While Cutting Medicare Benefits, Obama Bails Out Private Insurance for Seniors

Obama administration intervenes to give $71.5 billion to overpaid, for-profit Medicare Advantage plans

Physicians group decries ‘backroom Medicare giveaway’

Physicians for National Health Program
April 9, 2013

Medicare’s costs will jump by $7.43 billion next year – the equivalent of $149 for each of the nearly 50 million beneficiaries in the program – due to an unprecedented intervention last week by the Obama administration in the way privately run, for-profit Medicare Advantage (MA) plans, which are also known as Medicare HMOs, are paid by the government, a national physicians group reported today.

The total cost to U.S. taxpayers will be $71.5 billion to $104.5 billion over the next decade, depending on the number of Medicare beneficiaries who enroll in the private plans, researchers at Physicians for a National Health Program said. That’s money that could keep traditional Medicare’s hospital trust fund safely in the black over the same period, eliminating any need for greater cost-sharing by beneficiaries, they said.

Enrollment in MA plans, currently at 13.1 million beneficiaries, was expected to dip sharply over the next few years in the wake of a reduction in government overpayments to the plans under the Affordable Care Act (ACA), but the researchers said enrollment may not decrease, due to this windfall and last year’s “quality bonus” payments: hence the variation in the estimated cost.

“Medicare Advantage plans have been overpaid by the federal government for years, wasting tens of billions of taxpayer dollars,” said Dr. David Himmelstein, professor at the City University of New York School of Public Health and co-founder of the physicians group. “Studies by the Government Accountability Office, MedPAC and many private groups have drawn attention to this overpayment. The Obama administration’s ACA acknowledged the overpayments by calling for cuts to these payments starting in 2014.

“But last week’s extraordinary rate-setting directive from Health and Human Services Secretary Kathleen Sebelius to the Centers for Medicare and Medicaid Services, in which she spurned historical practice and the advice of the CMS Office of the Actuary, will result in an obscene windfall to the private, for-profit insurers,” he said. “Simultaneously, this backroom Medicare giveaway is a heavy blow to taxpayers and the traditional, public Medicare program.”

In response to the CMS announcement, which was leaked shortly before 4 p.m. last Monday, stock prices for the nation’s five largest for-profit health insurers surged last week, yielding a $13.2 billion bonanza for investors. Stock prices increased from open of trading Monday, April 1, to close of trading Friday, April 5, by the following amounts: Cigna, $15.93; Humana, $8.93; UnitedHealth Group, $4.94; Aetna, $4.62; and WellPoint, $1.70. Aetna’s Coventry share prices jumped by $1.19.

UnitedHealth and Humana reaped the largest windfalls. (See Table 1.) Based on its share of the MA market (20 percent, including its purchase of XL Health Corp.), UnitedHealth will receive an extra $1.49 billion from Medicare for its Medicare Advantage plans in 2014, and $14.3 billion to $20.9 billion over the next decade, triggering a $5.04 billion surge in the value of UnitedHealth’s stock last week.

Humana (17 percent market share) will receive an extra $1.26 billion from Medicare for its Medicare Advantage plans in 2014, and $12.2 billion to $17.8 billion over the next decade. Humana’s stock surged $1.41 billion last week.

Other insurers will also reap huge rewards. WellPoint (4 percent market share) will receive an extra $297 million in payments from Medicare for its Medicare Advantage plans in 2014, and between $2.86 billion and $4.18 billion over the next decade. Former CEO Angela Braly received compensation and stock options of $20.6 million in 2012.

Aetna will receive at least an extra $223 million from Medicare for its Medicare Advantage plans in 2014 (excluding its 75 newly acquired Coventry plans), and $2.14 billion to $3.14 billion over the next decade. Coventry will receive extra payments of $149 million in 2014 and between $1.43 billion and $2.09 billion between 2014 and 2022.

Finally, Cigna, which almost entirely exited the MA market in 2010, re-entered the market with the purchase of HealthSpring’s 40-plus plans in 2011. Cigna will garner an additional $223 million in federal payments in 2014 and between $2.14 billion and $3.14 billion over the next decade as a result of the Obama administration’s action.

