In the first study of its kind, a group of health policy experts has determined the amount of money that Medicare has overpaid private insurance companies under the Medicare Advantage program and its predecessors over the past 27 years and come up with a startling figure: $282.6 billion in excess payments, most of them over the past eight years.
That’s wasted money that should have been spent on improving patient care, shoring up Medicare’s trust fund or reducing the federal deficit, the researchers say.
The findings appear in an article by Drs. Ida Hellander, Steffie Woolhandler and David Himmelstein titled “Medicare overpayments to private plans, 1985-2012.” The article was released online today and is forthcoming in the International Journal of Health Services.
Private Medicare plans – previously referred to as Medicare HMOs and now called Medicare Advantage plans – have been in existence for about three decades. Such plans, most of them for-profit, currently cover about 27 percent of Medicare enrollees and have been growing at a fast clip. UnitedHealth and Humana are among the largest players in this market, and together operate about one-third of such plans.
Medicare pays these privately run plans a set “premium” per enrollee for hospital and physician services (averaging $10,123 in 2012) based on a prediction of how costly the enrollee’s care will be.
The authors find that private insurers have exploited loopholes to garner overpayments above and beyond what it costs them to care for their enrollees. For instance, Medicare gives private insurers a full premium for each enrollee, even for those who get most of their care for free at the Veterans Health Administration.
“We’ve long known that Medicare has been paying private insurers more than if their enrollees had stayed in traditional fee-for-service Medicare, but no one has assessed the full extent of these overpayments,” said Dr. Ida Hellander, lead author of the study. “Nor has anyone systematically examined the many ways that private insurers have gamed the system to maximize their bottom line at taxpayers’ expense.”
“In 2012 alone, private insurers are being overpaid $34.1 billion, or $2,526 per Medicare Advantage enrollee,” Hellander said.
Co-author Dr. Steffie Woolhandler said: “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.