By David Lipschutz
Center for Medicare Advocacy, Special Report, July 18, 2024
At a time when over half of all Medicare beneficiaries are enrolled in Medicare Advantage (MA) plans, the MA program is costing significantly more than what traditional Medicare spends on a given beneficiary, adding stress to Medicareâs finances. As discussed below, this extra spending, however, does not translate to better health outcomes or more affordable care for those enrolled in MA plans. Funds from reining in excessive and wasteful payments to MA plans would be better spent shoring up the traditional Medicare program, which would benefit all Medicare beneficiaries â including those in MA plans.
Overwhelming Evidence of MA Overpayments
As described in a recent Health Affairs Forefront article titled âEstimating Overpayments To MA Plans: MedPAC Critics Get It Wrongâ by Steven M. Lieberman, Paul B. Ginsburg, Donald M. Berwick and Richard Gilfillan (July 1, 2024), the Medicare Payment Advisory Commission (MedPAC) concluded in their March 2024 report that,
upcoding and favorable selection paid MA plans $83 billion (22 percent) more than what Medicare would have paid if MA enrollees were in [traditional Medicare]â in 2024 alone.
In describing âupcodingâ in the current risk-adjusted payment system for MA plans, the authors note that â[r]eporting more diagnoses can increase risk scores, and higher risk scores increase monthly capitation payments. Many MA plans provide financial incentives to physicians and use other mechanisms to generate additional diagnostic codes that increase revenue.â The authors also describe MedPACâs evidence for finding âsubstantial favorable selection into MA and sicker beneficiaries being more likely to disenroll from MA, as well as describing in detail its modeling methodology and assessing other studies of favorable selection. Extensive evidence shows [traditional Medicare] beneficiaries are, on average, sicker than MA beneficiaries, even after risk adjustment, not the other way around.â(Emphasis added.)
The Wall Street Journal recently published findings of their own investigation into MA upcoding.  An article titled âInsurers Pocketed $50 Billion From Medicare for Diseases No Doctor Treatedâ by Christopher Walker, Tom McGinty, Anne Wilde Mathews and Mark Maremont (July 8, 2024) describes the paperâs analysis, which finds that:
[p]rivate insurers involved in the governmentâs Medicare Advantage program made hundreds of thousands of questionable diagnoses that triggered extra taxpayer-funded payments from 2018 to 2021, including outright wrong ones [âŠ] [t]he questionable diagnoses included some for potentially deadly illnesses, such as AIDS, for which patients received no subsequent care, and for conditions people couldnât possibly have [âŠ] [o]ften, neither the patients nor their doctors had any idea.
The Journalâs analysis found that âMedicare paid insurers about $50 billion for diagnoses added just by insurers in the three years ending in 2021âŠâ The analysis suggests that in the current MA risk-adjusted payment system, insurers seek out diagnoses that pay the most extra money.  The analysis found, for example, that â[i]nsurer-driven diagnoses by United Health for diseases that no doctor treated generated $8.7 billion in 2021 payments to the companyâŠâ UnitedHealth, the largest MA insurer, âadded diagnoses at a far higher rate than other major insurers.â For example, the reporters found that UnitedHealth members were about 15 times as likely to be diagnosed with diabetic cataracts as the average patient in traditional Medicare, one of the âmost heavily used diagnosesâ to increase MA payment.
A recent Journal of American Medical Association (JAMA) Viewpoint article juxtaposes MA overpayments with how much plans actually spend on medical services, given significant overhead and restrictions on care such as limited provider networks and prior authorization. The article, titled âLess Care at Higher Cost â The Medicare Advantage Paradoxâ by Adam Gaffney, Stephanie Woodhandler and David Himmelstein (June 10, 2024) opens by citing a declaration by insurance industry trade group AHIP that MA is âa good deal for members and taxpayersâ and responds that â[t]he first part of the claim is debatable, while the second part is false.â The article cites diagnosis upcoding along with âcherry pickingâ healthier enrollees and âlemon droppingâ sicker and more expensive ones as contributing to MA overpayments. The authors state:
Paradoxically, despite those overpayments, MA plans spend 9% less on medical services than FFS Medicare spends for comparable enrollees. Most MA plans offer helpful supplementary benefits, for example, eyeglasses, some dental coverage, and reduced Part D (and occasionally Part B) premiums and out-of-pocket costs. But their savings from managed-care techniques, including network restrictions, prior authorization requirements, and financial incentives for health care centers and clinicians to curtail expensive care, more than offset MA plansâ extra spending for supplementary benefits. Unfortunately, MAâs managed-care techniques reduce both high-value and low-value services, that is, MA is a âblunt instrument for reducing health care utilization.â But even blunt instruments can inflict harm, especially on vulnerable patients. [citations omitted]
Citing a 2023 report by Milliman, the JAMA article notes that MA plans âincur extra expenses for television advertisements, health care network management, benefit design, executive salaries, health care utilization review, prior authorization, and shareholder profits, driving their overhead up to 14% (just below the limit set by the Affordable Care Act).â Based on CMS, GAO and Milliman data, the authors state that âMA overhead for 2007 to 2024 totals $592 billionâ equivalent to 97% of taxpayersâ $612 billion overpayments to them during that period.â (Emphasis added.)