Dr. Ida Hellander, director of policy and programs at PNHP, said that in 2012 alone, privately run Medicare Advantage plans were overpaid $34.1 billion, or $2,526 per enrollee. She and Himmelstein were among the authors of a study last year showing that having Medicare Advantage plans compete with traditional Medicare does not save money, but costs taxpayers billions of dollars more each year.

For the present analysis, Hellander and Himmelstein used publicly available data from the New York Stock Exchange and Medicare’s Board of Trustees to calculate the impact of a 5.5 percent hike in Medicare Advantage payments on insurers’ stock valuation and future government spending.

Hellander said, “Medicare Advantage plans are siphoning off valuable health care dollars into private, for-profit hands and producing no better outcomes to show for it. It is time to stop putting profits over patient care and adopt an improved Medicare for All, a national single-payer system. Single payer would save enough on wasteful private insurance-related bureaucracy and profits to provide high-quality care for everyone.”

Dr. Andrew Coates, president of PNHP and an internist in upstate New York, commented on the findings. “Instead of making a cut to the overpayments, the administration has bent over backwards to take good care of the private Medicare Advantage insurers,” he said. “This behind-the-scenes maneuvering will not only swell the already unconscionable profits of the insurance companies, but will further impair the traditional, public Medicare program.”

Table 1.


Kaiser Family Foundation Medicare Advantage Enrollment Update 2013; Google Finance April 1 to April 5, 2013; Medicare Trustees Report 2012; Washington Post, April 2, 2013; 10-year total based on 2013-2022 total Medicare spending of $1.3 to $1.9 trillion on MA plans.


1. As a result of HHS Secretary Sebelius’ unprecedented intervention, and over the objection of the Actuary, MA spending in 2014 will increase 5.5 percent. Instead of a 2.2 percent reduction in payments as announced in February 2013, there will now be a 3.3 percent increase. MA spending for 2014 after the passage of the ACA but before the intervention was an estimated $135.2 billion; $67.1 billion on Part A and $68.1 billion on Part B. A 5.5 percent increase amounts to $7.43 billion in 2014.

2. As a result of $156 billion in MA cuts included in the ACA, the Medicare Trustees’ latest report (2012, Table IV, c1) projected an MA enrollment decline from 26.7 percent of beneficiaries in 2012 to a low of 16.2 percent of beneficiaries in 2018, resulting in MA spending of about $1.3 trillion between 2013 and 2022. But enrollment may not fall that much, and could increase, especially if the Obama administration keeps backpedaling on its commitment to stop the overpayments to Medicare Advantage plans (e.g. with over $8 billion in offsetting “quality” bonuses and now an unprecedented intervention into payment rate-setting).  As a result, MA payments over the next decade could rise one-third or more, topping $1.9 trillion. A 5.5 percent increase on estimated MA spending of $1.3 trillion to $1.9 trillion equals $71.5 billion to $104.5 billion.

3. The estimate of $156 billion in MA cuts in the ACA is from the Congressional Budget Office’s letter of July 24, 2012, Table 2. www.cbo.gov/publication/43471

4. Historical stock prices and number of shares are from Google Finance accessed April 7, 2013.

5.  Market-share data is from the Kaiser Family Foundation’s Medicare Advantage Data Spotlight: Enrollment Update (2013), www.kff.org/medicare/upload/8323.pdf. Market share for Aetna’s Coventry, UnitedHealth’s XL Health Corp., and Cigna’s HealthSpring is based on enrollment at the time of acquisition.


Physicians for a National Health Program (www.pnhp.org) is a research and education organization of more than 18,000 doctors who advocate for single-payer national health insurance. To speak with a physician/spokesperson in your area, visitwww.pnhp.org/stateactions or call (312) 622-0996.


