By Kip Sullivan, J.D.
Minnesota Reformer, November 3, 2023
The Sunday, Oct. 15 issue of the Minneapolis Star Tribune arrived on my door step wrapped in a four-page advertisement for something called Allina Health-Aetna. Allina is a 12-hospital multi-clinic chain; Aetna, which was bought out by the drug chain CVS for $69 billion five years ago, is a health insurance company.
The purpose of the ad was to urge the 20% of Minnesotans who are eligible for Medicare — the nation’s health insurance program for the elderly and the disabled — to enroll in Allina-Aetna’s “Medicare Advantage” plan.
“Medicare Advantage” is the misleading name given to the privatized portion of Medicare — the portion in which tax dollars are funneled through insurance companies so they can take 15% off the top to pay for administrative costs and profit before sending the other 85% to doctors and hospitals with strings attached. The traditional Medicare program — the unprivatized portion – does not funnel money through insurance companies; it pays doctors and hospitals directly, and it devotes around 2% of its expenditures to administrative costs. Today half of all Medicare beneficiaries are insured by insurance companies and the other half are insured by traditional Medicare.
Allina-Aetna’s ad boasted about extra services their “advantage” plan covers that Congress has never allowed the traditional Medicare program to cover. The upper half of the first page of the ad was taken up with these words: “Can I get dental, vision and hearing benefits in a Medicare plan?” Just below the fold were the words, “Yes, yes, and yes!”
What the ad didn’t explain was how health insurance companies not only survive within Medicare but make big profits. After all, Congress enacted Medicare in 1965 because the health insurance industry didn’t want to insure the elderly and the disabled. How is it that today insurance companies offer extra services and still make an outlandish profit despite their high administrative costs? American health insurance companies make 2.5 times as much profit per enrollee on Medicare as they do on their private-sector customers, according to a 2021 KFF paper on health insurer financial performance.
The answer: They are vastly overpaid. According to a report released earlier this month by Physicians for a National Health Program, which I helped write, the overpayment in 2022 was somewhere between 22% and 35%. In other words, the cost of insuring Medicare beneficiaries through Medicare Advantage was 22% to 35% higher, or somewhere between $88 billion and $140 billion more, than it would have been had those beneficiaries remained in traditional Medicare. Those are astronomical figures. That’s far more, for example, than the $75 billion the U.S. spent on humanitarian and military aid for Ukraine between February 2022 and October 2023.
The PNHP report documented five causes of these overpayments:
- “Favorable selection,” which means insurance companies lure healthier-than-average beneficiaries away from traditional Medicare, but Medicare pays them as if they enrolled beneficiaries in average health (overpayment of 11% to 14%);
- “upcoding,” the name given to the insurance companies’ practice of making their enrollees look sicker (and therefore warranting higher reimbursement) by adding diagnoses to patient medical records that are either false or irrelevant to the treatment given to the patient (5%);
- pointless bonuses Congress requires Medicare to give to Medicare Advantage plans for high scores on a score card that is so inaccurate the Medicare Payment Advisory Commission has called for its termination (4%);
- gratuitous bonuses Congress ordered Medicare to give to plans that sell insurance in more rural parts of the country that plans tend to avoid (2% to 3%);
- and, a subsidy created by Medicare’s use of the average cost of insuring a traditional Medicare beneficiary as the baseline to determine plans’ payments, uncorrected for the portion of traditional Medicare costs paid for by supplemental (Medigap) coverage (9%).
PNHP’s estimate of the total overpayment does not take into account “favorable deselection” — driving sicker Medicare Advantage enrollees back to traditional Medicare by denying them necessary services. We have abundant evidence indicating Medicare Advantage plans deny necessary services to tens of thousands of their enrollees every year. But we don’t have any research on how much that adds to the overpayments. This abuse of enrollees is just one of the reasons research indicates Medicare Advantage plans have had, at best, a mixed effect on quality.
The Allina-Aetna four-page ad that now sits in my recycling bin made no mention of the overpayments, nor of the reasons why Medicare beneficiaries should consider avoiding enrolling in a Medicare Advantage plan (narrow networks and frequent denial of services being the most important).
Congress should put an immediate stop to the overpayments and, at the same time, authorize traditional Medicare to cover dental, vision and hearing services.
Kip Sullivan is a member of the policy committee of Health Care for All Minnesota. He has written extensively about health care reform.