The Trouble With Medicare Advantage

Everyone understands why Congress was so reluctant to cut physicians’ fees. Reimbursements for primary care physicians are very low—so low that 30 percent of Medicare recipients who are looking for a new medical home can’t find one. Cut fees, and fewer doctors will take Medicare patients. The AMA, seniors and the AARP are all up-in-arms. Few politicians like to disappoint this trio.

But why are so many Congressmen willing to cut Medicare Advantage? After all, one out of five seniors is in the program: Won’t they be upset?

The truth is that, as many seniors have discovered, Medicare Advantage fee-for-service (the plan Congress has now voted to phase out by 2011) is not turning out to be an advantage for them.

Here is what David Fillman, an International Vice President of the American Federation of State, County and Municipal Employees (AFSCME), which represents some 1.4 million workers, had to say about MA’s fee-for-service insurance when he testified before Congress in January:

“Insurance companies have targeted our employers for the hard sell, including offers to pass through some of the federal subsidies to state and local governments.” 

Fillman rightly calls the subsidies a “windfall” –Medicare pays fee-for-service Medicare Advantage 17 percent more than Medicare would spend if it delivered the services itself.

Public Employees Forced into Medicare Advantage

Fillman goes on to explain: “The new accounting rules issued by the Governmental Accounting Standards Board (GASB) place a tremendous strain on public retiree health benefits and add to the lure of these private Medicare plans.  The GASB rules require public employers to estimate future costs of their retiree health benefits – 35 years into the future – and publish them on their annual financial statements.  To reduce this paper liability, more public employers are proposing a switch from their own solid retiree health plans, which include traditional Medicare, to these private Medicare plans.  This is a major factor in public employers’ decisions to switch to Medicare Advantage private fee-for-service plans.

“In my state [Pennsylvania] Governor Rendell plans to replace our Retired Employees Health Program (REHP) for state government retirees with a Medicare Advantage private-fee-for-service plan and proposes to cut our prescription drug benefits,” Fillman explained.  “He is removing retirees who are aged 65 and older from the secure state plan and forcing them out of the traditional Medicare program.  By removing retirees from the secure state public plan (REHP), the Governor is denying them their right to access the secure Medicare program they have paid into all their lives.

“Our retirees are moving from the Medicare defined benefit plan with a solid wrap-around supplemental, to an unknown plan.  Although these private Medicare replacement plans must be the actuarial equivalent of Medicare they have a broad hand in shaping the details and setting co-payments, premiums and the real value of benefits from year to year.” In other words, the plans are complicated, and the plan you sign up for this year may not cover the same benefits next year.  As Fillman puts it, “Experts have joked that if you have seen one Medicare Advantage fee-for-service plan then you’ve seen one MA plan – for that year. 

“Aside from the confusion and added complexity, the forced shift to a Medicare replacement product can obscure a reduction in benefits and a shift of costs onto beneficiaries who have limited incomes and may be in fragile health.”

Advantage supporters like U.S. Senator Tom Coburn, like to argue that Advantage fee-for-service offers Choice : “Medicare Advantage offers seniors personal choice and control over their health care decisions” But if benefits aren’t transparent, how can seniors make a real choice?

“We oppose this forced switch both from our understanding of its impact on Medicare generally as well as our fellow AFSCME members’ experiences in West Virginia. Those retirees were forced out of Medicare and into an MA private fee-for-service plan last July,” Fillman observed.  “We also are beginning to hear from AFSCME retirees in Ohio who were just switched over this month to a Medicare Advantage private fee-for-service plan.

“In West Virginia, 37,000 retired state employees and teachers covered by the Public Employees Insurance Agency (PEIA) were forced out of traditional Medicare and stripped of their supplemental plan.  They were enrolled in Advantra Freedom, an MA plan administered by the for-profit giant, Coventry Health Care.  In November, in PEIA hearings, hundreds of angry West Virginian retirees testified against Advantra Freedom.”

Seniors Tell Their Stories

One senior at the Charleston hearing, Peggy Beavers, complained that Coventry is “known throughout the country to cut costs any way they can”, and said she did not understand why she would be forced out of Medicare into a replacement product offered by “a company that’s all about making a profit for itself.”

“Specifically,” Filllman testified, “AFSCME is concerned about the following complaints we have received from West Virginia and other states regarding PFFS plans.  These concerns are typical of the problems inherent to MA private-fee-for service plans.

• Even though these plans are marketed as nationwide and have no networks – this is false.  They limit access to care and choice because significant numbers of doctors and hospitals have refused to accept the card, especially out-of-state.  For example, many West Virginia retirees who moved out of state could get no doctor to accept the private MA plan.
     
