Report: Private Insurers Profit by Ripping Off Medicare

New research by health care experts concludes that privately run insurance plans designed to supplement the Medicare system serve no truly useful purpose and instead of helping seniors receive better care, Medicare Advantage plans actually undermine traditional Medicare's fiscal health.

By creating conditions where Medicare is overpaying premiums to these private (mostly for-profit) programs, the report--to be published in the forthcoming issue of International Journal of Health Services--found that as much as $282.6 billion dollars has been drained from Medicare since they were first introduced in 1985.

A majority of that waste, however, has been lost in the last eight years, the report says, following changes enacted under the Bush adminstration in 2003 which boosted Medicare payments to private insurers to nearly $85 billion through 2012. Those billions of dollars have taken a heavy toll on taxpayers, seniors, and ultimately--given the well-known impact of rising national health care costs--have helped drag down the entire US economy.

"In 2012 alone, private insurers are being overpaid $34.1 billion, or $2,526 per Medicare Advantage enrollee," said Dr. Ida Hellander, lead author of the study.

Concluding that the creation of the private programs and subsequent attempts to reform or modify them have all been fiscal failures, co-author Dr. Steffie Woolhandler said: "It's time we look to proven, cost-effective ways of providing high-quality care to Medicare's beneficiaries and to the entire population. That means taking a fresh look at the single-payer model of reform."

The research, which the authors suggest is the first of its kind, comes at a time when lawmakers in Washington, including vice presidential candidate Paul Ryan, have proposed a dramatic expansion of private Medicare plans and criticized the Obama administration for the modest cuts in the overpayments contained in the Affordable Care Act (ACA). However, the administration has also touted the fact that private plans are on the upswing and supports the basic continuation of the public-private partnership.

The report concludes that private insurers profit from Medicare in five basic ways, including: cherry-picking healthier seniors and making it harder for riskier patients to join programs; gaming Medicare's so-called "risk-adjustment' schemes; lobbying Congress for mandated payment structures; creating bonus payments schemes that generate no useful improvements in care; and by duplicating payments demands for care never even given by the plan.

"We've long known that Medicare has been paying private insurers more than if their enrollees had stayed in traditional free-for-service Medicare, but no one has assessed the full extent of these overpayments," said Hellander. "Nor has anyone systematically examined the many ways that private insurers have gamed the system to maximize their bottom line at taxpayers' expense."

Woolhandler concluded: "It's clear that having Medicare Advantage programs compete with Medicare doesn't save us money. In fact the opposite is the case. The private plans only add waste, and the aggregate waste is staggering - enough to be a significant drag on the economy."

"Unfortunately, recent legislative and technical attempts to reduce Medicare's overpayments to these insurance firms have had little or no impact," she said.

Read the full report here (pdf).

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