Taking Advantage of Medicare Advantage

Federal government has been overpaying private insurers.

Facing government cuts to one of their cash cows—private Medicare plans—health insurance companies have launched a multi-pronged campaign, financed by the customer premiums, to persuade Congress to keep the cuts from going into effect next month.

The industry’s big PR and lobbying group, America’s Health Insurance Plans, is deploying the tactics I described in Deadly Spin to scare seniors into believing that if the federal government stops overpaying insurers that offer Medicare Advantage plans (the private alternative to the traditional government-run Medicare program) seniors will “pay more, get less and lose choices.”

“U.S. Health Insurers Launch TV War Over Medicare Advantage Cuts,” read the headline of a Reuters story last week when AHIP’s ads started running.

At issue is a 2.3 percent cut in payments to Medicare Advantage plans by the Centers for Medicare and Medicaid Services (CMS) that are scheduled to go into effect on April 1.

The industry’s campaign, of course, conveniently leaves out the fact that the government has been overpaying private insurers for years and that the cuts being proposed starting next month are part of a broader effort to put a stop to those overpayments.

Members of Congress inserted a provision in the Affordable Care Act to reduce the overpayments by $200 billion over the next several years.  The 2.3 percent cut would be in addition to that.

It makes little sense for the government to overpay private insurers in the first place, but that is exactly what’s been going on for several years. During the administration of George W. Bush, which supported the privatization of the Medicare program, Congress passed legislation to provide incentives to insurers to offer private plans to compete with traditional Medicare. This enabled the plans to offer richer benefits than traditional Medicare at little or no additional cost to beneficiaries while also making a tidy profit.

It’s little wonder that the number of people enrolled in Medicare Advantage plans has increased rapidly. About one of every five Medicare beneficiaries are now enrolled in private plans. When the government enables you to offer plans with vision and dental benefits, lower copayments and discounts on gym memberships, all at no additional cost, you’re going to be able to lure a lot of seniors from traditional Medicare.

An agent for Humana Inc., one of the biggest Medicare Advantage companies, told me a few years ago that, thanks to the sweet deal insurers have been getting from the government, his job of enrolling healthy seniors in Humana plans was “like shooting fish in a barrel.”

AHIP’s campaign to kill the cuts includes intense lobbying on Capitol Hill as well as other tactics to influence public opinion, like paying for a survey to bolster its case that seniors are happy with their MA plans.

AHIP hired a polling firm to survey 800 seniors, half of whom were enrolled in MA plans and half in traditional Medicare.  The result, according to AHIP: “Seniors in Medicare Advantage are as satisfied with their plans as seniors in traditional Medicare.”

AHIP clearly hopes no one pay close attention to the survey. If you do, you’ll see that people enrolled in traditional Medicare were actually more satisfied with their coverage (92 percent satisfied/very satisfied with 5 percent unsatisfied) than people in MA plans (90 percent satisfied/very satisfied with 7 percent unsatisfied).

AHIP did not disclose the full results of the survey or the methodology used by the polling firm, North Star Opinions, used.  I asked for it, but no one has gotten back to me.

AHIP’s CEO, Karen Ignagni, has been quoted as saying that the MA program will go into a “tailspin” if the proposed cuts go into effect. She predicted that many people enrolled in MA plans will see their premiums go up and their benefits reduced and that many of them will actually be dropped by their MA insurers. That’s because some —if not many— of the private insurers will desert the market if the profit margins decrease on their MA business.

I can attest that that could indeed happen. Cigna, one of the companies I used to work for, used to operate private Medicare plans in several markets but left all but one several years ago, affecting more than 100,000 seniors, after the government adjusted payments to insurers. Aetna and a number of others insurers dumped thousands more. Shareholders were not happy that the business would be less profitable than before.

AHIP may have a hard time convincing the current Congress to take pity on insurers. Last week the Government Accountability Office released a report estimating that CMS overpaid private insurers between $3.2 billion and $5.1 billion from 2010-2012. Chances are, though, that far more people will see AHIP’s TV campaign than an obscure GAO report. And people won’t even know that insurers are behind the campaign. That’s because AHIP is using one of its front groups, the Coalition for Medicare Choices, as the sponsor of the campaign.

Insurers don’t want you to know they’re spending your money to mislead you in order to protect profits.  Can’t blame them for that.

Wendell is a Senior Analyst at The Center for Public Integrity where this was first published on 3/11/2013.

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5 thoughts on “Taking Advantage of Medicare Advantage”

  1. Why do you equate the 2.3% proposed cut with the 200 billion overspending reduced by the AHCA in every sentence except the one that states they are indeed separate? Seems highly misleading.

    As someone who works in the medicare field, I think you are also being misleading in your representation of seniors options. Original medicare by itself works for seniors, until the minute they get hospitalized it will be enough to bankrupt the majority who are on very low fixed incomes due to the way COLA has been calculated and stagnated over the last decade(much like worker wages).

    The options out there are stay on OM(risky unless you’re healthy enough to never be hospitalized or can afford to pay your own part A deductible and bills), Medicare Supplemental Plans(high monthly premium, but great coverage and little to no copays depending on plan), or Medicare advantage plans. The advantage plans offer zero monthly premium, cover your deductibles and cover either a portion or all of your copays(the 20% you’re responsible for on OM). On top of that they include prescription drug coverage(manditory for those on medicare since 2006), vision and dental.

    Of course with all of that being offered there is a trade off, and it’s that you have to go to a network of doctors. In some areas that can be a huge trade off, in others where the majority of doctors are already a part of the health networks offered it’s a no brainer if you can’t afford a medicare supplemental plan.

    The healthcare system is admittedly very messed up right now, the recent 37 page Time magazine article goes into great detail as to why with the majority of costs stemming from the payment structure and chargemaster system each hospital implements. Insurance companies play a big role in this as well, but trying to put the focus on Medicare ignores the giant elephant in the room of the sub 65 health care problems destroying the middle class.

  2. Yah, and every year I need to choose my supplemental insurance to medicare BEFORE the premiums increase. Figure that out. What does medicare give a poop when I change my supplemental coverage. Just a big scam with medicare conspiring with ins carriers to gouge us. The whole supplement “enrollment period” is a rediculous restriction.

  3. I currently have Medicare Parts A&B along with a Supplemental Coverage At a cost of $150 per month and in addition a Pharmacy Plan at a cost of $50 per month. Based on what I have read if my current doctors accept the Advantage Plan option I can save $2,400 per year in premiums. Is this correct?

  4. Anon, you are correct, as long as a senior can afford to pay the 20% that medicare doesn’t cover then
    your good to go. But how many can afford to pay the $20,000 out of pocket for say a $100,000 hospital bill for about a week’s stay. Wendell conveniently left this out for all those “satisified” seniors on medicare only. Wait unitl they have a serious illness, then they will find out!

  5. Glenn,

    I switched to an MA plan.
    To answer your question yes, if the Medicare Advantage Plan is a zero a month plan. You still need to know what the Maximum out of pocket limit is, what your copays would be under the plan and the network, my plan is an HMO.

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