The Meteoric Rise of Private Medicare Advantage Insurance

President Lyndon Johnson: There are now 18 million men and women that are 65 and over in the United States. Every 20 seconds, another American joins their ranks.

Dan Gorenstein: President Lyndon Johnson paved a path for the Medicare program back in 1965 that is very different from the one we’re on now.

LBJ: Their hopes and their problems are shared by us all. And it’s up to us to help them solve them.

DG:  These days, private insurance companies — not the federal government — are trying to solve these problems, now managing the health of one out of every two people on Medicare. And the government over the next decade, will pay those private companies more than seven trillion dollars to do it.

Today, what’s lost and what’s gained when private insurers manage so much of the nation’s Medicare program — and where we go from here.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs.

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DG: Medicare’s dramatic transformation in just the past 20 years has been invisible to most of us. On today’s episode, we’ll hear from three people who have seen this evolution up close — felt its impact on the cost, quality and the kinds of care available to millions: an enamored consumer, a disillusioned insurance executive and a worried researcher.

To borrow a page from my favorite public radio show, we’re going to tell this episode in three acts. Act One: The Love Affair.

When Carol Berman first enrolled in Medicare 23 years ago, she admits she didn’t know much about it. Didn’t realize some Medicare plans were run by private companies. Didn’t know there was a deadline to pick a plan and it was coming up fast. But Carol did know it needed to be affordable.

Carol Berman: I didn’t have the money to buy insurance. I just didn’t have it. 

DG: Carol had spent nearly all her savings on nursing home care for her late husband. She felt lucky when she stumbled across a guide to Medicare enrollment in her local newspaper.

CB: Two whole pages full of insurance companies, and it was in a column and you could read across and see what each one offered.

DG: One plan caught Carol’s eye: Humana Gold Plus. In the column that listed monthly costs, there was a big round zero. Not trusting it, Carol did her own research. And the more she learned, the more nervous she got.

CB: You had to get a referral if you wanted to go to a specialist. They said you had to go to the doctor that was in their group. You couldn’t go to see some other doctor. And all of that made me really uneasy.

DG: Humana Gold Plus was a Medicare plan run by a private insurer, who worked hand-in-hand with a primary care doctor to manage people’s care. The insurance company would approve or deny coverage for certain surgeries, drugs, visits with a specialist.

The other kind of Medicare — the one run by the federal government — and often called traditional Medicare lets people go to most any doctor or hospital with very few hoops.

That’s what Carol wanted. She had a laundry list of medical conditions.

CB: Asthma, four back surgeries, a brain tumor, ulcerative colitis…

DG: She didn’t want some insurance company getting in the way of the care she needed. But when she talked to friends who had traditional Medicare, the out of pocket costs and supplemental insurance, all told added up to nearly $600 bucks a month.

So she shoved her concerns about private insurance to the side.

CB: We just went with it. And it’s probably the best decision we could have made. I’ve never regretted it.

DG: Roughly 30 million seniors and people with disabilities are now enrolled in Medicare Advantage or MA. Back when Carol first picked her MA plan, only about one in 10 Americans were making that choice. Today, it’s one in two, and growing even faster among Black and Hispanic people. And while a small share of people chafe at these more managed plans and leave MA for traditional Medicare, many more seniors feel like Carol.

CB: It’s a love affair that has grown over the years. The plan improved itself every single year. 

DG: Carol, now 88 with a short silver bob, sits next to her second husband Ted in their West Palm Beach condo.

Ted Lefman: I’m 87.

CB: So I robbed the cradle. 

TL: Yeah, I’m a little younger than Carol. Yeah, she was a jaguar. [Laughs]

DG: Carol got her man — and what she wanted from Medicare Advantage these past 23 years: low costs. Five or 10 dollars for most doc visits. Avoided a bunch of premiums because she never needed supplemental insurance like lots of people on traditional Medicare. Plus a list of perks so long she needs to get her glasses.

CB: You can go to any gym, hearing care, three buses with wheelchair lifts…

DG: As Carol’s Medicare Advantage plan has gotten better and cheaper with time, she’s come to see the other, traditional Medicare option with freedom of choice but higher costs as less and less relevant — a quaint luxury for the lucky few.

CB: If you’ve got the kind of money that you can afford that, then I say go for it. I really do. But if you can’t, then I don’t understand why people would hesitate to go on a plan like this.

DG: If current trends hold, private insurers will dominate this public program by the next decade. Companies have cracked the nut on what people on fixed incomes like Carol want: low upfront costs and help that goes beyond health care like rental assistance and money for groceries.

Yet there is evidence that in some instances this more managed care harms people’s health by limiting their choices and ends up being more expensive. So that raises a practical and a political question: Is Medicare Advantage what health insurance should look like for everyone on Medicare?

Coming up: giant checks, crying doctors and a flaming comet comes for Medicare.

MIDROLL

DG: Welcome back. Today’s episode is a kind of three-part play — a meditation on the rapid rise of Medicare Advantage. What’s good, what’s bad and what we still don’t know about this booming private alternative to traditional Medicare. We’ve arrived at Act Two: The Gold Rush.

Rick Gilfillan started his career as an insurance executive just as that industry began to work more directly with patients. 

