November 07, 2023
An earlier version of this brief was submitted as a comment to the Senate Finance Committee’s hearing, “Medicare Advantage Annual Enrollment: Cracking Down on Deceptive Practices and Improving Senior Experiences,” on October 18.
Deceptive and fraudulent advertising for Medicare Advantage (MA) plans cost taxpayers $6 billion in 2022 alone; however, this symptom only constitutes between 4% and 7% of the larger issue: MA itself.1 In 2022, the privatization of Medicare through MA cost taxpayers between $88 billion and $140 billion.2
The federal government will have given over $450 billion in 2023 to insurance companies running MA plans, which now provide coverage to 51% of Medicare beneficiaries.3 Thus, it is only natural that plans, marketers, and brokers will utilize wide-ranging strategies, however misleading, to get as much taxpayer money as possible. Ultimately, much of these taxpayer dollars are going to the largest, for-profit insurance companies; UnitedHealthcare and Humana account for 46% of MA enrollment in 2022.4
While MA plans advertise comprehensive, inexpensive coverage, they fail to make clear the realities of poor coverage through restricted networks, prior authorizations and denials of care, and high costs for their supplemental benefits. This brief delves into what MA plans don’t tell the American people in their advertisements.
Overall, MA costs taxpayers billions more than Traditional Medicare (TM), enriches large insurance companies, and provides less reliable coverage. Thus, the Center for Economic and Policy Research (CEPR) urges Congress to save money and increase quality coverage by bolstering TM and clamping down on misleading advertising and overpayments to MA plans.
Last year’s report on deceptive marketing practices in MA by the Majority Staff of the U.S. Senate Committee on Finance highlights how a principal way marketers mislead Medicare beneficiaries is by suggesting that their preferred providers are in network.5 While this deception is fraudulent on its face, it highlights the larger problem of restrictive networks in MA.
Medicare beneficiaries in TM can see nearly any provider they prefer, while those in MA plans have access to a significantly more limited network of providers. An all too common story for beneficiaries choosing to enroll in Medicare Advantage is losing their doctor whom they like because they are not in network.6 A 2017 analysis of 391 MA plans’ physician networks found that only 22% offered broad networks while 35% and 43% offered narrow and medium networks, respectively.7 On average, MA plans’ networks included less than half (46%) of all physicians in a county. Restricted networks are especially problematic in MA, as 58% of plans in 2023 are Health Maintenance Organizations (HMOs), which require patients to fully pay out-of-pocket (OOP) for using any provider that is out of network.8
In addition to restricted networks, some physicians opt out of serving MA beneficiaries while still serving TM patients due to low reimbursement rates. Around a month ago, two major health groups with Scripps Health–a San Diego-based nonprofit healthcare system–dropped their contracts with MA plans entirely.9 According to a 2022 Government Accountability Office (GAO) report, MA plans improperly rejected 18% of payment denials to providers.10 While a growing number of hospitals and health systems are ending their relationships with MA plans; in comparison, only 1.1% of non-pediatric physicians have opted out of the TM program. 11 12
Additionally, MA plans are more likely to direct patients to lower quality providers. A 2018 study in PubMed Central (PMC) shows that MA enrollees were more likely to be enrolled in lower quality skilled nursing facilities compared to TM based on 32 unique quality measures gathered by the Centers for Medicare & Medicaid Services (CMS).13 Similarly, a 2023 study published in JAMA found that MA enrollees are significantly less likely to go to high quality home health agencies (HHAs) than TM beneficiaries.14
Unlike TM, MA also hurts beneficiaries through prior authorizations and improper denials of care. Prior authorizations deny and delay medical care if the MA plan has not pre-approved the treatment. Thus, providers must submit requests for approval from the MA plan, showing that the treatment is medically necessary before helping their patient. In 2021, providers submitted over 35 million prior authorization requests to MA plans.15
MA plans fully or partially denied roughly 2 million or 6% of these requests in 2021.16 When the denials were appealed, patients had an 82% success rate; however, only 11% of appeals were appealed in the first place. However, the 2022 GAO report found that 13% of MA plan denials of care met Medicare coverage rules and would have likely been covered under TM.17 Therefore, while 13% of denials are improper, only 9% of the denials are successfully appealed, meaning that Medicare beneficiaries were denied 80,000 treatment requests they were entitled to in 2021.
