By Ryan Cooper
The American Prospect, April 29, 2022
If you’ve ever watched cable news, where the average viewer is in their late sixties, you’ve probably seen an advertisement for a Medicare Advantage plan. They usually star some washed-up celebrity whose career peaked right around when today’s retirees were young adults (think Jimmy Walker or Joe Namath). And they always make a lot of big promises about how great Medicare Advantage coverage is.
There’s just one problem: The sales pitch is an abject lie. Medicare Advantage is much worse than traditional Medicare for people on the program and costs a great deal more to boot. But unless the Biden administration changes course, private companies will soon devour the rest of the program.
Medicare Advantage plans are typically a combination of “Medigap” plans, which cover services not included in the government plan like vision and dental, plus a privatized version of traditional Medicare. About 28 million American seniors are now on Advantage plans, or about 40 percent of the whole program. As Barbara Caress explains in the Prospect, it was set up back in the late 1990s as a way for those wonderful private insurance companies we all know and love to work their free-market magic on one corner of the system America carved out as publicly run. Once we got business involved, surely the quality of coverage would improve and costs would go down, right?
The problem with this logic, as people realized even back in the glory days of neoliberalism, is that there are a lot of perverse financial incentives in health insurance, particularly when it comes to seniors. Half the reason the government set up Medicare in the first place was that as people reach the end of life, they tend to become sick and require more treatment than they can personally afford. In the pre-Medicare days, private companies did all they could to keep them off the insurance rolls.
Introducing the profit motive into Medicare has led to considerable hoop-jumping just to prevent such cravenness. For instance, if the government were to calculate the average per-person cost of Medicare and pay private companies that much per enrollee, companies would scramble to snap up all the younger, healthier seniors with relatively few problems, and cream off some easy profits. As Matt Bruenig explains, that’s why the Centers for Medicare & Medicaid Services maintains a gigantic database of every single one of the roughly 64 million Medicare enrollees, and assigns them all a risk score based on their demographic and health characteristics. Advantage companies then get paid, in theory at least, according to how sick their risk pools are.
That is just one of scores of rules and regulations the government puts out to try to make these private companies behave. It’s a hugely expensive and difficult undertaking, and it turns out that it basically doesn’t work. The results have been exactly the opposite of free-market nostrums: worse coverage that costs more.
One rip-off strategy insurers use is improperly denying claims. A recent investigation from the Department of Health and Human Services inspector general found that companies improperly denied 13 percent of prior authorization requests, and refused to pay 18 percent of legitimate claims—or about 85,000 requests and 1.5 million payments, just in 2019. Paying lots of claims adjusters to fake up reasons to deny necessary treatment is a big reason why Advantage companies spend nearly 14 percent of their money on administration, as compared to traditional Medicare’s 2 percent.
Another strategy is rigging the risk pool. Advantage companies are notorious for pushing doctors to “upcode” as many diagnoses onto their patients as possible, thus increasing their risk score and payment, without having to pay for more treatment. That tactic alone cost the government $9 billion in 2019.
All this (plus a bunch of other complicated scams) means that Advantage enrollees receive something like 10 to 25 percent less in health care spending, but the program costs the government about 3 percent more per person than traditional Medicare. This absurd situation is actually getting worse. One recent study found that Advantage plans cost the government $106 billion in overspending from 2010 to 2019, and nearly a third of that came in just the last two years. The price tag is predicted to balloon to $600 billion over the next nine years.
One would think that the Biden administration would be looking to reverse course, but it isn’t. On the contrary, as Caress notes, it has so far proceeded with a Trump-era plan to privatize the remaining shreds of Medicare by letting private companies serve as payment middlemen through something the Trump team called “direct contracting.”
After an outcry from progressives, the administration altered the privatization plan, mainly changing the name (it’s now called ACO REACH), with the supposed goal of achieving “equitable outcomes.” But as Diane Archer explains at Social Security Works, at bottom it’s still the same idea, with a lot of obvious loopholes for quick profits by denying care, pushing more people into Advantage plans, gaming risk scores, and so on. Unless Biden changes his mind, America is going to let a bunch more foxes into the Medicare henhouse, including private equity firms, and half-heartedly try to limit the damage to the taxpayer with a bunch of ultra-complicated regulations of the type that are failing right before our eyes.
Medicare was a decent initial sketch of a health care system when it was set up back in the 1960s, but it had many bad design elements and left much out. Instead of fixing the problems directly, policymakers have attempted to either coax private companies to do it for them over and over, or simply give out corrupt handouts to their business cronies. The result has been worse coverage and skyrocketing spending that inflated up a huge industry of ruthless corporate parasites. Now those same companies have dragon hoards of government cash to spend on advertising to trick trusting retirees and lobby Congress.
In a sense, the free-marketeers of the 1990s were right to be skeptical of the government’s regulatory capacity. As we have seen, it has been consistently defeated by health care interests in its attempts to prevent profiteering. But that is all the more reason not to burden it with the most complicated health care regulations in the world. Big and simple is what the American state does best. An upgraded, streamlined Medicare that kicked out all the private companies, covered every type of medicine, and enrolled all Americans from birth would fit the bill nicely.