[ Last year, the federal government spent $20.5 billion overpaying
private insurers for Medicare Advantage plans — and the industry’s
aggressive lobbying campaign is kneecapping efforts by lawmakers to
stop the scheme.]
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THE $20 BILLION SCAM AT THE HEART OF MEDICARE ADVANTAGE  
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Matthew Cunningham-Cook and Andrew Perez
May 26, 2023
The Lever
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_ Last year, the federal government spent $20.5 billion overpaying
private insurers for Medicare Advantage plans — and the industry’s
aggressive lobbying campaign is kneecapping efforts by lawmakers to
stop the scheme. _

The government’s inability to crack down on Medicare Advantage
overpayments is a product of major lobbying campaigns by the
industry., Bill Clark / CQ Roll Call // Jacobin

 

The health insurance behemoth Humana enjoyed a banner 2022. The
Louisville, Kentucky–based insurer made $2.8 billion in profits last
year, while paying out $448 million in dividends to shareholders and
more than $17 million in compensation to its CEO.

The main driver of those earnings? The federal government spent $20.5
billion overpaying Humana and other private insurers for the Medicare
Advantage plans they manage on behalf of seniors and people with
disabilities. If not for those overpayments, Humana could have
suffered a nearly $900 million loss in 2022, according to
a _Lever_ analysis.

Humana is the most prominent example of how insurers have built a
major cash cow out of systematically overbilling Medicare Advantage,
the private Medicare program operated by private interests. These
overpayments are symptomatic of a broader profit-driven policy agenda
that seeks to completely privatize Medicare, one of the nation’s
most popular social programs, and lock program recipients into subpar
private insurance plans, even when they get sicker and need the best
care possible.

Medicare Advantage plans have higher claim denial rates and more prior
authorization restrictions than traditional Medicare plans. Last year,
regulators found
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in five payment requests rejected by Medicare Advantage plans in 2018
were wrongfully denied, representing an estimated 1.5 million claims.

And while Biden administration proposals could have helped slow the
for-profit takeover by tightening the screws on Medicare Advantage
overpayments, insurers recently led a fierce lobbying
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dissuade the government from fully cracking down on the practice.

 

At the root of Medicare Advantage overpayments is “upcoding” by
insurers, a scheme by which the companies systematically overbill the
public as if their patients are sicker than they really are. Companies
have offered
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of champagne and bonuses to entice doctors to add diagnoses to
patients’ records, according to government lawsuits reviewed by
the _New York Times_.

In total, these practices led to $20.5 billion total excess payments
to Medicare Advantage insurers in 2022, according to a March report
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the Medicare Payments Advisory Commission (MedPAC), a federal body
tasked with overseeing Medicare. In the coming years, the overpayment
problem could get substantially worse. A November 2021 study
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that Medicare costs from 2023 to 2031 will be $600 billion higher than
if Medicare Advantage beneficiaries were instead enrolled in
traditional Medicare.

Because of such overpayments, big insurers like Humana have become
highly dependent on Medicare Advantage. Humana, for example, earned
more than 80 percent
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its revenue from Medicare last year, and now has nearly five million
Medicare Advantage customers. Wall Street loves this business model:
Humana’s stock has outperformed the S&P 500 by 23 percent
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the past five years.

Humana isn’t alone in benefiting from Medicare Advantage
overpayments. The other major for-profit insurers — UnitedHealth,
Centene, and CVS Health, which owns Aetna, would have seen major hits
to their 2022 profits had the government eliminated the overpayments.

UnitedHealth Group would have seen its profits deteriorate by more
than one-third, from $14.4 billion to less than $8.8 billion,
according to an analysis by the_ Lever_. CVS Health would have seen
its profits cut by more than half, from $4.1 billion to $1.9 billion.
And Centene would have seen its profits deteriorate by more than
one-quarter, from $3.4 billion to $2.4 billion.

Experts say the enormous sums of money going toward overpayments
endanger the overall financial stability of Medicare as a whole.

“It’s threatening the solvency of our Medicare trust fund,” said
Ana Malinow, a physician active in pro–Medicare for All groups.
“The trust fund is made up of payments that people make throughout
their entire working lives. If you are working, you’re paying into
Medicare every two weeks with your paycheck. Instead of money going to
pay for health care for seniors and people with disabilities, it’s
going to UnitedHealth and Humana.”