   
• MA private fee-for-service plans may offer additional benefits, such as gym memberships (the only major additional benefit in West Virginia), or hearing aids and eyeglass coverage, but they modify their benefits to cut corners in more important areas, such as limiting hospital days or charging higher co-pays for nursing homes than Medicare.  Indeed, officials in West Virginia actually told a state legislative committee in November that “we know that … retirees who use more medical care will be worse off under this plan”.
     
   
• PFFS plans more frequently deny claims in order to hold down costs. 
     
   
• The appeals processes are more difficult under the private plans.  Retirees are no longer enrolled in traditional Medicare and must go through the company rather than Medicare’s transparent appeals process.  Further, beneficiaries are often bounced between CMS and the insurance company seeking redress.
     
   
• The subsidy to the private plans causes government employers, many of whom have secure, self-insured medical plans, to switch control of their medical decisions to these private companies, break up their efficient risk pools, and allow private companies to profit off our retirees.
     
   
• The plans are not stable.  They can and do pull out of markets, disrupting health care services and causing much anxiety among beneficiaries.

“There is a lack of quality and accountability.  These private replacements for Medicare are exempt from basic quality reporting requirements. 

“In addition, “ Fillman concluded, “we are concerned that Medicare Advantage plans are a drain on our state and its retirees.  The more than one million Pennsylvania seniors who are enrolled in traditional Medicare are paying about $25 million in extra premiums to subsidize the 32 percent of beneficiaries who are enrolled in Medicare Advantage plans.  The State is also paying for these subsidies. The Medicaid program in Pennsylvania pays Part B premiums for low-income beneficiaries and this cost was an extra $6.3 million in FY 2007.

“When Congress opened up Medicare to private plans, it was based on the claim that the health insurance industry would be more efficient, provide more care coordination, and do so at less cost to taxpayers. PFFS plans do none of the above, and enrollees who are forced into them are no longer enrolled in Medicare. 

“Again, the root of these problems is the excessive financial incentives to develop and market these products which are designed to replace the tried and true Medicare program.  These problems, the trend towards private plans, and the devastating privatization of our traditional Medicare program must be addressed.  We concur with the recommendations made by the Medicare Payment Advisory Commission (MedPAC ) that MA private plans should compete with traditional Medicare on a level payment playing field.”

Comments

[JP Van Dyke]

I love how you can slant your opinion to write a story. For every senior you show who has had problems with Medicare Advantage...I can show you 50 who love it...and how it has saved them 100's and 100's of their money.

If you really took a look at Medicare against almost any Medicare Advantage plan...benefit by benefit. You will see that in almost every case a senior will come out better from a financial position.

And let’s just look at the worse case...If a senior on Medicare goes into the hospital for over 150 days...Medicare is over...all benefits end...no more benefit…they have to pay 100% of any costs after that.....nearly 100% of every Medicare Advantage plan protects seniors from that event.

Fact medical costs are the number 1 reason for senior bankruptcies in America.

So look at the facts..not some politicians view.

[Maggie Mahar]

JP Van Dyke--

Thanks for your comment.

You are absolutely right--Medicare does not cover hospitalization after 150 days.

This is why most people who have traditional Medicare have
"Medigap" covereage as well--to cover the gaps in Medicare.

I shoudl add that these days, hospitalizations of more than 150 days are extremely rare.

But the good thing about the gaps in Medicare is that they are completely visible. Medicare is transaparent. Everyone knows what is and isn't covered and it's quite easy (and not exorbitantly expensive) to purchase MediGap.

By contrast, the holes in Medicare Advantage plans are purposefully hidden. You don't know about them until you become very sick. Most people are not extremely ill most of the time--so they think their insurance is fine.

But then, if you develop a disease like cancer, the holes open, like trap doors. For example, many medicare advantage plans have tiered co-pays for drugs-- $15 for certain drugs, $30 for more expensive drugs. That's fine. But many MA plans have opened up a third category for extremely expensive drugs (including cancer drugs). In this category, there is no flat
co-pay. Instead, you pay a percentage of the cost--usually 20%

So if you need a cancer drug which costs $100,000--you pay $20,000.

And the insurance company has the right to change the drugs in the 20% category wheenver it wants to.

MedPac insurers can change most benefits as they wish. So there is a lot of "bait and switch" going on.

The Governement Acconting Office (GAO) has written a very good report exposing Medicare Advantage. I wrote about it in the post below. (See in particular the portion marked ****
**********************************************************

.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 year.

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 crackdown."

Then again, perhaps this should come as no suprise if you remember how Medicare Advantage was born:

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 pork.

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.”

