Greed is driving the privatization of Medicare. Large health insurance companies are dominating the Medicare Advantage (MA) market and gaming the system to maximize profits. The Centers for Medicare and Medicaid Services (CMS) seem quite content to allow these insurers to make huge profits even at a cost to taxpayers above traditional Medicare. The loser in the push to privatize Medicare is seniors. What all these MA plans have in common are higher costs for members when they get sick. This is creating a new financial crisis for seniors in retirement.
MA plans entice seniors with “zero premium” plans, lower maximum out-of-pocket costs, dental, vision, and hearing coverage. These marketing efforts have been very successful. In a Kaiser report for 2020, MA enrollment was at 39% of Medicare enrollees for a total of 24.1 million Americans. Four large insurers; United Healthcare, Humana, Blue Cross/Anthem, and CVS Health provide coverage for 70% of MA members
What MA plans and CMS don’t fully explain to seniors is the significant back-end costs that can escalate when they get sick or develop chronic diseases. If seniors do not stay in the network or have services that are not approved by the health plan, out-of-pocket expenses can reach $8800-$10,000. These higher costs during an illness put a significant financial burden on seniors with fixed incomes. In many cases, seniors have no option but to declare bankruptcy.
Gaming the System
MA plans can receive increased payments from CMS if they enroll sicker patients. The hierarchical condition category (HCC) which started in 2004, relies on ICD-10 coding to assign risk scores to patients. CMS uses HCC coding to assign patients a risk adjustment factor (RAF) which impacts health plan revenue. In a public integrity report, risk score errors triggered nearly $70 billion in “improper” payments to MA plans from 2008 through 2013. In addition, between 2007 and 2011, the report found that risk scores of MA patients rose sharply in plans in at least 1,000 counties nationwide, increasing taxpayer costs by more than $36 billion over estimated costs of caring for patients in traditional Medicare in those same counties.
Despite the high RAF’s in some of these plans, MA attracts healthier enrollees than traditional Medicare. In 2016, members who switched to MA from traditional Medicare spent on average $1253 less per member compared to those that remained in traditional Medicare. Even among traditional Medicare beneficiaries with specific health conditions, those who shifted to MA in 2016 had lower average spending in 2015, including patients with diabetes ($1,072), asthma ($1,410), and breast or prostate cancer ($1,517).
Sicker members are opting out of MA into traditional Medicare because of lack of access to providers and the higher cost of care. Researchers at Brown University found that 17% of MA patients who entered nursing homes for long term care chose to switch to traditional Medicare the following year. The experience was similar for members who required short term nursing care or home health care. MA plan design with restrictive networks and high out-of-pocket expenses when members get sick have helped MA plans drive higher cost members to traditional Medicare.
Medicare Advantage Costs Taxpayers More than Traditional Medicare
MA Plans were expected to be more efficient than traditional Medicare and reduce the cost for taxpayers. But this has never been the case since MA started in 2003. Funding to MA plans begins at 98% of traditional Medicare funding (since MA should be more efficient), but when you add in star bonuses (quality bonus), funding rises by 3%, and adjusting for acuity coding (RAF), funding increases another 2-5.5%. With all the adjustments MA plans are costing taxpayers 2-5% more than the traditional Medicare program. In contrast, If a traditional Medicare member receives care from an Accountable Care Organization (ACO), the cost to taxpayers goes down by 1-2%.
All of these factors have contributed to excessive profits for these large insurance companies. United Healthcare, the largest insurer for MA, posted a profit of $3.5 billion for the fourth quarter of 2019, with an annual profit of $13.8 billion. Humana, the second largest insurer for MA, reported $64.9 billion in revenue for 2019, and earned $2.7 billion in profit for the year, up from $1.7 billion the year prior.
These excessive profits are providing CEOs with exorbitant annual total compensation packages. In 2019, the CEO of CVS Health received a staggering $36.5 million in total compensation, followed by the CEO of United Healthcare whose total compensation was $18.8 million.
Medical Debt and Bankruptcy
While MA is great for large insurers and their CEOs, seniors are seeing more financial risk shifted to them with larger deductibles, co-pays, and co-insurance, resulting in higher costs, and significant debt. The percentage of households headed by an adult aged 65 or older with any debt increased from 41.5% in 1992 to 60% in 2016. The median total debt for senior households was $31,300 in 2016; more than 2.5 times what it was in 2001.
The increased debt burden has forced more seniors into bankruptcy with over 60% citing high medical costs as the reason. Data from the Consumer Bankruptcy Project demonstrates that since 1991, there has been a five-fold increase in seniors filing bankruptcy. In 2020, 1 in 7 people who filed for bankruptcy was age 65 or older.
Before filing bankruptcy, many seniors forego healthcare to try and save money to help pay for the debt. Over half (52 percent) indicated that the single most important item they had to forego the year prior to filing bankruptcy was related to medical care and included surgeries, doctor visits, prescriptions, and dental care.
The following is a quote that summarizes what seniors are experiencing. “My bankruptcy started with back surgery I had in 2011. I had several medical tests that my insurance did not cover. This caused me to fall behind in my medical payments. The next thing I knew, the bills began piling up. I got to the point I owed more than I was making on Social Security. To get out from under these medical bills I had to file bankruptcy.”
Future of Medicare
In 2020, the 65 and older age group made up 21% of the total population and by 2030, 24% of Americans will be 65 and older. Nearly a quarter of the country will be looking for affordable healthcare in retirement. MA is clearly not the solution:
- MA costs taxpayers more money than traditional Medicare.
- Large insurers can’t be trusted, they game the system to maximize profits.
- Profits and administrative costs create an unsustainable financial model to provide affordable healthcare for seniors.
- MA plans back-end costs put seniors at financial risk when they get sick or develop chronic conditions.
- The number of seniors that file bankruptcy is on the rise
- Seniors need a public safety net option
- Traditional Medicare can be the public option by expanding ACO models of care and investing in more innovation.