This post was written by Maggie Mahar & Niko Karvounis
On Monday, the Bush Administration announced that next year payments to private insurers who offer Medicare to seniors will rise by 3.6 percent. This is a mistake. The last thing that the Medicare Advantage (MA) program needs is more money thrown at it. Indeed, MA has turned out to be a money-eating monster—in large part because the government gave it a blank check when the program was born, under the cover of darkness, in 2003.
It’s worth pausing to remember this breech birth. The Medicare Prescription Drug, Improvement, and Modernization Act (also known as the Medicare Modernization Act) came to the House for final approval at 3:30 a.m. on November 22, 2003. It was losing, 219-215, until the House Leadership, in a very unusual move, held the vote open for hours while the Leaders twisted arms. At 5:50 a.m. the legislation passed the House 220 to 215.
Representative Nick Smith later claimed that he was offered campaign funds for his son, who was running to replace him, in return for changing his vote from "nay" to "yea. " He subsequently recanted this statement. Nevertheless, the House Ethics Committee and the FBI launched investigations into whether members of the House had in fact offered Smith a bribe to vote for the measure.
In October 2004, the Committee issued its report, revealing that “Majority Leader Tom DeLay admitted that he offered to endorse Smith’s son Brad, who was running for Congress at the time, in exchange for Smith’s "yea" vote on the Medicare bill,” though the investigation couldn’t find out who offered Smith the money.
Following the House vote, on November 25, the legislation came to the
Senate for final consideration. Once again, it almost didn’t make it.
Senator Tom Daschle raised a budget point of order. Sixty votes were
necessary to override it, and for a few minutes, the vote was stuck:
58-39. It seemed that Daschle had a credible chance of blocking
passage—until Senators Lindsey Graham, Trentt Lott and Ron Wyden voted
in quick succession in favor to pass the vote 61-39. Thus Wyden, a
supporter of health care reform, helped save the insurance industry’s
If “pork” seems a little harsh, how about “excessive corporate
subsidies”? That’s the phrase the AFL-CIO, the American Federation of
State, County and Municipal Employees, Families USA, and the Medicare
Rights Center used in a letter they sent to congressional leadership this week protesting what the groups called a “waste of taxpayer dollars.”
From the beginning, MA was a giveaway to insurers. Although in theory
competition should make private sector insurance less costly than
traditional Medicare, when Congress passed the legislation it agreed to
pay for-profit insurers 12 percent more per beneficiary than regular
Medicare would spend to cover the same people.
Insurers claim that they are paid more because they offer seniors more
benefits than old-fashioned, government-sponsored Medicare, while
charging them less. In February, Kerry Weems, the acting administrator
of Center for Medicaid and Medicare Services (CMS) parroted this claim
when she told the New York Times that
“Medicare Advantage plans are offering an average of approximately
$1,100 in additional annual value to beneficiaries in terms of cost
savings and added benefits."
It is true that many MA plans often offer sweeteners like vision and
dental benefits, disease management programs, gym memberships and even
transportation assistance. But, as Congressional Budget Office (CBO)
Director Peter R. Orszag pointed out in testimony
before the Senate Finance Committee a year ago, “little information is
available on the degree to which the plans generate better health
outcomes than traditional Medicare.” In other words, does the disease
management work? We don’t know—and that, after all, should be the point
of any additional spending.
Insurers also claim that Medicare Advantage patients pay less out of
pocket than they would under traditional Medicare. This could be true
for the average, healthy beneficiary, but if you look closely, you will
find that many plans cut back on benefits that sicker seniors
desperately need. For example, in February the Government
Accountability Office (GAO) reported
that “19 percent of Medicare Advantage beneficiaries [are] in plans
that projected higher cost-sharing for home health services, and 16
percent of beneficiaries [are] in plans that projected higher
cost-sharing for inpatient services," meaning that a decent chunk of MA
enrollees are actually going to see higher out-of-pocket costs and
co-pays than they would under traditional Medicare.
And if a senior becomes seriously ill, he may well discover that while
he had been told that there was a $4,000 annual cap on out of pocket
payments, certain very pricey items are excluded from the cap. In
February, the Times revealed
that 29 percent of MA plans that have caps don’t include the cost of
some cancer drugs, 23 percent exclude the cost of some mental health
services and 21 percent don’t include home health care expenses. These,
of course, are the big ticket items that could bankrupt a senior—or
force her to sell her home.
Meanwhile, GAO says, the majority of Medicare Advantage policies offer
no cap on how much a beneficiary may wind up spending out of pocket. In
other words, the claim that MA is cheaper for Medicare beneficiaries
has a big fat asterisk next to it. So too does another possible
justification for the government’s investment in MA: that the money
thrown into MA funds leads to better coverage.
In February’s report, GAO noted that only a relatively small share of
the money that the government shells out for MA over the next four
years—11 percent—will go to extra benefits. Most of the rest will go to
reducing out-of-pocket spending and co-pays, which sounds good—until
you realize that this reduction will come at the expense of higher
premiums for the 35.3 million Medicare beneficiaries now enrolled in
traditional Medicare. Thus ultimately, as Martha Gold, a Senior Fellow
at Mathematic Policy Research, noted in a 2007 Health Affairs piece,
while "individual enrollees may gain, beneficiaries as a whole may be
harmed if higher payments add to the fiscal stress on Medicare, making
the program less viable in the long run."
The dynamics of MA "essentially allow[s] firms to ‘piggyback’ on
Medicare’s existing investment and policies,” Gold points out, while
doing “relatively little to improve care management."
