Important! Medicare Advantage rip-off now quantified

Medicare Overpayments to Private Plans, 1985-2012: Shifting seniors to private plans has already cost Medicare $282.6 billion

By Ida Hellander, M.D., Steffie Woolhandler, M.D., M.P.H., David U. Himmelstein, M.D.
International Journal of Health Services (Forthcoming), October 2012


Previous research has documented Medicare overpayments to the private Medicare Advantage (MA) plans (also known as Medicare Part C or Medicare HMOs) that compete with traditional fee-for-service Medicare. This research has assessed individual categories of overpayment for a single year, or at most a few years. However, no previous study has calculated the total Medicare overpayments to private plans since the inception of the Medicare program.

There are five ways in which private insurers systematically garner excess Medicare Advantage payments from the Medicare program.

Prior to 2004, the selective enrollment of healthier seniors by private plans – what we call “old cherry-picking” – was the major source of excess payments. We conservatively estimate that this old cherry-picking has added $41 billion to Medicare’s costs since 1985. Medicare adopted a new risk-adjustment scheme in 2004 based on 70 medical diagnoses (“hierarchical condition categories”), but this scheme has not curbed, and may have increased, private plans’ ability to game Medicare’s payment system, albeit with a new strategy: now, plans seek to selectively enroll patients who have mild versions of the medical conditions that determine payment. This “new cherry-picking” has added $122.5 billion to Medicare’s costs since 2004.

Congress mandated increased payment to private plans in the 2003 Medicare Modernization Act, adding $84.4 billion to the cost of Medicare through 2012.

The Affordable Care Act (ACA) mandated a drop in these overpayments, but a new demonstration project on quality will offset one-third of the reductions called for by the ACA through 2014.

Another major way that private plans are overpaid is by enrolling persons who are eligible for Veterans Health Administration (VA) benefits. The VA has provided $34.8 billion in care to MA enrollees since 1985.

In total, we find that Medicare has overpaid private insurers by $282.6 billion, or 24.4 percent of all MA payments, since 1985. In 2012 alone, we find that MA plans are being overpaid by $34.1 billion, or 6.2 percent of total Medicare spending.

In 2012, 13.5 million Medicare beneficiaries are in private plans, 27 percent of total enrollment. Some proposals would push millions more beneficiaries into private plans (e.g. voucher-type Medicare reform).

Risk adjustment does not and cannot work in the setting of for-profit MA plans, which have a strong financial incentive, and the data and ingenuity, to game whatever payment system Medicare devises. It is time to end Medicare’s long experiment with privatization and look toward proven-effective methods for controlling costs and improving coverage.

PNHP press release (The full article can be accessed through a link provided in this press release):


By Don McCanne, MD

Although we have known all along that the private Medicare Advantage plans have been ripping off the taxpayers, this study brings together the data that quantifies the extent to which the taxpayers have been cheated by the private insurance firms: $282.6 billion!

The full report provides the details. It should be downloaded and read in full, and then used in your activism. Use the link above to access the press release (which is also well worth reading), and then use the link in the press release to download the full report.

The reason that this is so important is that it reveals the dishonesty behind the efforts to privatize Medicare through "premium support" - code for vouchers. Telling us that private insurers could provide equivalent Medicare benefits at a lower cost was the first deception, now proven false by three decades of experience. Nevertheless, because of anti-government ideology, legislators moved forward with the Medicare Advantage plans, deliberately paying them extra in order to draw beneficiaries into their plans through extra funds for high-profile marketing while affording them the ability to offer attractive extra benefits.

Once enough beneficiaries are drawn into these private plans, legislators could then begin the gradual process of defunding the traditional Medicare program. The premium support vouchers would provide a means to that end. As access in the underfunded traditional program diminished due to a decline in willing providers, beneficiaries would be able to use their premium support to move into the "better" plans offered in the private sector.

The traditional program might survive as a vestigial Medicaid-like welfare program, but essentially all who could afford it would have moved into the private plans. The next step? Reduce the value of the premium support both through attrition and through more nudges and pushes that the politicians would claim are absolutely essential to help close the gaping deficit hole.

As many have figured out, a primary purpose of the tax cuts that the politicians are telling us are essential is to increase the deficit even more to force other cuts in spending - deficits that "cannot be made up by tax increases because those taxes would destroy the economy." Closing the deficit with tax cuts is one of the biggest lies of this campaign. They want to increase the deficit to force upon us a government austerity program.

We desperately need single payer - an improved Medicare that covers everyone. A more urgent task for us to address immediately is to cut the overpayments in the Medicare Advantage plans before the politicians shove us into their fraudulent premium support scheme. Check Figure 1 in the full report that you are downloading.  When we had Medicare + Choice plans, the deception was exposed and you will see that the plans started dropping out. The rebound of the plans is directly attributable to the fraud exposed in this report - deliberate overpayment of the private Medicare Advantage plans.

People keep asking what they can do. This one's easy. Start organizing protests against this outrageous scheme that has cheated us taxpayers out of so much. Begin now, or start planning for your own austerity program when premium support vouchers won't buy you or your children the health care plan that you need. It's your choice.