Medicare Dis-Advantage: Overpayments and Inequity
The very “choice” that Medicare Advantage is said to offer is undermining Medicare’s promise of equal and universal care for seniors.
by Adam Gaffney, David U. Himmelstein, and Steffie Woolhandler
Medicare Advantage—the privatized Medicare plans run by insurance firms but funded by the federal government—rips off taxpayers. On this there is little controversy. In March, MedPAC, Congress’s nonpartisan advisory board on Medicare policy, estimated that this year alone taxpayers will overpay Medicare Advantage plans by $83 billion—the savings to Medicare if all of those plans’ enrollees were instead covered by the traditional, fully public Medicare program. A 2022 New York Times exposé, “’The Cash Monster Was Insatiable’: How Insurers Exploited Medicare for Billions,” lays out the gory mechanisms—like fraudulent schemes (known as “upcoding”) to make patients look sicker on paper, which ups payouts from the government.
The core business model of Medicare Advantage relies on denying care to enrollees; lower outlays for care mean bigger profits. Implementing that strategy requires an immense, and immensely wasteful, insurance bureaucracy that consumes about 14 percent of Medicare Advantage revenues, sevenfold higher than traditional Medicare’s 2 percent overhead. Even worse, Medicare Advantage—which has grown to cover half of all Medicare beneficiaries—is undermining a cornerstone of Medicare: its promise of equitable, single-tier care for the nation’s elderly.
The New Deal did not, despite the efforts of some reformers, give us universal healthcare. President Harry Truman’s postwar push for national health insurance was defeated by a McCarthyite campaign led by the American Medical Association. Subsequently, the Truman-era supporters and architects of national health insurance plans retreated to a narrower vision: a program just for the elderly, which they hoped to expand later. After Democrats swept the 1964 midterm elections amid historic labor and civil rights mobilizations, that vision came to fruition when President Lyndon Johnson signed a bill establishing Medicare.
Medicare was, in many respects, a compromise. The price for the votes of Congressional Dixiecrats (segregationist Southern Democrats) for that federally administered program for the (disproportionately white) elderly, was an assurance that Medicare wouldn’t be expanded to the non-elderly poor, many of them Black. That assurance took the form of Medicaid, a program that offered states federal funding but largely ceded control to state governments—a bow to “states’ rights.” And for the elderly, Medicare emulated private insurers by requiring substantial out-of-pocket payments in the form of copayments, deductibles, and uncovered services, gaps in coverage mostly absent from Canadian- and European-style universal healthcare.
But for all its faults, Medicare retained a universalist, New Deal ethos, covering all older adults—rich and poor—and granting access to virtually all doctors and hospitals. Not everyone had Medicare, but virtually everyone would upon turning 65, at which point their insurance and access to care would be, at least legally, the same. It was one federal program—which allowed the federal government to wield Medicare to desegregate Southern hospitals in the years after its passage: No hospital could afford to turn it down.
But soon, private insurers began to infiltrate Medicare. Legislation signed by President Ronald Reagan opened the door for private insurers to sell Medicare “managed care” plans that could retain as profit any funds not spent on enrollees’ care. The share of seniors enrolled in those privatized Medicare plans, less than 5 percent in 1985, rose to nearly 20 percent by the end of the 1990s. President George W. Bush’s 2003 Medicare Modernization Act created the current iteration of privatized Medicare, dubbed Medicare Advantage, which really opened the floodgates to insurers. Since then, the share of seniors enrolled in the privatized Medicare Advantage plans has progressively risen, topping 50 percent for the first time last year, when UnitedHealthcare (the nation’s largest insurer) garnered nearly half of its total premium revenues from Medicare Advantage, and another quarter from Medicaid managed-care contracts.
From its inception, privatized Medicare has been rife with fraud and mismanagement. The largest privatized Medicare contractor of the Reagan era—International Medical Centers (IMC)—enrolled 197,000 seniors before collapsing in 1987—leaving $200 million in unpaid bills from doctors, hospitals and other providers. During its short run, IMC spent lavishly on administrators and lobbyists, hiring at least nine former federal officials, including the former general counsel and chief of staff of the Department of Health and Human Services, and the head of the HHS agency that oversees Medicare. (The government/insurer revolving door persists: Obama’s Medicare chief left to head the insurance industry’s trade association, and Biden’s director of the Medicare “Innovation Center” previously served as vice president of an insurance giant.) IMC’s President Miguel Recarey—who had earlier been accused of embezzling funds from a children’s hospital and boasted about his relationship with mob boss Santos Trafficante—was accused of swindling $230 million from Medicare and fled to Spain after being indicted for bribery, conspiracy, and wiretapping, amid charges that IMC provided grossly inadequate care and pressured sick (and hence unprofitable) enrollees to disenroll; he remains a fugitive. The state of Florida ultimately seized the company and sold it off to Humana, which remains a leading MA insurer today.