Waste of the Day: “Cheaper” Medicare Costs Taxpayers 22% More

Topline: Medicare Advantage was supposed to save taxpayers money when it was created in 2003.

But Medicare Advantage costs more, not less

Instead, it costs the government 22% more per enrollee than traditional Medicare, adding up to an extra $83 billion annually, according to research from the Congressional Medicare Payment Advisory Commission.

Key facts: Medicare Advantage allows Americans over age 65 to get health insurance from private companies instead of using traditional government-run Medicare. The increased competition forces plans to offer more benefits and out-of-pocket spending limits to attract customers.

More than half of the Medicare-eligible population use Medicare Advantage at a cost of $462 billion.

The federal government reimburses insurance companies for offering Medicare Advantage based on “benchmark estimates” of how much money each patient would have cost the government to cover under traditional Medicare.

The reimbursement rate includes a “risk adjustment” for each patient. Sicker enrollees would cost the government more under traditional Medicare, so Medicare Advantage plans are reimbursed more money for covering those patients.

The problem is that Medicare Advantage plans are overestimating how sick their enrollees are. 

Insurance companies list minor diagnoses on patients’ charts that would be ignored by most doctors — or even fabricate them — to game the system and increase a patient’s benchmark estimate, the Commission found. Or, they’ll make an effort to enroll patients with conditions that seem severe but will not actually be expensive, such as mild forms of arthritis. 

The companies are then reimbursed for more money than taxpayers would have spent to cover the patients under a normal Medicare plan, according to the Commission.

Overbilling

The process is laid out in detail in an article in The Conversation by Grace McCormack and Erin Duffy, health policy researchers at the University of Southern California.

Some researchers argue that Medicare Advantage actually saves taxpayers money. Private companies force doctors to practice efficient healthcare techniques, making it more likely doctors will use those same techniques for patients covered by traditional Medicare, is one claim. 

Insurance company Elevance reported in Forbes that Medicare Advantage has actually saved taxpayers $144 billion in the last decade.

Regardless, there’s no debate that some private insurance companies are overbilling Medicare, and an opportunity for savings exists.

Search all federal, state and local government salaries and vendor spending with the AI search bot, Benjamin, at OpenTheBooks.com. 

Background: Extravagant reimbursements are just one way Medicare Advantage loses money. The program admitted to $19.1 billion in improper payments in fiscal year 2024: money paid to the wrong person or for the wrong amount.

That’s just one piece of the $87.1 billion in improper payments reported by the Centers for Medicare & Medicaid Services.

Summary: Medicare and Social Security have the potential to bankrupt the U.S. government over the next century. Any opportunity for savings must be seized.

The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com.

This article was originally published by RCI and made available via RealClearWire.