The Biden administration rewarded private insurers with an 8.5% hike in Medicare Advantage payments in April, despite new evidence that these companies profiteered at Medicare’s expense during the first year of the pandemic.
While 2020 may have been a bad year for Americans, it was a great one for America’s health insurance firms. Profits at UnitedHealthcare, the nation’s largest private insurer, shot up 20%, reaching more than $12 billion. The second biggest, Anthem, collected $16.1 billion more in premiums than it paid out in benefits, a 30% jump over 2019, and CVS/Aetna’s take from its insurance business rose 29%.
It turns out that taxpayers footed the bill for this explosion in profits by, in effect, paying twice for healthcare. This only came to light in December 2021 when federal actuaries released their official tabulations of 2020 health spending.
The actuaries’ report documented a nearly 10% increase in overall health spending between 2019 and 2020 — more than double the average yearly increase over the previous decade. Two expenditure categories accounted for half of the 2020 cost growth, and almost all of the acceleration over past years: 1) government public health spending to combat the pandemic, and 2) private insurance overhead costs.
It’s obvious why public health spending would surge during a pandemic. But what could justify the nearly $65 billion increase in private insurers’ overhead? And how is it that two thirds of that increase came from private insurers’ subcontracts with Medicare and Medicaid?
Since the 1980s, federal and state governments have funneled a growing share of their reimbursement to healthcare providers through private insurers’ Medicare Advantage and Medicaid managed care plans. In effect, private insurers serve as middlemen between the government and care providers.
The enlarging stream of government dollars has been a godsend for private insurers. As enrollment in employer-sponsored insurance stagnated, private insurers have relied on this funding to grow their businesses. By 2020, public dollars accounted for the majority of private insurers’ premium revenues.
But much of that money never reaches a medical provider. It stays with the insurance companies as overhead. In the year before the pandemic, overhead for private Medicare Advantage plans averaged $1,824 per enrollee — 15% of their revenues and more than five times higher than Medicare’s 2% overhead.
In setting 2020 payment rates to Medicare Advantage plans, federal officials boosted payments by nearly $49 billion, anticipating the usual annual increases in medical care use and costs. But with many doctor visits and non-urgent surgeries during the pandemic cancelled, Medicare Advantage plans pocketed most of that increase. Their overhead rose to $2,256 per enrollee. Meanwhile, the overhead of private Medicaid managed care plans also surged.
The flip side of insurers’ windfalls were financial shortfalls faced by many hospitals and doctors. Even hospitals full of COVID-19 patients hemorrhaged money, because the reimbursement for a case of COVID-19 was far lower than they would have gotten for the knee or hip replacements that were cancelled.
Private insurers’ payments to hospitals actually fell in 2020, even as hospitals faced sharp increases in costs for the staff and equipment needed for the tsunami of COVID-19 patients. The financial distress of hospitals and health professionals triggered congressional bailouts — the Provider Relief Fund and Paycheck Protection Program — that totaled about $165 billion in 2020.
In essence, government paid twice for care: once through premiums paid to private insurers for Medicare Advantage and Medicaid managed care, and a second time to fill the hole in hospitals’ and doctors’ budgets caused by falling reimbursements from private insurers.
Insurers fleecing taxpayers in 2020 was in some respects a one-off event caused by the unexpected fall in non-COVID-19 care. But the Medicare Advantage rip-off began before 2020 and continues today.
By exaggerating how sick their enrollees are, private plans have extracted extra payments from Medicare, which pegs its funding of Medicare Advantage plans to the severity of enrollees’ illnesses. Congress’ official Medicare watchdog estimates that between 2008 and 2019, Medicare Advantage plans raised Medicare’s overall costs by $132 billion.
And even before the recent payment increase Medicare Advantage overcharges were on track to increase — costing Medicare and seniors (whose Medicare Part B premiums are deducted from their Social Security checks) as much as $355 billion by 2030.
Medicare Advantage plans use a fraction of that overpayment to entice enrollees with extra benefits like eyeglasses and discounts at fitness clubs. But most of it funds their exorbitant overhead, including PR campaigns and lobbying to prevent a crackdown that might derail this money train.
Some in Congress claim they can’t find the money to continue funding COVID-19 vaccinations and care, child tax credits, or green energy. Reclaiming the hundreds of billions wasted by subcontracting Medicare and Medicaid coverage to private insurers would be a good place to look.