Medicare Advantage has become a huge cash cow for commercial insurance companies, and the insurers’ business from a combination of Medicare Advantage and Medicaid managed care dwarfs the commercial individual and group insurance business, according to figures compiled for a new Kaiser Family Foundation brief on insurance companies’ performance.
In the brief, K.F.F. examined the medical loss ratios and gross margins in the Medicare Advantage, Medicaid managed care, individual (non-group), and fully insured group (employer) health insurance markets through the end of each year through 2021, the last year for which full statistics were available. The brief, showing just how important the two tax-funded programs have become, is titled “Health Insurer Financial Performance in 2021,” and was written by Jared Ortaliza, Krutika Amin, Cynthia Cox, Jeannie Fuglesten Biniek, Tricia Neuman and Robin Rudowitz.
The Medicare Advantage gross margins — “the amount by which total premium income exceeds total claims costs per enrollee per year” — averaged $1,730 in 2021, the analysis found, while gross margins in Medicaid managed care were $768, in individual (non-group) plans they were $745 and in fully insured group (employer) plans they were $689.
In contrast, for commercial insurance, “Among fully insured group plans, gross margins were 17% lower in 2021 than in 2019. Individual market gross margins were 36% lower in 2021 than in 2019. “
Clearly, with this type of difference in gross margins, it makes no sense for the insurers to pay attention to anything other than Medicare Advantage, which was designed by Congress 20 years ago as an effort to save money over traditional Medicare.
Tax dollars going to big insurers
As Wendell Potter, a former healthcare public relations executive who is now a critic of the healthcare system, has noted, taxpayers are spending a lot of money for Medicare Advantage for older Americans and Medicaid for poorer Americans with the big insurers — Blue Cross, UnitedHealthCare, Cigna, Aetna and Humana.
In fact, Humana announced recently that it is leaving the employer insurance market to focus exclusively on Medicare and Medicaid.
Potter heads a nonprofit advocacy organization called the Center for Health and Democracy, which has among it projects his Substack, “Healthcare Un-covered,” and a group of organizations called Lower Out of Pockets Now, seeking to effect change.
In a phone conversation, Potter said the big insurers are getting “far more these days from public programs than they are from the commercial sector. That book of business is has been stagnant for a long time. So these companies are increasingly turning to Medicare and Medicaid for revenue. We’re trying to explain that to people, to help people understand what this industry is like these days, how big it has become, and draw attention to the barriers that they’ve erected and make it more and more difficult for people with insurance to get the care that they need.”
Оut-of-pocket spending is one way to make it hard for people to get care, he said, and another is “aggressive prior authorization requirements.”
A third is “limited and often inadequate networks of doctors, particularly in the Medicare Advantage Program. Medicare Advantage is another area of keen interest of ours since, as I said, it is the has become many the insurance company’s big cash cow.”
It is worth recalling here that the individual choice of Medicare or Medicare Advantage is one that is often clouded by the perfectly normal human perception that “Medicare Advantage” must be better than plain-vanilla Medicare. Medicare Advantage enrollment is growing by leaps and bounds — while we are certain many Medicare Advantage enrollees don’t realize that their M.A. plans are limiting their health care choices in the extreme — acting basically in the same way that individual or group non-Medicare plans do, by setting narrow networks and by insisting on prior authorization. Plain-vanilla Medicare — run by the U.S. Government — does not have narrow networks, and has very relaxed authorization compared to Medicare Advantage plans. Our “How much does Medicare cost” post goes into great detail on that.
Potter said the insurance companies have been able to advertise Medicare Advantage without disclosing the downsides, and he said “I would argue that most people signing up for these plans don’t know they are going into a plan run by a private company.”
Potter said a bill has been introduced in the Senate that is not likely to be passed that may go nowhere but “would prohibit these companies from even using the name Medicare for these plans and in their marketing. I wish that can happen. Because one of the things I often say is that these plans are neither Medicare nor an advantage for many people.”
How does Medicare Advantage work?
By next year, more than half of Americans on Medicare will be on Medicare Advantage plans.
Under Medicare Advantage, private insurers seek payments from the government for doing work that traditional government Medicare might do. How does it work? Well, generally, the Medicare Advantage plan makes a bid to provide care for a group of people, with certain clearly specified conditions (hypertension, diabetes) in a given locale. The payments are higher for sicker patients, giving the insurers an incentive to assign more illnesses and chronic conditions to the patient group they are bidding to cover. Here’s more detail.
“Medicare Advantage plans are contracted with and approved by [the Centers for Medicare and Medicaid services] to administer MA benefits in specific counties,” Duncan Reece writes over at his The Treatment Plan Substack, in one of the clearest descriptions I’ve seen of the process, described by an imaginary composite executive at an M.A. plan. “And each year they must submit their proposals, called ‘bids,’ to CMS. The bid outlines how much it will cost that plan to cover a defined set of benefits that traditional Medicare covers relative to a benchmark. The benchmark is the average spending for traditional Medicare in that county. The plan makes decisions on how much to cover themselves vs. cost sharing with the member, which can include copays, coinsurance, and deductibles.
“If the plan’s bid cost falls below the benchmark cost, its payment from C.M.S. is the bid it submitted (with additional payment adjustments in the form of risk adjustment & Star Rating quality bonuses) and a share of the savings from the benchmark called a rebate. Essentially the MA organization is saving the government money because its bid is less than what the government expects to pay via the benchmark, so the plan gets to keep some of what they’re saving the government. With these rebates the plan can either offer benefits that traditional Medicare does not offer or it can offer lower premiums. Extra benefits include services like transportation, in-home meals, vision, dental, Part D drug coverage, etc.
“If the plan’s bid falls above the benchmark, its payment from C.M.S. is the benchmark rate. The plan may still offer additional benefits, but the plan will charge a premium to the member.
“These bids are submitted blindly to CMS which means that the MA plan is not aware of how its competitors are bidding their plans. To grow and operate sustainably, this means it is vital to always think about 1) what drives value in the eyes of the beneficiary/consumer and 2) how one thinks your competition can provide value relative to you.”
The New York Times recently did an analysis of fraud in Medicare Advantage plans, noting that Medicare Advantage is significantly more expensive for the government than regular Medicare.
“Eight of the 10 biggest Medicare Advantage insurers — representing more than two-thirds of the market — have submitted inflated bills, according to the federal audits. And four of the five largest players — UnitedHealth, Humana, Elevance and Kaiser — have faced federal lawsuits alleging that efforts to overdiagnose their customers crossed the line into fraud,” Reed Abelson and Margot Sanger-Katz wrote.
