Who Wins With Medicare Advantage?

The big five health insurance companies have begun reporting their third quarter 2012 earnings and so far, they are pleasing their shareholders with profits that are better than Wall Street expected, in large part because they are doing especially well in one key area: Medicare.

Over the past several years, the largest insurers — Unitedhealth, WellPoint, Aetna, Cigna and Humana — have reported record profits, even during the quarters when enrollment in their employer-based and individually purchased health plans declined because of the recession. They’ve been able to do this in two ways: by taking in significantly more in premiums from their commercial customers than they have paid out in medical claims, and by persuading increasing numbers of retirees to enroll in their Medicare Advantage plans. If you enroll in one of their plans, the government sends a check to the insurance company you choose for your coverage. The amount varies depending on where you live. You might have to pay an additional premium out of your own pocket for better drug coverage, a broader network of providers, reduced copayments and discounts on gym memberships.

Many lawmakers have wanted to privatize Medicare for years and saw the Medicare Advantage program as an ideal way to begin that process. But insurers wouldn’t offer the plans without a significant financial incentive to do so. So several years ago the government started padding the checks it sends the insurers to get them to participate. By 2010 the cost to the government of Medicare Advantage patients on average was 117 percent of regular fee-for-service Medicare.

Because of Uncle Sam’s generosity, insurers allocate much of their marketing budgets to attract seniors. That strategy has paid off.  Enrollment in Medicare Advantage plans increased from 5.3 million in 2004 to a 13.1 million this year, according to the Kaiser Family Foundation. That’s about 27 percent of the total number of Medicare-eligible Americans.

The first two insurers to report earnings this month — Unitedhealth and Aetna—had combined profits during the third quarter (July, August and September) of more than $3.1 billion, up from $2.6 billion in the same months last year. This despite the fact that the companies reported a decline of more than 210,000 people in their commercial risk-based health plans for individuals and small businesses. That loss was more than made up by the nearly 450,000 people they added to their Medicare Advantage rolls.

This is not a new trend. Insurers for years have been jacking up the premiums of the health plans they offer to individuals and small businesses far more than many of them can afford, which explains why many of them have dropped coverage, swelling the ranks of the uninsured. While they’ve been purging customers under the age of 65, they’ve been competing vigorously for the seniors they want to enroll.

And why wouldn’t they? According to a recent analysis by Physicians for a National Health Program (PNHP), which advocates for a single payer system, the federal government has overpaid private insurance companies under the Medicare Advantage program and its predecessors more than $282 billion over the past 27 years.

Why? Lobbyists for private insurers persuaded lawmakers that they could provide medical care for Medicare beneficiaries more cost-effectively than the traditional Medicare program. Generous campaign contributions, to Democrats as well as Republicans, also helped, of course. But instead of being more cost-effective, the plans actually cost taxpayers more than traditional Medicare.

Because the Medicare Advantage plans are so profitable, it’s little wonder why health insurers are contributing millions of dollars to candidates who voted against the Affordable Care Act (Obamacare), which will eventually eliminate the overpayments, and who voted for Rep. Paul Ryan’s plan to further privatize Medicare.

Under Ryan’s plan, seniors would receive a voucher to buy coverage from private insurers or from the traditional government-run program. Because the healthiest seniors likely would be persuaded to enroll in a private plan, many health policy experts predict that the traditional program would over time attract only the oldest and sickest beneficiaries. That would eventually lead to the collapse of the Medicare program, as we know it.

A recent analysis of Public Campaign Action Fund (PCAF) and the health reform advocacy group Health Care for America Now showed that members of Congress who voted for Ryan’s plan have received almost twice as much in campaign contributions from the insurance industry this election cycle as members who voted against it ($14 million to $7.4 million). That’s understandable when you consider the windfall insurers would receive. Harvard economist David Cutler estimates that about $31 billion in Medicare funds would be newly available to private plans in 2023 if Ryan’s plan became law.

Insurers would fare better under a Romney-Ryan administration in another important way: Romney says he would restore the bonuses to Medicare Advantage plans that Obamacare would gradually eliminate.

A Romney-Ryan victory likely would be the equivalent of winning the lottery for the big institutional investors that own the majority of health insurance company stock. Citigroup analyst Carl McDonald predicts that should Romney win and the GOP take the Senate, the value of health insurers’ shares would rise 10 to 20 percent.

So if you think Romney and Ryan are going to win, you might want to buy all the stock in the big five you can afford.  Those quarterly earnings reports undoubtedly would be even more jaw dropping than they already are.

Wendell is a Senior Analyst at The Center for Public Integrity where this first appeared on 10/29/2012.

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2 thoughts on “Who Wins With Medicare Advantage?”

  1. Here is a bit of information on something happening in the behavioral health industry: Under federal law only certain license types (mainly “L.C.S.W.s” and a handful of others) of behavioral health counselors can be accepted as providers under Medicare. If a counselor with an “L.C.S.W.” license is a listed Medicare provider they are reimbursed for counseling services to Medicare-insured clients. If a counselor has another kind of license, such as “L.C.P.C.” (accepted by all private insurers but not by Medicare at this time), the counselor will not be reimbursed by Medicare. Simple so far. Here is where it gets complicated. If a non-Medicare-reimbursable counselor sees a client who is dually insured by both Medicare and a private insurance plan, the counselor must submit proof on non-reimbursable status (in the form of a letter, from CMS, stating that this is the case) with every single CMS-1500 claim form submitted. Assuming the claim has been approved for some type of reimbursement, the private insurance company typically sends a reimbursement that is lower than the amount originally contracted with the counselor, with a note that a deduction has been taken based on “other insurance paid.” This is done even though Medicare has made no such payment, and will not even process a claim form from someone who is not on the Medicare provider list. For instance, Magellan typically pays about $63 dollars (in most areas counselor fees are anywhere from $90 to $125 per hour) for one hour of counseling service for its insured member. But reimbursement is drastically reduced when that member becomes dually insured (at age 62) by Medicare. Now Medicare is called the “primary,” and claims must be made there first, with the “secondary” (Magellan) picking up the remainder (typically the remainder left to Magellan to pay after Medicare has paid is about $35). The counselor who cannot by law be a Medicare provider submits the letter from CMS along with the claim, and Magellan pays that counselor AS IF THEY HAVE BEEN by Medicare, EVEN THOUGH THEY HAVE NOT. This means that any non-Medicare-reimbursable counselor who sees a client who is dually insured by both Medicare and a private insurance policy gets only $35 per session. The question of whether it is legal, (it certainly smacks of a breach of contract) is moot, since private practice counselors typically lack the time or the financial and political clout to fight insurance companies. It is resulting in reduced choices for mental health care for the over-62 population. Like medical practices, counseling practices must maintain a level of fee income that will both pay the practice bills and allow the counselors to make a living, hard to do when income is reduced by over 60%. Counselors are faced with having to limit the number of low-paying clients they take on, or raise their fees on singly-insured and out-of-pocket clients, or some combination of the two strategies, in order to keep the practice solvent.

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