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Outrage of the Month: Medicare Advantage – Whose Advantage?

Health Letter, June 2013

By Sidney M. Wolfe, M.D.


If you’re not outraged,
you’re not paying attention!

Read what Public Citizen has to say about the biggest blunders and outrageous offenses in the world of public health, published monthly in Health Letter.

Is one purpose of increasing government funding of Medicare Advantage (MA) to enhance stock value – to the benefit of stockholders – of large, for-profit MA companies such as United Health and Humana?

In April 2013, the Centers for Medicare & Medicaid Services (CMS, part of the Department of Health and Human Services [HHS]), announced that it would pay even more to already overpaid MA companies. As our colleagues at Physicians for a National Health Program (PNHP) revealed, the announcement of the $71.5 billion [over the next 10 years] gift to MA companies resulted in top insurers’ shares gaining $13.2 billion in one week.

As you may know, MA (also known as Medicare HMOs) is a for-profit alternative to traditional Medicare in which the government pays private insurers on an annual, per capita basis for the care they deliver to the Medicare recipients choosing these plans. The insurers have essentially gamed the system by making it appear that the patients for whom they get reimbursed are sicker and at higher risk, and therefore merit larger government payouts, than is often the case. A January 2013 study by the Government Accountability Office titled “Substantial Excess Payments Underscore Need for CMS to Improve Accuracy of Risk Score Adjustments” documents the waste of government dollars to the benefit of private MA insurers.

President Obama had called for cuts in overpayment under the Affordable Care Act. But as PNHP cofounder Dr. David Himmelstein states, “April’s extraordinary rate-setting directive from [HHS] Secretary Kathleen Sebelius to [CMS], in which she spurned historical practice and the advice of the CMS Office of the Actuary, will result in an obscene windfall to the private, for-profit insurers…. This backroom Medicare giveaway is a heavy blow to taxpayers and the traditional, public Medicare program.”

According to PNHP research, selective enrollment of healthier seniors was the major source of excess payments to these plans before 2004. That year, Medicare adopted a risk-adjustment scheme, but ineffectively: $122.5 billion have been added to Medicare’s costs since 2004. The PNHP researchers conclude, “It is time to end Medicare’s costly experiment with privatization. The U.S. needs to adopt a single-payer national health insurance program with effective methods for controlling costs.” We strongly agree.