Just how much is this costing us? Last year a CBO report
noted that payments to private health plans in the Medicare Advantage
program rose “from about $40 billion in 2004 to about $56 billion in
2006…[T]hose payments will increase to $75 billion in 2007 and $194
billion by 2017 and will total $1.5 trillion over the 2007–2017
period.” All in all, CBO notes, “the share of Medicare spending
for…Medicare Advantage plans will increase from 17 percent in 2006 to
27 percent in 2017.”
One reason the price is spiraling is that the most popular MA plans, a
private-fee-for-service (PFFS) plans, are significantly more expensive
than an MA HMO. Research from the Medicare Payment Advisory Commission
(MedPAC) shows that the government pays PFFS plans 119 percent of the
average cost per beneficiary in traditional Medicare.
Meanwhile, Washington just keeps on throwing money at the insurers.
Last year, in a testimony before Congress, Mark Miller, the Executive
Director of MedPAC, put it best when he said that “payment increases
[from the government to MA plans are] so large that plans no longer
need to be efficient to attract enrollees.” In other words, the
government’s corporate subsidies keep MA insurers fat, happy, and
completely unaccountable—and with no pressure to perform, they wind end
up costing more. It’s a vicious circle.
Finally, although some MA beneficiaries are unhappy, insurers are doing
a superb job of marketing MA and enrollment is sky-rocketing. The
number of people signing up for the for-profit private fee-for-service
plans—which are unique in that they don’t require people who join to
use a network of providers—has increased from 208,990 in 2005 to
1,327,826 in 2007, a more than six-fold increase, according to the Kaiser Family Foundation (KFF).
Broader enrollment in Medicare Advantage has followed a similar upward
trend. KFF reports that between 2003 and 2007, Medicare Advantage
enrollment climbed from 5.3 million to 8.7 million, and the number of
contracts government has with MA insurers rose from 285 to 602. The CBO
estimates that enrollment in MA will continue to soar over the next
decade, at a rate of about 7 percent. Over the same span, traditional
Medicare is expected to see growth of only 2.5 percent
With so much at stake, you’d think the government would keep close tabs
on MA in order to ensure a return on its massive investment. In theory,
that’s exactly what’s supposed to happen: the CMS is required, by law,
to audit the financial records of at least one-third of the MA plans
every year. The idea, of course, is to keep private insurers honest in
the face of the unprecedented business opportunity.
But this is the Bush Administration we’re talking about, and corporate
accountability has never been high on the agenda. Thus it may come as
no surprise that the government hasn’t followed through on its
oversight responsibilities. In July of last year the Government
Accountability Office (GAO) reported that CMS did not consistently meet
its one-third audit requirement from 2001-2005, and did not "ensure
that the audit process…provided information to assess the impact on
beneficiaries" during this period, even though a "2006 audit of 80
organizations found that 18 were overpaid prior to providing services"
and an earlier one in 2003 found that "CMS overpaid contractors between
$34 and $59 million." In other words, even with signs of overpayment,
the government didn’t make the effort to take a closer look.
Worse still, GAO reported
that CMS was planning to close out all audits "without pursuing
financial recoveries because the agency [believes that it] does not
have the legal authority to do so," a dubious claim that GAO found to
be flat out wrong when it examined the relevant statutes.
CMS’s reluctance to play hardball is doubly curious given that there is
ample evidence of misconduct on the part of MA insurers. Last May the New York Times reported
that “insurance agents, spurred in some cases by incentives like trips
to Las Vegas, have aggressively marketed…Medicare Advantage plans" at
the expense of elderly beneficiaries. The Times followed up on the
story in October,
with an audit of 91 reports that found that “tens of thousands of
Medicare recipients have been victims of deceptive sales tactics and
had claims improperly denied by private insurers that run the system’s
huge new drug benefit program and offer other private insurance options
encouraged by the Bush administration.”
Inappropriate activity included “the improper termination of coverage
for people with H.I.V. and AIDS, huge backlogs of claims and
complaints, and a failure to answer telephone calls from consumers,
doctors and drugstores.”
Things got so bad in 2007 that the seven insurers which comprise the
vast majority of MA’s PFFS plans—Humana, United Healthcare, Wellcare,
Universal American Financial Corporation, Coventry, Sterling, and Blue
Cross/Blue Shield of Tennessee—voluntarily suspended marketing of the
plans after thousands of complaints flooded CMS. According to Congressional Quarterly
(CQ), “CMS received 2,700 complaints between December 2006 and April
2007" related to PFFS plans. Often "seniors are misled about whether
their doctors are in a plan’s network or about how much they will have
to pay out-of-pocket".
Despite this troubling track record, there has been no real response
from the government, and little has changed on the MA front since last
Two months ago, a Senate Finance Committee hearing took a hard look at
the dishonest marketing practices surrounding Medicare Advantage and
repeated the same concerns noted in ‘07. Michael McRaith, director of
the Illinois Division of Insurance, testified on behalf of the National
Association of Insurance Commissioners (NAIC) and noted that major
problems include “marketing and sales practices that pressure
beneficiaries to enroll into inappropriate or unsuitable plans" and “to
enroll into Medicare Advantage plans without fully understanding that
enrollment would lead to the loss of traditional Medicare."
The evidence that Medicare Advantage warrants close scrutiny (at the
very least) is overwhelming; yet instead of being put under the
microscope, the program is receiving a raise.
All in all, it’s clear that Medicare Advantage is not a program that
needs more blind government investment. It’s costly, mismanaged,
corrupt—and its growth comes at the expense of traditional Medicare,
which is already in a precarious fiscal situation. It’s hard to see
the Bush Administration’s commitment to increasing payment rates to
for-profit insurers next year as anything but the corporate welfare
that its critics claim. An honest appraisal of Medicare Advantage shows
that the program doesn’t deserve a fatter payday; it demands a serious