Medicare Advantage Overpayments Bolster Insurer Profits, Not Health Outcomes

coins.jpgWhen the cynics and skeptics of health reform argue that universal health care is financially impossible or impractical, they are partly right. As President-elect Barack Obama admitted during today’s presser, “we can’t insure everyone under the current system without bankrupting the government or bankrupting businesses or states.”

Any substantive conversation about health care reform must address cost containment. Obama, for instance, has proposed implementing comparative effectiveness research, health IT, increasing transparency and ending the government’s subsidy of private health care plans participating in Medicare Advantage.

That last point is crucial. The extra federal dollars don’t improve health outcomes, they pad insurers’ bottom lines. Eliminating the subsidy would save $62 billion in five years and $169 billion in ten.

In fact, just today the Government Accountability Office (GAO) released a report which found that “insurers offering Medicare Advantage plans made $1.3 billion more in profit in 2006 than projected“:

The report looked at the MA program for 2006, the most recent year for which data are available. MA insurers reported $50 billion in revenue that year. On average, insurers earned profits of 6.6%, compared with the 4.1% they had projected. They also spent 83.3% of revenue on medical expenses, compared with the nearly 87% that was projected.

The Wonk Room has long argued that the excessive federal reimbursements to Medicare Advantage plans raise costs for beneficiaries in the traditional Medicare program, squeeze both Medicare and the federal budget, drain resources from more productive uses, and dilute the incentive for Medicare Advantage plan efficiency— “which was one of the original reasons for including a private plan option in Medicare.”


AHIP spokesman Robert Zirkelbach told the Health Blog that the plans offer “innovative programs” to improve care and reduce costs, such as services that coordinate care for patients with complicated conditions.

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