Cutting back Medicare Advantage overpayments could be transformative
for the social program, said David Lipschutz, associate director of
the Center for Medicare Advocacy, which lobbies for a robust Medicare
system. “These are huge amounts of money that could be directed to
shoring up Medicare’s finances,” said Lipschutz. “Or expanding
benefits for everyone, not just in Medicare Advantage plans.”

The government’s inability to crack down on Medicare Advantage
overpayments is a product of major lobbying campaigns by the industry.
Two Biden administration proposals that would have tightened the
screws on Medicare Advantage overpayments by enhancing audits and
cutting the growth of payments to Medicare Advantage plans were both
scaled back in the face of aggressive industry lobbying and TV
campaigns.

Instead, while there will likely be some cutbacks, the Medicare
Advantage gravy train will continue. The number of people enrolled in
Medicare Advantage is set to outpace
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Medicare for the first time ever this year, with more than thirty
million
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Better Medicare Profits

In February, the Centers for Medicare and Medicaid Services (CMS),
which oversees Medicare, proposed a rule that would have reined in
[[link removed]] upcoding
abuses by reducing extra payments that insurers receive for certain
diagnoses, including diabetes “with complications” and a rare form
of malnutrition. But in the face of widespread industry lobbying, the
agency settled on a weaker three-year phase-in effort.

Even the original proposed rule might not have been enough to address
Medicare Advantage overpayments. MedPAC called the initial proposal
“insufficient” in a comment letter
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and said that Secretary of Health and Human Services Xavier Becerra
had “not taken significant action” in response to MedPAC’s
analyses of fraudulent billing in Medicare Advantage.

Another way to crack down on upcoding schemes would be to limit
government payments to Medicare Advantage plans, since it would send a
message to Medicare Advantage providers that overall program costs are
far too high. Last December
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CMS did so by proposing increasing payments to Medicare Advantage
plans by just 1 percent, compared to the 8.5 percent
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increase it approved last year.

In response, the Better Medicare Alliance, an advocacy group for
Medicare Advantage plans, spent at least $13.5 million
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ads pressuring the administration to increase the planned rate hike.

The group also spent
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lobbying Congress in the first quarter of this year, nearly double the
$330,000 spent in the prior quarter. All told, the four major publicly
traded health insurance companies that operate Medicare Advantage
plans, as well as the insurance lobby America’s Health Insurance
Plans, spent nearly $19 million on federal lobbying in the first
quarter of 2023, a 66 percent increase from the prior quarter,
according to a _Lever _analysis of data from OpenSecrets.

The government’s inability to crack down on Medicare Advantage
overpayments is a product of major lobbying campaigns by the industry.

That lobbying paid off: instead of a 1 percent increase in payments to
Medicare Advantage — which the insurance industry cast
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a reduction because the growth rate had slowed dramatically —
CMS announced
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3.3 percent payment increase at the end of March.

“The industry’s aggressive lobbying campaign showcases that they
clearly want to protect their profit stream,” said Lipschutz.
“Their disingenuous campaign tried to paint some very minor payment
adjustments as being catastrophic to the Medicare Advantage program.
They tried to ‘Medi-scare’ beneficiaries into contacting their
elected officials to get CMS to back off — which CMS did to a
certain extent.”

While industry analysts have said that this modest rate increase will
strain insurers’ prodigious profits, the bond ratings agency
Moody’s declared
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April that “we believe [Medicare Advantage] will continue to be a
growth driver for the industry and will take further market share from
traditional Medicare.”

Medicare Advantage payment increases like Joe Biden’s 3.3 percent
hike will result in higher dividends to shareholders at the expense of
the solvency of traditional Medicare.

The insurance industry also took aim at a recently proposed rule to
claw back years of inflated risk adjustment payments, which are made
to incentivize
[[link removed]] Medicare
Advantage plans to accept riskier patients.

Initial proposals floated by CMS included retroactive audits of risk
adjustment payments going back to 2011
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Instead, the final pared-back
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released in March only included retrospective audits going back to
2018.

Lipschutz said he does give the administration some credit for the
audit rule change and the smaller rate hike for Medicare Advantage
insurers relative to the prior year.

“On the other hand, it can be seen as far too little too late,” he
said, adding that federal policy being so weighted toward Medicare
Advantage plans at the expense of traditional Medicare is a “serious
imbalance that is long overdue for course correction.”

