Our Payments, Their Profits

Physicians for a National Health Program, October 4, 2023

Introduction: By our estimate, and based on 2022 spending, Medicare Advantage overcharges taxpayers by a minimum of 22% or $88 billion per year, and potentially by up to 35% or $140 billion. By comparison, Part B premiums in 2022 totaled approximately $131 billion, and overall federal spending on Part D drug benefits cost approximately $126 billion. Either of these— or other crucial aspects of Medicare and Medicaid—could be funded entirely by eliminating overcharges in the Medicare Advantage program.

Medicare Advantage, also known as MA or Medicare Part C, is a privately administered insurance program that uses a capitated payment structure, as opposed to the fee-for-service (FFS) structure of Traditional Medicare or TM. Instead of paying directly for the health care of beneficiaries, the federal government gives a lump sum of money to a third party (generally a commercial insurer) to “manage” patient care.

Although private insurers have been involved in one form or another since the early days of Medicare, it is only since the establishment of Medicare Advantage in the Medicare Modernization Act of 2003 that such participation has grown significantly. Since 2007, the share of beneficiaries enrolled in MA has nearly tripled, and the program now manages the care of more than half of all eligible beneficiaries.

Proponents of managed care have long maintained that programs like MA reduce expenditures, improve quality of care, and enable consumer choice. The reality is just the opposite. The data show that privatized Medicare has not once yielded savings for the program; conservative estimates by the Medicare Payment Advisory Commission (MedPAC), an independent agency created to advise Congress on the Medicare program, show that payments to MA plans over the past two decades have always been higher than they would have been for patients in Traditional Medicare. Despite this additional spending, MedPAC could not say conclusively whether care outcomes fared better under MA. And while patients in Traditional Medicare have access to nearly all doctors and hospitals across the country, those in MA must contend with heavily limited networks and arcane prior authorization procedures, calling into question which “choices” consumers are ultimately able to make.

These are all serious issues, but this report will deal chiefly with the first problem: overcharging in Medicare Advantage. Various elements of MA, either by design or by consequence, result in a much higher level of government spending than is necessary to provide Medicare benefits, with much of this money going toward corporate profits. Instead of creating a more efficient system of care, large corporations have used MA as their cash cow, taking billions in taxpayer dollars while using a plethora of tactics to delay or deny treatment for patients.

In this paper, we will discuss the various methods by which MA is grossly overpaid for the care and services it provides to beneficiaries. We will attempt to estimate at least in a preliminary manner the magnitude of these overpayments in each case. It is worth noting that much of this is shrouded in mystery because the relevant data is unavailable to researchers or difficult to measure. What is clear, however, is that the privatization of Medicare is for the benefit of private insurers. Patients, the government, and the American taxpayer are simply left to pick up the tab.

full paper:
https://pnhp.org/MAReport