How Insurance Companies Cheat Medicare

September 17, 2018     About this blog:  click here

How Insurance Companies Cheat Medicare

Medicare Advantage plans are a type of Medicare insurance policy, which is growing in use.  Currently, about one-third of all people on Medicare have this kind of policy.

The insurance companies are pushing very hard to get many more people onto Medicare Advantage.

There’s a good reason for that:  They make more profit, in general, from these policies than other kinds, like Medicare Supplement policies.

In theory, Medicare Advantage policies are a risky business for insurance companies.  That’s because they are not guaranteed to earn a profit.  And, they’re not allowed to exclude people with expensive health problems.

They are paid a fixed amount of money from Medicare (roughly $800) each month for each enrollee.  If, at the end of a year, the insurance company’s expenses exceed what they were paid by the government, along with the monthly premiums paid by the enrollee, then they lose money.

On the other hand, if the expenses are less than the money they took in, then the make a profit.

As it turns out, some of these policies lose money for the insurance companies some of the time, but most of the time the policies make money for most of the companies – a lot of money.

So, this looks like a pretty good “gamble” for the insurance companies.  That explains why they keep trying, very hard, to sell more and more of these policies.   Just look at all their ads!

When this type of Medicare “risk” contract first got going in the 1980’s, Congress set it up so that they would get paid 95% of the average amount Medicare was paying for people in each area.

The idea was:  The insurance companies, by controlling what care people got, would surely spend less and save the government money.

As time went on, however, the insurance companies successfully lobbied to keep getting paid more and more for their enrollees.

In 2003, the current “Medicare Advantage” system was enacted.  It soon became clear that Medicare Advantage was costing the government more per person compared to original Medicare, not less.

Fast forward to the Affordable Care Act (aka ObamaCare), and Congress decided to start ratcheting back a little how much they were paying the insurance companies.

This was done in clear recognition of the fact that the government was overpaying them.

How to Cheat the Government:

But, the insurance companies figured out how they could keep getting more profits, by ripping off the government. How?

The key is that with Medicare Advantage, the government pays the insurance company a flat amount of money per month for each enrollee – but not the same amount.

The amount for each individual enrollee is adjusted according to how healthy or sick the person is. That makes perfect sense:  A healthy person will have less medical expense, while an unhealthy one will have much higher expense.

The problem is that this is done basically on an honor system.  The insurance companies tell the government how sick each of their enrollees are (what their medical diagnoses are), and government DOES NOT CHECK.  The government trusts, but does not verify.

So, it’s easy for the insurance companies to pretend that their enrollees are sicker and more expensive than they really are.  The extra cash goes right into the companies’ pockets.

How much cheating?

Centers for Medicare and Medicaid Services (CMS) is the federal agency that runs Medicare.  CMS’ own estimate is that about $16 billion a year is being stolen by the insurance companies, by this method.

That would pay for a lot of health care, for a lot of people.

Is CMS doing anything about this?  Sort of.   They do perform some after-the –fact audits, and they have recovered some of this overpaid money.   They collect about $15 million a year.

Note that is only one-thousandth of the $16 billion of cheating.  Not very effective, right?

The interesting thing is that CMS concentrates its auditing on some of the smaller companies, who don’t have that big a chunk of all the Medicare Advantage enrollees.

So what about the big fish – United Health Care, the Blue Cross Companies, Aetna, Humana and Kaiser?  For some strange reason, CMS does not try to audit the big guys.

Note that these giant companies, who have two-thirds of the enrollments, have huge financial and political power.  They’re what you call “well-connected,” and quite able to pull some strings to protect themselves.

There have been some lawsuits about this Medicare cheating, but not much has resulted so far from that.

Secret profits

Also noteworthy is that the government does not even ask the Medicare Advantage companies to report how much profit they claim they are making on these policies. So, the public does not know.

If you think this system needs reforming, contact your Congress members and Senators and ask them to change the Medicare Advantage law.

Have a comment or question?  Go to the top of this column and write it in.

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