Medicare Advantage cost U.S. taxpayer $283 billion extra

May 12, 2013 at 5:14 PM
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CHICAGO, May 12 (UPI) -- Shifting Medicare patients to Medicare Advantage has cost the U.S. taxpayer almost $300 billion since the program began in 1985, researchers say.

The study, published online in the International Journal of Health Services, found the private insurance companies that participate in Medicare under the Medicare Advantage program and its predecessors have cost the publicly funded program for the elderly and disabled an extra $282.6 billion since 1985 -- most over the past eight years.

Dr. Ida Hellander, policy director at Physicians for a National Health Program, a non-profit group; Dr. Steffie Woolhandler and Dr. David Himmelstein, both of the City University of New York School of Public Health, visiting professors at Harvard Medical School and co-founders of PNHP; said in 2012 alone, private insurers were overpaid $34.1 billion -- or $2,526 per Medicare Advantage enrollee.

These are billions that should have been spent on improving patient care, shoring up Medicare's trust fund or reducing the federal deficit, the researchers said.

Since 1985, in an effort to lower the cost of Medicare, Congress allowed Medicare to contract with private insurance plans -- previously referred to as Medicare HMOs and now called Medicare Advantage plans. Such plans, most of them for-profit, currently cover about 27 percent of Medicare enrollees. Currently, UnitedHealth and Humana together operate about one-third of such plans.

Medicare pays these privately run plans a "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 study found private insurers cherry-pick healthier beneficiaries who cost less to care for, guaranteeing large profits -- although private plans must accept all seniors who choose to enroll, they cherry-pick by selectively recruiting the healthiest seniors through advertising, office location, etc.

The study also found Medicare Advantage plans:

-- Induce sicker seniors to disenroll by making expensive care inconvenient.

-- They recruit otherwise healthy seniors with very mild and inexpensive cases of sometimes serious conditions, which automatically triggers higher premiums for these beneficiaries from the risk-adjustment scheme implemented in 2004, 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.

-- They enroll patients who get most of their care free at the Veteran's Administration.

-- They heavily lobby Congress to raise their reimbursement.

Since the study was completed, the heath insurance industry successfully lobbied the Obama administration to raise payments to Medicare Advantage plans, reversing a planned cut of 2.2 percent in reimbursement rates for a 3.3 percent increase and stock prices of the private insurers soared after the announcement, the researchers said.

"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 had added up the total extra cost to the taxpayer since contracting with private insurers began 27 years ago," Hellander said in a statement. "Nor has anyone systematically examined the many ways that private insurers have gamed the system to maximize their bottom line at taxpayers' expense."

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