Government insiders misappropriate funds to Medicare Advantage insurers

U.S. to boost rather than cut payments to health insurers

Don McCannes Quote of the Day
April 2, 2013

By Sandhya Somashekhar
The Washington Post, April 1, 2013

The Obama administration reversed itself Monday, scrapping plans to cut by 2.2 percent the rates paid to health insurers that take part in the Medicare Advantage program.

The insurance industry and more than 100 members of Congress had objected to the cut in the per capita growth rate, which was proposed in February. The insurers mounted a vigorous campaign, using television ads and phone banks, to persuade lawmakers to oppose the reduction.

On Monday, the Centers for Medicare and Medicaid Services (CMS) announced that it was changing its method of calculating reimbursement rates. Instead of cutting payments for Medicare Advantage plans, it will increase them by 3.3 percent.

“The policies announced today further the agency’s goal of improving payment accuracy in all our programs, while at the same time ensuring program stability and preserving beneficiary choice,” Jonathan Blum, the CMS’s acting principal deputy administrator, said in a statement.



CMS Ensures Greater Value for People in Medicare Drug and Health Plans

Centers for Medicare and Medicaid Services (CMS), April 1, 2013

After careful consideration of public comments, key changes and updates finalized in the Rate Announcement and final Call Letter include:

The final estimate of the combined effect of the Medicare Advantage growth percentage and the fee-for-service growth percentage is 3.3 percent. These growth rates assume a zero percent change for the 2014 physician fee schedule (PFS) by taking into account the likely Congressional override of the schedule physician payment reduction.



Subject: Advance Notice of Methodological Changes for Calendar Year (CY) 2014 for Medicare Advantage (MA) Capitation Rates, Part C and Part D Payment Policies and 2014 Call Letter

CMS, February 15, 2013

Section A. MA Growth Percentage

The current estimate of the change in the national per capita MA growth percentage for aged and disabled enrollees combined in CY 2014 is -2.3 percent.

We appreciate that plans are facing several legislatively mandated changes affecting payment for 2014, and this may present challenges for plans. We solicit comment on suggestions to address these challenges within the parameters of current law.



Subject: Announcement of Calendar Year (CY) 2014 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter

CMS, April 1, 2013

Attachment I shows the final estimates of the increases in the National Per Capita MA Growth Percentage for 2014 and the National Medicare Fee-for-Service (FFS) Growth Percentage for 2014. These growth rates will be used to calculate the 2014 capitation rates. As discussed in Attachment I, the final estimate of the increase in the National Per Capita MA Growth Percentage for combined aged and disabled beneficiaries is 2.96 percent, and the final estimate of the increase in the FFS Growth Percentage is 3.53 percent. Attachment II provides a set of tables that summarizes many of the key Medicare assumptions used in the calculation of the National Per Capita MA Growth Percentage.

The basis for the Growth Percentage for 2014 has been changed to incorporate an assumption that Congress will act to prevent the scheduled 25-percent reduction in Medicare physician payment rates from occurring. The Office of the Actuary has been directed by the Secretary to use this assumption, on the grounds that it is a more reasonable expectation than the reduction required under the statutory “sustainable growth rate” (SGR) formula. Although the Office of the Actuary agrees that Congress is very likely to override the physician fee reduction, the assumption conflicts with the Office’s professional judgment that, as in all past years, the determination should be based on current law, not an assumed alternative.



AHIP Statement on Final 2014 Medicare Advantage Payment Rates

America’s Health Insurance Plans (AHIP), April 1, 2013

America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni released the following statement in response to the final Medicare Advantage payment rates released by the Centers for Medicare & Medicaid Services (CMS) today:

“By being responsive to the more than 160 members of Congress from both parties who raised concerns about the impact of the proposed payment rate on seniors, CMS has taken an important step to help stabilize Medicare Advantage at a time when the program is facing significant challenges. We are currently reviewing the final rate announcement and will continue to work with policymakers in both parties to strengthen this critically important part of Medicare that provides high-quality, affordable coverage to more than 14 million seniors and people with disabilities.”