An article in Common Dreams titled âA $600 Billion Swindle: Study Makes Case to âAbolishâ Medicare Advantageâ by Jake Johnson (June 10, 2024) describes the JAMA article and quotes the lead author, Dr. Adam Gaffney from Harvard Medical School:
Money that could be used to eliminate all copayments or shore up Medicareâs Trust Fund is instead lining insurersâ pockets,â said Gaffney. âAnd the private insurers keep Medicare Advantage enrollees from getting needed care by erecting bureaucratic hurdles like prior authorizations and payment denials.
The JAMA authors conclude: âWe think the time has come to declare MA a failed experiment and abolish it. That would allow redeploying the $88 billion taxpayers will overpay MA this year to upgrade benefits for all Medicare beneficiaries.â
Health Outcomes Not Better, Not More Affordable for MA Enrollees
Overwhelming evidence shows that wasteful overpayments to MA plans cost the Medicare program more than traditional Medicare. But what do MA enrollees get, in turn? In response to the Wall Street Journalâs analysis of MA overpayments due to unconfirmed diagnoses described above, a UnitedHealth spokesperson disputed the Journalâs findings, and was quoted in the article offering a common insurance industry retort to claims that plans are improperly paid â âthat Medicare Advantage âprovides better health outcomes and more affordable healthcare for millions of seniorsâ than traditional Medicare.â As outlined below, neither of these claims holds up.
âBetterâ Health Outcomes?
The JAMA Viewpoint article by Gaffney, Woodhandler and Himmelstein discussed above notes that according to MedPAC, âdata limitations preclude drawing conclusions about MAâs effect on overall quality of careâ but notes that âMA enrollees requiring complex cancer surgeries are less likely to be treated at specialized centers, experienced longer delays and higher mortality than beneficiaries in [traditional] Medicare.â
When putting aside insurance industry-funded and promoted reports about health outcomes of MA enrollees, the results are decidedly mixed. As noted by the Commonwealth Fund in their âMedicare Advantage: A Policy Primerâ (January 2024):
Most evidence shows that the quality of care delivered through Medicare Advantage plans and through traditional Medicare is equivalent overall. However, some studies suggest that Medicare Advantage plans, on average, are associated with better-quality care on certain metrics, particularly those related to preventive care and unnecessary hospital admissions. Other evidence suggests that Medicare Advantage does not outperform traditional Medicare on several significant measures, including mortality, readmission rates, patient experience, and racial and ethnic disparities [citations omitted].
Similarly, in September 2022Â KFFÂ published a report titled âBeneficiary Experience, Affordability, Utilization, and Quality in Medicare Advantage and Traditional Medicare: A Review of the Literature,â which examined 62 studies published since 2016 that compare Medicare Advantage and traditional Medicare based on measures of beneficiary experience, affordability, service utilization, and quality. KFF noted that:
We found few differences between [MA] and traditional Medicare that are supported by strong evidence or have been replicated across multiple studies. Both [MA] and traditional Medicare beneficiaries reported similar rates of satisfaction with their care and overall measures of care coordination. [MA] outperformed traditional Medicare on some measures, such as use of preventive services, having a usual source of care, and lower hospital readmission rates. However, traditional Medicare outperformed [MA] on other measures, such as receiving care in the highest-rated hospitals for cancer care or in the highest-quality skilled nursing facilities and home health agencies. Additionally, a somewhat smaller share of traditional Medicare beneficiaries than [MA] enrollees experienced a cost-related problem, mainly due to lower rates of cost-related problems among traditional Medicare beneficiaries with supplemental coverage. Several studies found lower use of post-acute care among [MA] enrollees but were inconclusive as to whether that was associated with better or worse outcomes [emphasis added].