These prior authorizations and denials of care lead not only to heightened anxiety for Medicare beneficiaries but it directly harms the ability of physicians to care for their patients. A 2022 survey by the American Medical Association found that 94% of physicians reported experiencing prior authorizations caused delays to necessary care with 56% reporting this occurring always or often.18 80% of physicians reported that prior authorizations caused the abandonment of recommended treatment. Consequently, 33% reported that prior authorizations caused a serious adverse event for their patients.
One of the primary benefits marketers present to Medicare beneficiaries about MA is the inclusion of dental, hearing, and vision benefits that don’t exist in TM. However, the general quality of care is quite poor. For example, while around 96% of MA enrollees are in a plan that offers some kind of dental coverage, these enrollees do not utilize dental services more so than those in TM.19 This reality is likely due to high costs. The majority of plans have very high coinsurance rates outside of routine check-up and cleaning appointments, as the average is around 50%, along with cost sharing for preventative care.20
Additionally, the majority of MA plans with dental coverage have an annual cap on how much they will spend on coverage; 59% of MA patients were in plans that would not spend more than $1,000 or less in 2021. Similarly, most MA plans have an annual vision care limit of just $160, and they covered only 30% of overall vision spending for MA enrollees in 2020.21 For hearing care, 99% of MA enrollees are in plans with annual dollar limits on coverage, frequency of use limits for covered services, or both.22 While TM does not currently offer dental or vision coverage, a 2022 study found that there was no significant difference in how many MA and TM patients delayed dental and vision care due to cost.23
Ultimately, while it is very problematic that shady marketers mislead Medicare beneficiaries about network and quality issues with specific MA plans, the existence of restricted networks, prior authorizations, denials of care, and other methods to reduce spending on patient care are features not bugs of MA.
While one of the central tenets of MA proponents is that introducing market competition would increase efficiency and lower costs, MA has never yielded savings for taxpayers in comparison to TM according to MedPAC. Thus, the privatization of Medicare MA is accelerating the depletion of the Medicare Trust Fund rather than slowing or stopping it.
Insurance companies are currently gaming the “value-based” payment system that MA operates within.24 CMS uses a “capitated” payment model (that is, flat, individual, per person payments) to pay for services provided by MA. CMS claims that the capitated payments are “value-based,” improving the quality and cost of patient care by incentivizing MA plans to invest in preventative care and increase the health of patients. Whatever money they don’t spend raises their profit margins. However, this theory presupposes that the MA plans are mission-driven and principally care about patient wellbeing.
While there are good stories of mission-driven nonprofits succeeding within a value-based system, most beneficiaries use plans run by large, for-profit insurers. Thus, the central aim of the for-profit insurers behind the most-utilized, major MA plans is to make money. The preponderance of the evidence shows just that: privatized senior care has led to higher costs for Medicare, a drain on the Medicare trust fund, and less reliable care for patients who need it.
In fact, a recent report from Physicians for a National Health Program (PNHP), found that MA plans overcharged taxpayers between $88 billion and $140 billion in 2022 alone.25 PNHP estimates that the real figure is actually higher, as their estimate did not include various illegal activities like outright fraud.