Medicare Advantage Plan Star Ratings and Bonus Payments in 2012

Kaiser Family Foundation, November 2011

In 2012, Medicare Advantage plans will begin to receive bonus payments based on quality ratings. These payments were initially established in the 2010 health reform law that provides for bonus payments to plans that receive 4 or more stars and to unrated plans beginning in 2012. In addition to the bonus payments established by the health reform law, CMS will also be launching a 3-year demonstration to begin in 2012 that increases the size of bonuses for these plans, and also provides bonuses to plans rated as average (receiving 3 or 3.5 stars), using the same 1 to 5 star scale.



Payment Accuracy (Official U.S. government website)

The Department of Health and Human Services (HHS) reports an annual Medicare Advantage (Part C) program payment error rate, which presents the combined impact on payments from two kinds of error: errors in the payment system and errors in risk scores used to adjust benefit payment amounts to Medicare Advantage plans.

$96.4 billion  Total Medicare Advantage payments
$13.6 billion  Improper payments
14.1%          Improper payment rate



By Don McCanne, M.D.

The private Medicare Advantage plans, offered as options to the traditional government-run Medicare program, were to have their egregious overpayments reduced by provisions of the Affordable Care Act. This year they were to have a 2.2 percent reduction in their rates, but instead received a 3.3 percent increase. That is a rate 5.5 percent higher than scheduled, which increases the payments to the Medicare Advantage plans by over $5 billion! What happened?

It is easier to understand why when you realize that the program was established as an effort to privatize Medicare. The previous effort – private Medicare + Choice plans – didn’t work since the insurers were unable to provide profitable plans at a cost comparable to the traditional Medicare program.

Recognizing that, Congress established the Medicare Advantage program, authorizing payments averaging 14 percent over the costs of traditional Medicare. This would allow the private plans to offer a more attractive option with greater benefits and lower our-of-pocket costs. Once enough people were enrolled in the private plans then they could start to make the traditional Medicare program even less attractive through greater cost sharing, through means testing that chases away the more affluent beneficiaries, and through reducing payment rates causing a further decline in the number of willing providers.

Originally, the private Medicare + Choice plans were successful in enrolling healthier, lower cost patients. With time, many of those patients required more care, and the insurers started dropping out of markets in which they experienced losses. So the next phase – Medicare Advantage.

With Medicare Advantage, risk adjustment was used to transfer funds from insurers that cornered healthier patients to insurers that enrolled more patients with greater needs. Soon it was evident that the insurers became masters at enrolling patients who were not very ill but who could be coded as having expensive problems. Although efforts have been made to further refine the risk adjustments, our government’s payment accuracy website reveals that the insurers are still able to game the system, such that 14 percent of payments remain improper – over $13 billion.

Another one of the methods used to improve payments – but not reduce payments since the proposal was to be revenue neutral – was to retain some of the funds for the Medicare Advantage plans and then use them to reward plans with higher quality ratings, 4 or 5 star. Well, when they were ready to start reducing the overpayments, as required by the Affordable Care Act, the insurers protested that they couldn’t afford the reductions. So the administration revised the quality awards to include 3 star plans, thus assuring that 80 percent of Medicare Advantage plans would have their required reductions largely offset with the quality awards. But this was not revenue neutral. No problem. The administration declared these expanded awards to be a “demonstration,” and thus drew funds from their demonstration project kitty (our tax funds). That diversion of funds will continue through 2014.

So now we’re down to this year, and, of course, the insurance industry said that they would not be able to tolerate the scheduled reductions of 2.2 percent. They called out the forces. They even had more than 160 Representatives and Senators of both parties lobbying the administration to reverse these cuts. Yesterday, it became evident that they were successful – increasing payments 5.5 percent over the scheduled 2.2 percent cut – a $5 billion bonanza. How did they do it?

