Medicare Advantage's cost to taxpayers has soared in recent years, research finds

Research shows that Medicare Advantage has been costing taxpayers more than ever in recent years.
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The cost of switching seniors to Medicare Advantage plans has been tens to billions more for taxpayers than keeping them in original Medicare. This cost has exploded since 2018 but is expected to continue to rise, according to new research.

Richard Kronick, an ex-federal health policy researcher and professor at the University of California, San Diego, claims that his analysis of recently released Medicare Advantage billing data shows that Medicare paid more than $106 billion to private health plans between 2010 and 2019. This is due to the way private plans charge sicker patients.

Kronick reports that nearly $34 billion of this new spending occurred between 2018 and 2019. This is the most recent payment period. In September, the Centers for Medicare & Medicaid Services released the 2019 billing data for the first time.

Kronick, who was deputy assistant secretary for health policy at the Department of Health and Human Services under the Obama administration, stated that "they are paying [Medicare advantage plans] way more than what they should."

Major insurance companies run Medicare Advantage, which is a rapidly-growing alternative to original Medicare. According to AHIP (an industry trade group formerly known under America's Health Insurance Plans), nearly 27 million people have enrolled in the health plans. This represents 45% of those who are eligible for Medicare.

According to the industry, the plans offer additional benefits such as eyeglasses and dentistry that are not covered by original Medicare. Most seniors who sign up for the health plans are satisfied with their decision.

David Allen, spokesperson for AHIP, says that seniors and taxpayers have come to expect high quality, high-value coverage through MA [Medicare Advantage] plans.

Critics have maintained for years that Medicare Advantage is too costly for taxpayers. Multiple government investigations into the industry and Department of Justice lawsuits against it have also been filed. These lawsuits allege widespread billing fraud by certain plans.

Some insurers report 'eye-popping revenue gains'

As some Democrats in Congress look for ways to fund the Biden administration’s social spending agenda, the payment issue is being closely examined. Medicare Advantage plans are also trying to recruit new members through extensive advertising during the fall open enrollment period. This will end next month.

"It's difficult to overlook the red flag that Medicare is grossly underpaying these plans when beneficiaries have more than thirty plans available in their areas and are being bombarded daily with TV, magazine, and billboard advertisements," Cristina Boccuti, director for health policy at West Health, which seeks to reduce health care costs.

Kronick described the rise in Medicare Advantage costs as a "systemic problem in the industry", which CMS has not been able to control. Kronick said that some plans experienced "eye-poppingly high" revenue increases, while others saw modest gains. Kronick reports that UnitedHealthcare, a giant insurer with 6 million Medicare Advantage members in 2019, received excess payments totaling $6 billion. The company did not comment.

Joshua Gordon, Director of Health Policy for the Committee for a Responsible Federal Budget (a nonpartisan group), said that "This is not a small change." "The problem is only getting worse."

A spokesperson for CMS stated that the agency is committed to making sure payments to Medicare Advantage plans are proper. CMS has the responsibility of ensuring that Medicare Advantage plans live up to their roles. The agency will ensure that plans meet the appropriate standards.

However, any reductions to Medicare Advantage payments will face stiff opposition.

On Oct. 15, thirteen U.S. senators including Senator Kyrsten Sinema (D-Ariz.) sent a letter opposing any reductions to CMS. They stated that they were against payment cuts as it could lead to higher premiums and costs, less vital benefits, and undermine progress made to improve the health outcomes and equity of people enrolled in these plans.

Profits can be increased by making patients sicker than they already are.

The complex payment system used to fund health plans is the focus of much of the debate.

Original Medicare charges medical providers for every service they provide. Medicare Advantage plans, on the other hand, are paid by a coding formula called "risk score". This allows for higher rates for patients who are sicker and lower for those who are in good health.

This means that the more severe medical conditions plans diagnose, the more money they receive. Sometimes thousands of dollars per patient is all it takes. CMS has little oversight to ensure the fees are being justified. Whistleblower complaints exposing this upcoding practice reveal that three conditions are frequently given a higher risk score under Medicare Advantage plans: diabetes with complications, major depression, and congestive heart disease.

Congress acknowledged the problem in 2005, and directed CMS to establish an annual "coding intensity adjustment" to lower Medicare Advantage risk scores and bring them closer to original Medicare.

CMS has now set the coding adjustment to 5.9% since 2018, which is the minimum required by law. Boccuti stated that the adjustment is too low and that health plans are inventing new ways for enrollees to improve their risk scores. This results in higher Medicare monthly payments.

Whistleblower lawsuits have brought to light some of these coding techniques. Government investigations have also been initiated into claims that health plans have illegally altered risk scores, making patients sicker or billing for conditions they did not have. The Justice Department charged Kaiser Permanente with inflating risk scores to obtain $1 billion. The insurer denied the allegations in a statement. (KHN does not have any affiliation with Kaiser Permanente.

These higher payments can be justified if there is "little evidence".

Kronick says that regardless of whether it is legal or not, taxpayers are now paying more for Medicare Advantage coding than they did for original Medicare patients. Kronick says that there is no evidence to support higher Medicare Advantage payments. There's no evidence that their enrollees are more sick than the average senior.

Kronick, who has been studying the coding issue for many years both within government and outside, said that 2019 risk scores were 19% higher in Medicare Advantage plans than original Medicare. He says that the Medicare Advantage scores grew by 4 percentage points in 2017 and 2019 -- faster than the average over the past years.

Kronick claims that Medicare Advantage spending will rise by $600 billion if CMS maintains the current coding adjustment. This is if CMS leaves the current coding adjustment intact. Kronick also stated that Medicare Advantage spending will increase by $600 million from 2023 to 2031 if CMS does not change its current coding adjustments. Kronick estimates that while some of this money could provide additional health benefits for patients, as much as two-thirds could go toward insurance company profits.

The industry trade group AHIP did not respond to questions regarding the coding controversy. AHIP prepared a report in September warning that payments tied to risk scores were a key component of how health plans calculate benefits and that any slight increase in the coding adjustment could prompt plans to reduce benefits or charge more to patients.

Kronick says that this threat is alarming for many legislators. He says CMS isn't doing its job because it is under pressure from Congress. "If they follow the law, they will be yelled at loudly and few people will applaud.

Kaiser Health News is an independent, national program of Kaiser Family Foundation. Kaiser Permanente is not associated with it.