According to the report, overpayments come from five principal sources: favorable selection, favorable deselection, upcoding, benchmarks and bonuses, and induced utilization. First, CMS pays MA plans from a benchmark based on TM; however, MA plans target beneficiaries who are already healthier and less costly. This resulted in $44-$56 billion in overpayments. 26
Favorable deselection refers to the phenomenon where MA patients who get sick, have high needs, and/or also qualify for Medicaid have to switch out of MA back to TM due to unreliable coverage. However, further highlighting how MA enrollees are generally healthier than those in TM, Medicare spent $1,253 less per beneficiary in 2016 for those who switched from MA back to TM compared to those who remained in TM.27
While targeting healthier individuals, since CMS increases the size of capitated payments per individual based on how sick they are which is measured by a risk score, MA plans also engage in upcoding.28 More specifically, MA plans have their patients receive false or irrelevant diagnoses to increase their risk score, thus, increasing how much taxpayer money they receive. In 2019, MA risk scores were 20% higher than they would have been in TM. Upcoding results in around $20 billion in overpayments according to PNHP.29
When the federal government ordered payers to return $4.7 billion in overpayments due to upcoding, Humana sued, alleging that the Department of Health and Human Services (HHS) had no legal right to audit them. 30 The $4.7 billion actually only accounted for a portion of total overpayments due to upcoding, as the government is letting insurers keep fraudulently acquired taxpayer funds from before 2018.31
MA plans also increase the amount of taxpayer money they collect by gaming the benchmark and bonus systems created by the Affordable Care Act. CMS uses county benchmarks to reward MA plans with rebates depending on how much they spend relative to TM. The purpose of this system is to incentivize and reward MA plans to expand coverage to underserved communities; however, it currently overpays MA plans to the tune of $8-$12 billion in 2022.32 Moreover, CMS also rewards MA plans with quality bonuses through a star-rating system. However, due to significant flaws in the quality measures, MA plans have inflated their star ratings to receive higher rebates, leading to $16 billion in 2022 overpayments.33
Another flaw in how CMS pays MA plans regards how MA benchmarks are not only based on beneficiaries in TM, but they include Medicare beneficiaries who have purchased supplemental, Medigap plans. Medigap plans fill in the holes in coverage that TM currently does not; thus, beneficiaries with supplemental coverage are more likely to use more care. Including them raises the benchmark and increases the amount of money CMS pays to MA plans; therefore, taxpayers are subsidizing supplemental coverage for private insurers while those in TM have to pay for it themselves. In 2022, this resulted in $36 billion in overpayments.34
Ultimately, MA is a massive boon to the profits of private insurers by allowing them to further drain the Medicare Trust Fund and take taxpayer dollars while not actually improving the quality of coverage for Medicare beneficiaries. MA is so profitable for insurers that Humana, the fifth-largest health insurance company in the United States, announced earlier this year that it will stop all of its commercial insurance activities to solely focus its business on MA plans. 35 36
In a healthcare environment where the federal government significantly over-subsidizes private insurers who offer MA plans, it is inevitable that these companies and marketers would employ every strategy possible to get in on the massive profits. While we appreciate that Congress is investigating fraudulent and deceitful marketing strategies, we ask that Congress not only scrutinize the symptoms but the cause of worsening healthcare coverage for seniors.
While MA overcharges taxpayers and offers insufficient coverage, Medicare beneficiaries have increasingly chosen to enroll in MA plans so that now over half take part in MA.37 Americans are not irrational when making this decision, as both deficiencies in TM and CMS overpayments to MA plans contribute to this growing reality.
The cost of healthcare in the United States is extremely expensive and continuously rising at the same time as Americans do not have significant savings, especially the senior and disabled people who make up the Medicare beneficiary population. In 2021, the US spent $4.3 trillion on healthcare or $12,914 per person while the average cost of healthcare in other wealthy countries is roughly half as much.38 39 At the same time, 37% and 57% of Americans are not able to cover $400 and $1000 emergencies, respectively, with cash or its equivalent. 40 41
Thus, having sufficient health insurance that does not result in high OOP costs is vital for millions of Americans, yet TM only covers 80% of outpatient healthcare costs with no limit on OOP expenses. 42 Consequently, many individuals purchase a supplemental Medigap plan to cover the remaining 20%; but, Medigap plans can cost anywhere from $600 to over $3600 per year, which many people cannot afford.43
Comparatively, MA plans advertise full coverage with an average of $18.50 in monthly premiums, and some plans have no premium at all.44 In addition, many MA plans include supplemental benefits not covered by TM, such as dental, hearing, and eye care. MA plans are able to offer such low costs due to significant subsidies and overpayments from CMS and American taxpayers.