Privatizing Medicare

Traditional Medicare operates on a fee-for-service basis. This means
that doctors and hospitals are paid directly by Medicare for the
services they provide. Private plans
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operated as part of Medicare since just after the program was launched
in 1965, but typically did so on a very limited basis. That changed in
2003, when Congress substantially increased subsidies for plans to
enter the market, after intense industry lobbying.

While the traditional Medicare model is not without problems —
Medicare only covers
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expenses, which means that seniors need either Medicaid or a Medigap
insurance plan to get full coverage — it has major benefits relative
to Medicare Advantage.

The principal benefit of traditional Medicare is that there is not a
profit-driven insurer attempting to limit the scope of care that a
patient needs.

The principal benefit of traditional Medicare is that there is not a
profit-driven insurer attempting to limit the scope of care that a
patient needs.

Medicare Advantage “seems like a good idea,” said Ted Doolittle,
the State Health Care Advocate for Connecticut. That’s because
Medicare Advantage plans often offer expanded benefits like dental,
vision, or wellness. They also eliminate the need for a potentially
expensive
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plan if a senior isn’t eligible for Medicaid coverage.

But then, said Doolittle, “The scholarship shows that when patients
get sick, they try to go back to traditional Medicare.”

According to Doolittle, most people who are either Medicaid eligible
or who could afford a Medigap plan would balk at signing up for
Medicare Advantage plan “if folks had adequate information about the
nature of Medicare Advantage versus traditional Medicare, and the
higher denial rates and the prior authorizations required for care in
Medicare Advantage.”

Doolittle pointed out that there’s a key barrier to patients to
getting full medical coverage if they try to switch back to Medicare
once they become sick: in most states, Medigap insurers are allowed to
discriminate against seniors on the basis of preexisting conditions if
they are already enrolled in Medicare Advantage, something that is
prohibited when seniors first become eligible for Medicare three
months prior turning sixty-five.

This problem is amplified by the rapid growth of Medicare Advantage.
In 2010, a little over one-quarter of Medicare beneficiaries were in
Medicare Advantage. By 2016, it was still less than one-third. But
this year, a majority of Medicare beneficiaries will be on the private
plans.

And the exorbitant government costs of Medicare Advantage are not
limited to just overpayments related to upcoding. This year, Medicare
Advantage plans will receive taxpayer rebates averaging $196 per
participant. These rebates have more than doubled since 2018.

The total cost of the rebates could be as high as $75 billion this
year, according to analysis
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Bill Kadereit, president of the National Retiree Legislative Network.

“The extra $196 is spent on fringe benefits, and only on fringe
benefits that go towards Medicare Advantage beneficiaries,” Kadereit
said. “The other 30 million people in traditional Medicare get
nothing. When Joe Manchin in West Virginia says ‘I like sending
money
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the Medicare Advantage plans, give them more,’ well, 40 percent of
his people in West Virginia are not on Medicare Advantage, so they
don’t get a nickel.”

Expanded attention to Medicare Advantage abuses has led some members
of Congress to speak up and pressure the Biden administration to rein
in the industry, even in the face of aggressive lobbying.

In February, seventy lawmakers, led by Congressional Progressive
Caucus chair Pramila Jayapal (D-WA), sent a letter
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the Biden administration pointing out that “as enrollment in
[Medicare Advantage] grows, spending per beneficiary has grown faster
in [Medicare Advantage] than original Medicare, and that spending is
being funneled into corporate profits under the guise of operating
costs instead of into care for patients.”

That said, there is no voice in Congress advocating for the phasing
out of Medicare Advantage and allocating expanded benefits equally to
all Medicare beneficiaries, which is by far the most cost-effective
option.

And the larger Medicare Advantage becomes, the more politically
difficult it will be to rein in, noted Doolittle.

“As Medicare Advantage keeps getting more embedded in Medicare, the
situation keeps getting worse,” he said. “It’s gotten up to a
real critical mass at this point, which makes it very hard to stop.”

_[MATTHEW CUNNINGHAM-COOK has written for Labor Notes, the Public
Employee Press, Al Jazeera America, and the Nation._

_ANDREW PEREZ is senior editor and a reporter at the Lever covering
money and influence.]_

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