âMore Affordableâ?
The insurance industry often promotes self-funded research that purports to show that MA enrollees spend less than people in traditional Medicare. For example, as discussed in a HEALTH CARE un-covered post titled âWhile an Insurance Industry Front Group Pushes Against Medicare Advantage Scrutiny, Rural Hospitals Remain Unswayedâ by Trudy Lieberman (July 8, 2024), an insurance industry advocacy group published a report claiming that traditional Medicare beneficiaries living in rural areas spend significantly more on health care premiums and out-of-pocket costs than people enrolled in Medicare Advantage plans. Lieberman contrasts this claim with reports of hospitals and other providers in rural areas dropping their contracts with, and issuing general complaints about, MA plans.  The Nebraska Rural Health Association, for example, released a report that âwarned that Nebraskans with Advantage plans âhave created such a financial burden for rural residentsâ that when they get sick, those with Medicare Advantage coverage ârepresent the largest growing segment of charity care for Nebraskaâs rural hospitals.ââ
Analyses independent of the industry paint a more damning picture. An article in The Guardian titled âDelays, Denials, Debt and the Growing Privatization of Medicareâ by Micheal Sainato (June 3, 2024), for example, notes that â[o]lder adults with Medicare Advantage are significantly more likely to struggle with medical bills or debt than those under traditional Medicare plans, according to a 2023 report by the Commonwealth Fund.â
More recently, the Annals of Internal Medicine published a study titled âAssociation of Medicare Advantage Enrollment With Financial Burden of Careâ by Sungchul Park, PhD; David J. Meyers, PhD; and Amal N. Trivedi, MD, MPH (June 25, 2024) which examines whether the financial burden of care decreased for people switching from traditional Medicare to Medicare Advantage relative to those who remain in traditional Medicare. While the study concluded that differences in financial outcomes between these groups âwere small,â the authors found that out-of-pocket costs increased for those switching to MA and, rather alarmingly, âwe found that switching to MA was associated with increased financial burden among vulnerable populations, especially those with low incomes [emphasis added].â The authors note:
Our findings contrast with the notion that MAâs apparently more generous health insurance benefits lead to financial savings for enrollees. Surveys and focus groups of Medicare beneficiaries suggest that a primary driver of MA enrollment is the perception of lower out-of- pocket costs. This claim is also touted in MA insurersâ marketing materials [citations omitted].
In an accompanying Editorial published in the Annals of Internal Medicine titled âMedicare Advantage: High Costs and Poor Protectionâ by Steffie Woolhandler and David Himmelstein (June 25, 2024), the authors ask what people get in return for an estimated $83 billion in overpayments to MA plans this year, stating that, according to the study cited above, it is â[n]ot financial protection,â Describing how the researchers analyzed data, the Editorial notes that in the second year after people who switched from traditional Medicare [TM] to MA,
beneficiaries switching to MA were no better insulated from medical costs than those remaining in TM. Indeed, nonsignificant trends suggested that, if anything, MA offered worse protection, particularly for lower-income enrollees.
As explained in an article published by MDedge titled âMedicare Advantage Plans Not Always Advantageousâ by Diana Swift (June 24, 2024) that examines both the study and the editorial published in the Annals, the researchers found:
Although the overall out-of-pocket differences for MA were minimal and amounted to less than 1% of total healthcare expenses, MA was associated with a greater financial burden in vulnerable, especially in low-income populations. For every 100 beneficiaries with family incomes below 200% of the federal poverty level, one to six more switchers faced a catastrophic financial burden, with their out-of-pocket costs consuming more than 40% of household income in the year after switching. (Emphasis added.)
Conclusion
Wasteful overpayments to Medicare Advantage plans do not serve any public good. Despite some recent attempts by the Centers for Medicare & Medicaid Services (CMS) to address some of the factors leading to overpayments, most policymakers continue to look the other way.
The authors of the Editorial in the Annals of Internal Medicine, cited above, conclude:
The privatization of Medicare through MA has been costly for taxpayers yet has offered seniors little or (per Park and colleaguesâ findings) no respite from burdensome costs. Redeploying MA overpayments to improve TM coverage would better serve seniors and impede the accretion of medical resources by investors whose profit seeking too often overrides patient care priorities. (Emphasis added.)
Advocates for beneficiaries and the welfare of the Medicare program concur. It is past time to fix wasteful Medicare Advantage policies and practices.