Private Insurers Have Cost Medicare $282.6 Billion In Excess Payments Since 1985

Researchers say privately run Medicare Advantage plans have undermined traditional Medicare’s fiscal health and taken a heavy toll on taxpayers, seniors and the U.S. economy

FOR IMMEDIATE RELEASE:
October 10, 2012

Contact:
Ida Hellander, M.D.
Steffie Woolhandler, M.D.
David Himmelstein, M.D.
Mark Almberg, communications director PNHP, (312) 782-6006, cell: (312) 622-0996, [email protected]

In the first study of its kind, a group of health policy experts has determined the amount of money that Medicare has overpaid private insurance companies under the Medicare Advantage program and its predecessors over the past 27 years and come up with a startling figure: $282.6 billion in excess payments, most of them over the past eight years.

That’s wasted money that should have been spent on improving patient care, shoring up Medicare’s trust fund or reducing the federal deficit, the researchers say.

The findings appear in an article by Drs. Ida Hellander, Steffie Woolhandler and David Himmelstein titled “Medicare overpayments to private plans, 1985-2012.” The article was released online today and is forthcoming in the International Journal of Health Services.

Hellander is policy director at Physicians for a National Health Program (PNHP), a nonprofit research and advocacy group. Woolhandler and Himmelstein are professors at the City University of New York School of Public Health, visiting professors at Harvard Medical School and co-founders of PNHP.

The article appears at a time when some lawmakers, including vice presidential candidate Paul Ryan, have proposed a dramatic expansion of private Medicare plans and criticized the Obama administration for the modest cuts in the overpayments contained in the Affordable Care Act (ACA). However, the administration has also touted the fact that private plans are on the upswing.

Private Medicare plans – previously referred to as Medicare HMOs and now called Medicare Advantage plans – have been in existence for about three decades. Such plans, most of them for-profit, currently cover about 27 percent of Medicare enrollees and have been growing at a fast clip. UnitedHealth and Humana are among the largest players in this market, and together operate about one-third of such plans.

Medicare pays these privately run plans a set “premium” per enrollee for hospital and physician services (averaging $10,123 in 2012) based on a prediction of how costly the enrollee’s care will be.

The authors find that private insurers have exploited loopholes to garner overpayments above and beyond what it costs them to care for their enrollees. For instance, Medicare gives private insurers a full premium for each enrollee, even for those who get most of their care for free at the Veterans Health Administration.

In addition, through heavy lobbying, the insurance industry induced Congress and the Bush administration to add bonus payments to Medicare Advantage premiums beginning in 2003.

Finally, private plans cherry-pick by enrolling seniors whose care will cost far less than the premiums, guaranteeing large profits. Although private plans must accept all seniors who choose to enroll, they cherry-picked by selectively recruiting the healthiest seniors through advertising, office location, etc., and induced sicker ones to disenroll by making expensive care inconvenient.

After Medicare began risk adjusting the premium payment for each patient’s diagnoses in 2004, the plans began cherry-picking in a new way. They recruited otherwise healthy seniors with very mild (and inexpensive) cases of sometimes serious conditions – automatically triggering higher premiums from the risk-adjustment scheme, but escaping payments for expensive care. For instance, many seniors have very mild cases of arthritis, heart failure and bronchitis that require little or no treatment.

The full report includes further details on these and other schemes that private insurers have used to increase their Medicare payments.

“We’ve long known that Medicare has been paying private insurers more than if their enrollees had stayed in traditional fee-for-service Medicare, but no one has assessed the full extent of these overpayments,” said Dr. Ida Hellander, lead author of the study. “Nor has anyone systematically examined the many ways that private insurers have gamed the system to maximize their bottom line at taxpayers’ expense.”

“In 2012 alone, private insurers are being overpaid $34.1 billion, or $2,526 per Medicare Advantage enrollee,” Hellander said.

Co-author Dr. Steffie Woolhandler said: “It’s clear that having Medicare Advantage programs compete with Medicare doesn’t save us money. In fact the opposite is the case. The private plans only add waste, and the aggregate waste is staggering – enough to be a significant drag on the economy.

“Unfortunately, recent legislative and technical attempts to reduce Medicare’s overpayments to these insurance firms have had little or no impact,” she said.

“It’s time we look to proven, cost-effective ways of providing high-quality care to Medicare’s beneficiaries and to the entire population,” Woolhandler said. “That means taking a fresh look at the single-payer model of reform.”

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“Medicare overpayments to private plans, 1985-2012.” Ida Hellander, M.D., Steffie Woolhandler, M.D., M.P.H., David U. Himmelstein, M.D. International Journal of Health Services (forthcoming).

Physicians for a National Health Program (www.pnhp.org) is a nonprofit educational and research organization of more than 18,000 doctors who advocate for single-payer national health insurance. To speak with a physician/spokesperson in your area, visit www.pnhp.org/stateactions or call (312) 782-6006.