[Arthur Shead]

I really dislike articles such as this. Many of the points made are very anecdotal at best. This is not journalism. These are Democratic Talking Points. (my party) The facts are clear; Medicare has hit the Part A and Part B trigger for the 3rd consecutive year. In other words, the money coming in does not replace the outlay of money going out. So do we increase taxes (i.e.; FICA) in order to cover this shortfall? Keep in mind; we have about 40 million baby-boomers getting ready to retire. Medicare already has a 41 Trillion Dollars of unfunded liability based on the 44 million seniors currently using Original Medicare. So just some quick math if you have a workforce of 170 million workers and you cut 40 million you have a work force of 130 million. (not everyone will retire together but for simplicity sack)Therefore the tax revenue collected must be increased or the liability must be reduced. If Medicare Advantage helps reduce the liability by balancing the load across carriers, I'll take that trade-off instead of raising my taxes. The other bi-products produced by moving seniors from Original Medicare to an MA is that as seniors are moved to MA plans and the GASB/FASB liability is reduced, employers “overall health care cost” is reduced. Therefore, those working adults can get a rate cut in health care premiums. Also, employer’s bond ratings are increased, which means they are able to borrow more for capital improvement and investment at a much cheaper rate. (i.e.; ...more jobs and economic growth. If the choice is to tax the American people, you better tell them to brace themselves because it's going to hurt. If you don't embrace the MA plans we all proceed down this spiral at our nations own peril. This is “fiscal necessity” coming from a Fiscally Conservative Democrat.

[Arthur Shead]

I offered a few misspellings just to prove I'm human. Please forgive me.

[Maggie Mahar]

Arthur --

Thanks for your comment.

However, you really should check your facts. For instance,
you write "Keep in mind; we have about 40 million baby-boomers getting ready to retire."

The truth is that the very oldest boomers, born in 1946, will turn 65 in three years. The median age in the U.S. will rise just three years, to 39, over the next quarter century--- and only then will the aging of America begin to accelerate. Even then, the boomers will age, just as they were born, over decadesThe remaining boomers will turn 65 just as they were born--over a period of decades.

So while Medicare costs are indeed, rising--and Medicare is running out of money, this has nothing to do with the aging of the boomers. Higher Medicare spending is driven by new medical technologies--and over use of those technologies.

Secondly, you write: "Medicare Advantage helps reduce the liability . . ."

But it doesn't.
Both the Congressional Budget Office and the Medicare
Payment Advisory Commission have made it clear that Medicare
Advantage adds to Medicare's liabiliity by paying insurers 13% to 17% more than Medicare would spend if providing benefits directly. Further, that windfall for insurers is coming form the 4 out of 5 beneficiaries who have remained in traditional Medicare.

Because Medicare is in a financial squeeze, the Medicare Payment Advisory Commission has recommended that Congress remove that 13 percent to 17% windfall. UnitedHealth has already admitted that it expects the bonus to disappear.

[Danny]

I am an insurance agentin WV, Who follows CMS rules of marketing. I have close to 100 clients enrolled in PFFS. All who have used the plans are very happy with the plans peformance and as well the cost savings they have experienced. The biggest problem I see is that you the author of this is not truly educated on PFFS plans. or rather you are just another talking head for politicians who would rather lie or leave out the whole truth just to satisfy and benifit your own agenda. I am SO SICK OF THE HALF TRUTHS AND LIES ABOUT MA PLANS I COULD VOMIT!!!!!

[Alan Harris]

Medicare Supplimental plans as we knew them are nostalgic memories of a time when the world was a nicer, friendlier, less-expensive place to retire in. The baby boomers and their willingness to utilize the health care system turned these plans into huge money losers. Corporate America can no longer promise retirees that shrinking company profits can keep up with the escalating premiums of Medicare Supplimental plans. Medicare Advantage came along and offered reasonable premiums on a variety of plans. Retirees are desperate for affordable insurance that offers drug coverage. Take away Medicare Advantage and what economic alternative is left? Unless it's time for Universal Health Care financed by taxpayers, Medicare Advantage is the best thing going for seniors.

[tracey zale]

The only problem with medicare is that is mismanaged and those reviewing incoming claims do not have the appropriate education to do so. As an employee of a medical practice I have seen Medicare disapprove numerous extremely necessary treatments to Nursing Home patients. I have seen Medicare reimbursements that do not cover supply and operating costs involved in the patients treatment. Physicians cannot be expected to treat patients for free. Those days ended when reimbursement for lab tests ended. Physicians unlike Lawyers and Accountants are not payed for their time. This is why many will not approve prescription refills without the patient coming in to the office. Also, due to rediculous Government redtape, many Physicians will not dispense "free samples" of presciption drugs that are scheduled by the FDA. This results in additional costs to patients and their insurance plans.
Health care costs could be reduced by improved management of the Medicare Program. Oversight of the Private Insurance Companies and fair payment for service.