The sustainable growth rate (SGR) was a formula designed to slow the growth of spending on physician care down to sustainable levels. In response, physicians adjusted the frequency and intensity of their services to make up for what they perceived to be a reduction in their reimbursement rates. The formula would require a reduction in rates that would especially impact primary care physicians. Congress has deferred the reductions for fear of losing too many physicians from the program, but that has resulted in a 25 percent deficit for which Congress needs to enact a “doc fix.” Here’s where the shell game comes in.

In violation of the standards of the Office of the Actuary, CMS decided that Congress inevitably would enact a doc fix, which then they could say represents an increase in the cost of providing care to all Medicare beneficiaries. Thus the phantom increase has been applied to the new Medicare Advantage rates. Little does it matter that there was no increase since Congress has continued to authorize the suspension of the SGR reductions. It is specious for CMS to claim that payments went up this year  because of the not-yet-enacted doc fix when they have been up the whole time. Also it seems not to matter that the doc fix which they used in their calculations has not been fixed, and the money will have to come from somewhere… but certainly not from the $5 billion bonus they just gave the Medicare Advantage plans – money that never existed but will have to be drawn from Medicare payroll taxes, from general funds for Part B, and from increases in Part B Medicare premiums that will be paid by Medicare beneficiaries in the traditional plan who are not receiving any of the extra benefits that enrollees in the Medicare Advantage plans are receiving. Unfair.

But it’s worse than this. Not only is the administration bending over backwards to take good care of the private Medicare Advantage insurers, they are now engaged behind the scenes to further impair the traditional Medicare program – a strategy to further push privatization.

The Ryan/Wyden and Frist/Breaux/Thomas premium support voucherization of Medicare has proven to be too hot for the privatizers, considering the backlash that they have experienced. So premium support is off the table during the Obama administration’s negotiations with Congress over the next manufactured fiscal crisis. So what has replaced the vouchers?

It has been leaked, presumably deliberately, that Obama is proposing to combine the Part A (hospital) and Part B (physician) deductibles into one deductible for Parts A & B combined. The intent is twofold – to reduce the amount that the federal government is paying for Medicare, and to increase the sensitivity of Medicare beneficiaries to prices paid for Medicare benefits – making them empowered health care shoppers. This increase in out-of-pocket spending will especially impact the majority who do not require hospitalization and thus have lower total costs. This strategy will make those who have fewer health care needs wonder why they are paying so much more than they thought they would once they were on Medicare.

Bu that’s not all. About 90 percent of Medicare beneficiaries are protected from excessive cost sharing through Medigap plans or through employer-sponsored retirement health benefit programs. The consumer-directed camp has long wanted to bash the Medigap plans so patients would be exposed more directly to the costs. Obama’s team is proposing just that. They want to prohibit the Medigap plans from providing protection for the deductible – removing it, or at least reducing it, as a Medigap benefit. Another option that they are considering is to assess a 15 percent tax on Medigap premiums which would have a similar net financial impact as prohibiting coverage of the deductible.

So what is a person to do? You can accept the traditional Medicare program, but you will face higher deductibles, perhaps a Medigap tax, an even higher Part B Medicare premium, and perhaps means-tested premiums and benefits which will gradually shift down to middle-income individuals. This will not be pleasing to the majority who have only modest health care needs. The other option? You can enroll in a Medicare Advantage plan with greatly reduced cost sharing plus expanded benefits, and perhaps not even a plan premium, all thanks to Congress and the administration who are using our tax funds to provide very generous subsidies to the private Medicare Advantage plans.

A crummy traditional Medicare program with high out-of-pocket costs, or a slick private plan with most costs prepaid, by the government no less? It is presumed that the majority will rush over to the private plans, especially when they see what extra bennies they get.

What then? Congress can then continue to ratchet down government spending on the traditional program, causing an exodus of willing providers – stripping the program down to worse-than-Medicaid. After the private plans have become the standard and Medicare is in the tank, then what? Premium support vouchers! The government gradually pares down the support for the premium you select, so you are now really an empowered shopper – empowered to buy whatever meager benefits you can afford with your measly premium subsidy.

Excuse the length of today’s message, but I hope you understand why. It’s not that I’m a soothsayer… but maybe I am.

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