Medicare Advantage is overbilling Medicare by 22%
If Joe Biden or Donald Trump or anyone else wants to know how to “cut” tens of billions from the Medicare budget without taking a single nickel from seniors, an obscure government body just revealed how.
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But nobody seemed to notice.
The body in question is called the Medicare Payment Advisory Commission, or MedPac. It is an independent, authoritative body that advises Congress on Medicare. It was set up by the Balanced Budget Act of 1997, back when people in Washington were actually doing their jobs.
It just published its latest report to Congress, entitled “Medicare Payment Policy.” And the key thing everyone needs to read is on page “XXV,” which is how they used to say “25” in Rome.
It reads: “We estimate that Medicare spends approximately 22 percent more for MA enrollees than it would spend if those beneficiaries were enrolled in FFS Medicare, a difference that translates into a projected $83 billion in 2024.”
“MA” means Medicare Advantage. “”FFS Medicare” means traditional “Fee-For-Service” Medicare.
In other words: The private insurers who now run more than half of all Medicare plans are overcharging the taxpayers by a staggering $83 billion a year. They are charging us taxpayers 22% more than it would cost us to provide the same health insurance to seniors directly, if we just cut out the private insurance companies as middlemen.
And that’s not because the people in Medicare Advantage are sicker and therefore should cost more anyway. MedPac says this 22% estimate is after accounting for “favorable selection” and “coding intensity” — technical Medicare terms that mean, in effect, who’s sicker.
It’s a rip-off, pure and simple. And that figure, $83 billion, is staggering.
To put it in context, that is nearly 10% of the entire Medicare budget.
It’s more than twice as much as it would cost simply to provide free dental, hearing and vision care to all traditional Medicare beneficiaries, not just those in private “Medicare Advantage” plans.
Gretchen Jacobson, a leading Medicare policy analyst at the Commonwealth Fund think-tank, says this may be the first time the commission has put a figure on the total Medicare Advantage overpayment.
The defenders of Medicare Advantage — mainly bodies financed by insurance companies — like to point out how popular it is. More than half of all Medicare-eligible seniors have now signed up, they say. Obviously, it must be a wonderful program, they say.
But it’s no wonder it’s so popular. That’s not because the private insurers are so efficient. It’s because they are charging 22% more.
The private insurers aren’t doing anything illegal. Blaming them for “greed,” a standard liberal complaint, is misplaced. Sure, many of them game the system as much as possible. There are whole issues to do with things called “coding,” which is about getting paid for taking on patients who are supposedly sicker. But the real problem is simply the system itself.
Medicare Advantage was set up in the early 1980s to introduce some competition into Medicare. The theory was that private insurers might be more efficient than Uncle Sam at providing health insurance to seniors.
It was a nice idea in theory. The only problem? It has never worked. Never.
“Our review of private plan payments suggests that over a 39-year history, the many iterations of full-risk contracting with private plans have never yielded aggregate savings for the Medicare program,” reported MedPac. “Throughout the history of Medicare managed care, the program [i.e., Medicare Advantage] has paid more than it would have paid if beneficiaries had been in FFS Medicare.” (See the report, pages 373-374)
Why should anyone be surprised? Insurance is mostly a case of money in and money out. I am always amazed at the number of people — left and right — who don’t seem to understand this. (Incidentally, if you want your private health insurer to cover more benefits, don’t be gobsmacked when premiums then go up. Where did you think the money came from?)
If there is a rationale for Medicare Advantage, it would be that it’s an ongoing niche experiment designed to improve the rest of Medicare. After all, government bureaucracies are notoriously cumbersome. There’s a good case for having private insurers run programs within the system to see if they can find ways to do more, do better, or cost less. When they succeed, they make money. Then the rest of Medicare learns from the example and rolls out the improvements across the rest of the program.
Instead, we have the opposite situation: The worst of all worlds. Medicare Advantage isn’t making the rest of Medicare better. It’s putting the rest of Medicare out of business. And not by being more efficient, but by being less efficient. It is driving up the overall cost of Medicare by 22%.
The logical outcome is that traditional Medicare ceases to exist, and that Medicare dollars pass through the hands of private insurance companies, at 122 cents on the dollar.
Medicare and “entitlements” are shaping up to be a major issue in this year’s elections as well as future ones. Donald Trump got in trouble for talking about “cutting” spending. But “cutting” can mean many things. Will he cut benefits from today’s levels, or cut future growth? Is he planning to cut a program to the bone — or just cut the fat?
Trump and Biden both have an obvious way to cut 10% from the Medicare budget without hurting anyone — except, of course, some rich campaign donors. Watch what happens.
