Medicare and Medicare Advantage
Medicare Advantage vs. Traditional Medicare
Medicare is a government program that helps older people and some younger folks with disabilities get healthcare. There are two main ways to get Medicare coverage: Traditional Medicare and Medicare Advantage.
Traditional Medicare is like a big group plan for everyone who qualifies. People pay monthly fees, and it helps cover doctors and hospitals all over the country. Sometimes, though, there are extra costs that people need to pay, including portions of care not fully covered by Medicare, including prescription drugs. Some folks also buy so- called "Medigap" and “Part D” policies to help with these extra costs.
Medicare Advantage is a bit different. It's like joining a special club run by private insurance companies. They have their own rules about which doctors and hospitals you can use, and they might say no to certain tests or treatments. They can offer extra things like dental or vision care, which Traditional Medicare doesn't cover.
In recent years, more and more people have been picking Medicare Advantage because of these extra benefits. It's become popular, with almost half of all Medicare recipients choosing it in 2022. It’s profitable for the insurance companies, costing the government $321 more per person compared to traditional Medicare in 2019. That's why insurance companies advertise it a lot. Some people say we should make Medicare better instead of giving insurance companies so much money.
In the end, whether you choose Traditional Medicare or Medicare Advantage depends on what's most important to you. Traditional Medicare gives you more freedom to pick your doctors and other healthcare providers and has fewer restrictions on coverage for tests and treatments ordered by your doctors. Medicare Advantage has extra perks, but more restrictions on care. And there's ongoing debate about which one is better for everyone.
2023 Report on Government Overpayments to Insurance
Companies that Administer Medicare Advantage Plans
Every Autumn, people eligible for or enrolled in Medicare receive mailings and other advertisements encouraging them to enroll in Medicare Advantage (MA). Even if you are not eligible for Medicare, you have probably seen frequent ads for Medicare Advantage plans, also referred to as Medicare Part C. Unlike traditional Medicare, Medicare Advantage plans are sold and administered by private insurance companies. With traditional Medicare, the government pays your doctor or hospital directly when they provide care. With Medicare Advantage, the government pays the private insurance companies a monthly fee for each person enrolled. Those insurance companies profit by limiting the amount they pay to your doctor, hospital, or other medical expenses. These advertisements you see reflect the opportunity for insurance companies to make significant profits from taxpayer dollars, according to how much less they spend on the care of their enrollees than the federal government pays them to provide the care.
Medicare Advantage (MA) plans are primarily a form of managed care. One of the key features of most managed care plans is narrow provider networks. Rather than the insured person being able to select any physician or hospital, Medicare Advantage plans may only cover providers in their contracted network or may offer less coverage (higher patient out-of-pocket costs) for providers outside their main network. These plans may also place other restrictions on what care beneficiaries can receive (for example, requiring preauthorization for tests, procedures, or medications and denying coverage for requests that don’t meet their criteria). To get beneficiaries to accept restrictions on provider networks for coverage they wouldn’t face in Traditional Medicare (TA), Medicare Advantage (MA) plans are allowed to offer benefits that can include lower premiums or lower out-of-pocket costs than traditional Medicare and some benefits not covered by traditional Medicare like dental, vision or hearing care, wellness programs or fitness club memberships, and transportation to doctors’ offices.
In October 2023, Physicians for a National Health Program (PNHP) released a research report that concluded that Medicare Advantage plans are costing taxpayers much more than traditional Medicare without evidence of better healthcare.
To summarize the main points made in the PNHP report:
1. “…based on 2022 spending, Medicare Advantage overcharges taxpayers by a minimum of 22% or $88 billion per year, and potentially by up to 35% or $140 billion.”
To put the sheer magnitude of overcharging in MA in perspective, a CBO analysis of a 2019 bill proposing to add dental, hearing, and vision benefits to Medicare and Medicaid, estimated that in the most expensive year of its implementation, these benefits would cost a combined $84 billion.”
So, even though some Medicare Advantage plans provide some dental, vision, and hearing coverage, if the amount of money that the federal government over-pays Medicare Advantage insurance companies were applied to all Medicare beneficiaries, all Medicare patients would have coverage for dental, vision, and hearing care.
“It’s worth noting that these estimates are also compounded by the money MA insurers save by consistently delaying and denying necessary medical care. Insurers have been found to inappropriately deny claims that would have been covered under Traditional Medicare, and even use algorithms to determine the exact point at which payment for care can be cut off for a patient regardless of their needs.”
The reasons behind this gross overpayment of taxpayer dollars to insurance companies are complex, but according to the PNHP research report, they boil down to these:
2. Overpayment to insurers based upon enrollees’ health risks and care needs:
"MA enrollees have less expensive health needs than their TM counterparts, but MA insurers are paid as though all Medicare enrollee health needs are the same.”
This occurs via a flawed system of estimating the expected costs of care for groups of people (benchmarking), which can result in much higher up-front payments of taxpayer dollars to the insurance companies than the true costs of care justify.
“There are several factors that potentially contribute to this phenomenon. Patients who are sicker and thus have more complicated care needs may be turned off by limited networks, the use of prior authorizations, and other care denial strategies in MA plans. By contrast, healthier patients may feel less concerned about restrictions on care and more attracted to common features of MA plans like $0 premiums and additional benefits... Insurers can also use strategies such as targeted advertising to reach the patients most favorable to their profit margins.”
3. Making MA enrollees appear sicker than they are increases prospective payments to insurers: Since the benchmarking described above is ongoing, it is to the insurer’s advantage to submit data to the government to show as much illness and health risk as possible. PNHP and others have found evidence for “upcoding” favorable to insurer profits.
“Upcoding refers to the adding of diagnoses to patient charts that are either false or, more commonly, irrelevant to treatment. It is probably the best-known of the issues with Medicare Advantage payments. “… The more diagnosed conditions and the more severe each condition that appears on a patient’s chart, the more money the insurer will receive from Medicare, creating an incentive for insurers to add diagnoses or inflate their severity regardless of their relevance or current status.”
4. Flawed benchmarking (overestimation) of poor health status and risk at the county level that results in overpayment to insurers.
“With higher and higher shares of MA enrollees living in areas with higher county benchmarks, the net effect of this policy is to increase MA overpayment with no difference in care or savings.”
5. Flawed and inaccurate use of “quality indicators” of care, leading to higher payments to insurers.
On a scale of one to five stars (five is best), more than half of MA contracts with insurance companies are rated four stars or higher. More stars translate to more money for the MA plans.
“Unfortunately, the star-rating system is highly flawed, as quality in MA is difficult to measure and the methods used to do so suffer from limited data, flawed sampling, and score inflation. The effect of this is, yet again, a large sum of excess payments to MA that is largely unconnected to any measurable improvements in care.”
6. Over-estimation of healthcare use inflates prospective payments to insurance companies. More use of healthcare services by traditional Medicare enrollees who buy supplemental insurance inflates expected use compared with actual use during the benchmarking process, thus increasing prospective payments to insurance companies.
In summary, Medicare Advantage plans employ a number of techniques and policies to obtain greater reimbursement from the U.S. government than what they spend on health care services for those they insure. Not only does MA cost more than TM, it produces profits for the insurance carriers at taxpayer expense. While MA plans may be advantageous for some people, especially those with low health care utilization, those who are sicker may find themselves challenged to secure the care that they need when they need it.