ads pressuring the administration to increase the planned rate hike.

The group also spent $570,000 lobbying Congress in the first quarter of this year, nearly double the $330,000 spent in the prior quarter. All told, the four major publicly traded health insurance companies that operate Medicare Advantage plans, as well as the insurance lobby America’s Health Insurance Plans, spent nearly $19 million on federal lobbying in the first quarter of 2023, a 66 percent increase from the prior quarter, according to a Lever analysis of data from OpenSecrets.

That lobbying paid off: instead of a 1 percent increase in payments to Medicare Advantage — which the insurance industry cast as a reduction because the growth rate had slowed dramatically — CMS announced a 3.3 percent payment increase at the end of March.

“The industry’s aggressive lobbying campaign showcases that they clearly want to protect their profit stream,” said Lipschutz. “Their disingenuous campaign tried to paint some very minor payment adjustments as being catastrophic to the Medicare Advantage program. They tried to ‘Medi-scare’ beneficiaries into contacting their elected officials to get CMS to back off — which CMS did to a certain extent.”

While industry analysts have said that this modest rate increase will strain insurers’ prodigious profits, the bond ratings agency Moody’s declared in April that “we believe [Medicare Advantage] will continue to be a growth driver for the industry and will take further market share from traditional Medicare.”

Medicare Advantage payment increases like Joe Biden’s 3.3 percent hike will result in higher dividends to shareholders at the expense of the solvency of traditional Medicare.

The insurance industry also took aim at a recently proposed rule to claw back years of inflated risk adjustment payments, which are made to incentivize Medicare Advantage plans to accept riskier patients.

Initial proposals floated by CMS included retroactive audits of risk adjustment payments going back to 2011. Instead, the final pared-back proposal released in March only included retrospective audits going back to 2018.

Lipschutz said he does give the administration some credit for the audit rule change and the smaller rate hike for Medicare Advantage insurers relative to the prior year.

“On the other hand, it can be seen as far too little too late,” he said, adding that federal policy being so weighted toward Medicare Advantage plans at the expense of traditional Medicare is a “serious imbalance that is long overdue for course correction.”

Privatizing Medicare

Traditional Medicare operates on a fee-for-service basis. This means that doctors and hospitals are paid directly by Medicare for the services they provide. Private plans have operated as part of Medicare since just after the program was launched in 1965, but typically did so on a very limited basis. That changed in 2003, when Congress substantially increased subsidies for plans to enter the market, after intense industry lobbying.

While the traditional Medicare model is not without problems — Medicare only covers 80 percent of expenses, which means that seniors need either Medicaid or a Medigap insurance plan to get full coverage — it has major benefits relative to Medicare Advantage.

The principal benefit of traditional Medicare is that there is not a profit-driven insurer attempting to limit the scope of care that a patient needs.

Medicare Advantage “seems like a good idea,” said Ted Doolittle, the State Health Care Advocate for Connecticut. That’s because Medicare Advantage plans often offer expanded benefits like dental, vision, or wellness. They also eliminate the need for a potentially expensive Medigap plan if a senior isn’t eligible for Medicaid coverage.

But then, said Doolittle, “The scholarship shows that when patients get sick, they try to go back to traditional Medicare.”

According to Doolittle, most people who are either Medicaid eligible or who could afford a Medigap plan would balk at signing up for Medicare Advantage plan “if folks had adequate information about the nature of Medicare Advantage versus traditional Medicare, and the higher denial rates and the prior authorizations required for care in Medicare Advantage.”

Doolittle pointed out that there’s a key barrier to patients to getting full medical coverage if they try to switch back to Medicare once they become sick: in most states, Medigap insurers are allowed to discriminate against seniors on the basis of preexisting conditions if they are already enrolled in Medicare Advantage, something that is prohibited when seniors first become eligible for Medicare three months prior turning sixty-five.

This problem is amplified by the rapid growth of Medicare Advantage. In 2010, a little over one-quarter of Medicare beneficiaries were in Medicare Advantage. By 2016, it was still less than one-third. But this year, a majority of Medicare beneficiaries will be on the private plans.

And the exorbitant government costs of Medicare Advantage are not limited to just overpayments related to upcoding. This year, Medicare Advantage plans will receive taxpayer rebates averaging $196 per participant. These rebates have more than doubled since 2018.

The total cost of the rebates could be as high as $75 billion this year, according to analysis by Bill Kadereit, president of the National Retiree Legislative Network.

“The extra $196 is spent on fringe benefits, and only on fringe benefits that go towards Medicare Advantage beneficiaries,” Kadereit said. “The other 30 million people in traditional Medicare get nothing. When Joe Manchin in West Virginia says ‘I like sending money to the Medicare Advantage plans, give them more,’ well, 40 percent of his people in West Virginia are not on Medicare Advantage, so they don’t get a nickel.”

Expanded attention to Medicare Advantage abuses has led some members of Congress to speak up and pressure the Biden administration to rein in the industry, even in the face of aggressive lobbying.

In February, seventy lawmakers, led by Congressional Progressive Caucus chair Pramila Jayapal (D-WA), sent a letter to the Biden administration pointing out that “as enrollment in [Medicare Advantage] grows, spending per beneficiary has grown faster in [Medicare Advantage] than original Medicare, and that spending is being funneled into corporate profits under the guise of operating costs instead of into care for patients.”

That said, there is no voice in Congress advocating for the phasing out of Medicare Advantage and allocating expanded benefits equally to all Medicare beneficiaries, which is by far the most cost-effective option.

And the larger Medicare Advantage becomes, the more politically difficult it will be to rein in, noted Doolittle.

“As Medicare Advantage keeps getting more embedded in Medicare, the situation keeps getting worse,” he said. “It’s gotten up to a real critical mass at this point, which makes it very hard to stop.”