In addition to cracking down on deceptive marketing for MA, we urge Congress to strengthen TM to improve coverage, save money, and force MA plans to increase their coverage quality rather than profiteer off taxpayer money. While CMS overpaid MA plans $88-$140 billion (and likely even more due to illegal, fraudulent behavior), Congress can cap OOP costs at $5,000 for $39 billion and provide dental, hearing, and vision coverage for $84 billion.45 46 47 Unlike MA enrollees, people in TM would be able to access these benefits without restricted networks, prior authorizations, and other methods to limit and worsen care.
Furthermore, Congress can save billions of dollars by simultaneously reining in overpayments to MA plans. According to the Committee for a Responsible Budget, CMS could implement coding intensity adjustments to limit overpayments, saving $198-$355 billion in Medicare spending, $32-$57 billion in Medicare premiums, and $207-$372 billion in the federal budget deficit all over ten years.48
Medicare beneficiaries deserve to choose the best plan for them without getting misled by deceptive, fraudulent advertisements by marketers on behalf of MA plans. CEPR applauds Congress for any efforts to crack down on this illegal and harmful behavior; however, we urge consideration of the deeper, systemic issues within the MA program itself. American taxpayers subsidize and overpay large, profitable insurance companies to the tune of billions of dollars to provide limited, restrictive health coverage that is unreliable when Medicare beneficiaries need it most. At the same time, Congress could reallocate funds, save money, and improve coverage for senior and disabled Americans by improving TM and reducing overpayments to MA plans.
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Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Profiting at the Expense of Seniors: The Financialization of Home Health Care.” Center for Economic and Policy Research, September 26, 2023. https://cepr.net/report/profiting-at-the-expense-of-seniors-the-financialization-of-home-health-care/.
Biniek, Jeannie Fuglesten, and Nolan Sroczynski. “Over 35 Million Prior Authorization Requests Were Submitted to Medicare Advantage Plans in 2021.” Kaiser Family Foundation, February 2, 2023. https://www.kff.org/medicare/issue-brief/over-35-million-prior-authorization-requests-were-submitted-to-medicare-advantage-plans-in-2021/.
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Gangopadhyaya, Anuj, John Holahan, Bowen Garrett, and Adele Shartzer. “Adding an Out-of-Pocket Spending Limit to Traditional Medicare.” Urban Institute, June 6, 2022. https://www.urban.org/research/publication/adding-out-pocket-spending-limit-traditional-medicare.
Gangopadhyaya, Anuj, Adele Shartzer, Bowen Garrett, and John Holahan. “Are Vision and Hearing Benefits Needed in Medicare?” Urban Institute, November 19, 2021. https://www.urban.org/sites/default/files/publication/105115/are-vision-and-hearing-benefits-needed-in-medicare_1.pdf.
Grimm, Christi. “Some Medicare Advantage Organization Denials of Prior Authorization Requests Raise Concerns About Beneficiary Access to Medically Necessary Care.” U.S. Department of Health and Human Services Office of Inspector General, April 2022. https://oig.hhs.gov/oei/reports/OEI-09-18-00260.pdf.
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Ochieng, Nancy, and Gabrielle Clerveau. “How Many Physicians Have Opted Out of the Medicare Program?” Kaiser Family Foundation, September 11, 2023. https://www.kff.org/medicare/issue-brief/how-many-physicians-have-opted-out-of-the-medicare-program/.
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