Rick Gilfillan: We were very excited about the ways we were gonna make care better for people. 

DG: The old kind of health insurance basically just paid the bills when people got sick — a fee for every stitch or stent. But Rick had trained as a primary care doc. He saw how staying on top of people’s health — regular check-ups, getting shots — really helped his patients.

RG: The whole notion of preventive care didn’t exist in Medicare.

DG: In the ‘80s, the idea of insurance companies profiting by keeping people healthy was totally new, and it required a whole different kind of payment — a flat monthly fee from the federal government. Any money an insurer had left over, they kept. Rick liked the idea where insurers and the front line clinicians they contracted with worked together.

RG: We hired a bunch of nurses who would reach out to the sick people. We would put reminders in place for people to get their immunizations. 

DG: The early results were promising. The company where Rick worked was cutting the length of some hospital stays in half. Employers watched their own spiraling health costs slow way down. Managed care, as it was known, gained fans in Washington too, where lawmakers were eager to rein in Medicare spending.

Sfx: Applause

DG: And in 2003, President George W. Bush signed the Medicare Modernization Act.

President Bush: The greatest advance in health care coverage for America’s seniors since the founding of Medicare. 

DG: Medicare Advantage was born, bringing managed care to more people. 

Pres. Bush: For the seniors of America, more choices and more control will mean better health care. 

DG: For insurers: more money.

Congress offered companies a raft of incentives like extra cash to sign up people in places insurers had historically avoided and more money for nearly every disease in someone’s medical chart.

RG: Suddenly where there wasn’t much money, there was a lot of money. So it just literally created a different business.

DG: Mining the medical record. Until Medicare Advantage, insurers had combed through patient charts to improve quality, making sure a 55-year-old got the mammogram her doctor forgot to order. Now insurers were spending more time scouring charts to boost their own bottom lines by coding extra diseases.

RG: If you could do that, you could increase the payment for that person by, you know, 20, 30, 40, 50, 100 percent.

DG: Insurers pushed doctors to document chronic diseases under control or cancers in remission — unlikely to help someone but certain to fuel their growth.

It was extra money the insurer could spend to cut costs for people like Carol Berman, buy ads on TV — all ways to make this new insurance a more sexy choice than traditional Medicare. 

All that mining  delivered more money than Rick could have ever imagined. The first check arrived in 2009.

RG: That was like, oh my God.

DG: Rick, working for the Pennsylvania-based Geisinger Health Plan, was staring at seven zeroes — a check for 20 million dollars. He figured that was enough to nearly double his plan’s profits for the year.

These days, despite some reforms to crack down, all this coding still costs the government about 17 billion dollars a year in extra payments. Experts disagree over how much of that coding is legitimate. But reporting by the New York Times found dozens of lawsuits, audits and federal investigations into fraudulent coding by major insurers like Cigna and United.

Despite the coding gold rush, Rick believed for a lot of years that older Americans enrolled in private plans were still better off than in traditional Medicare. They had doctors, nurses, hospitals and insurers looking for ways to keep them healthy. Plus now insurers had all that bonus money to help deliver better care.

But the illusion that managed care would be better for everyone finally died for Rick one day in 2018.

RG: That was the point where I thought we have created a corrupt enterprise.

DG: Rick had left the insurance industry [and] become CEO of Trinity Health, a Michigan-based hospital system. His team often grumbled about Medicare Advantage companies playing hard ball.

RG: They’d say we’re getting a lot of rejections and denials and it’s really getting crazy. 

DG: So Rick asked his medical director to pull a bunch of patient charts so they could see what the problem was.

RG: And I got him on the phone then and he started crying as he told me the stories.  

DG: Stories like a major insurer refusing to pay a $50,000 hospital stay for a heart attack, arguing the patient never should have been admitted. Or sending hospital staff in circles asking for this test and that record only to eventually tell the hospital, “Sorry the appeal window closed. We’re not paying the bill.”

RG: He was so disillusioned about the behavior of the insurance company and the physicians that were working for them that they were taking such opportunistic, unprincipled positions on these claims, it just was, like, overwhelming for him.

DG: Rick’s the first to admit the managed care plans he ran in the nineties, they were opportunistic too. But he believes some of the nation’s biggest insurers have taken those same tools and tactics to what Rick considers an indefensible extreme.

RG: Just think about the many people who are, you know, told that they have to wait for a diagnosis, wait for a PET scan, wait for the start of chemotherapy. Across the millions of people that are engaged in this tangled web of administrative functions that we’ve created, it’s hard for me to see at this point how it’s made care better. 

DG: Rick worries all this extra money has distracted the entire health system, with patient care taking a back seat. One federal report found that insurers use tools like prior authorizations to unfairly deny patients care about 13 percent of the time.

Other data is mixed. Private plans, for example, do seem to deliver more preventive care like vaccines and regular checkups than traditional Medicare.

One thing that is clear: Medicare Advantage companies, on average, make more than twice what they make off Medicaid, Obamacare and even private employer plans. 

And all their success comes at a cost to taxpayers. Experts say the government pays the plans at least six percent more than if traditional Medicare covered the exact same patients — research the insurance industry disputes.

When we come back, shrinking from the moment and that comet crashing towards Medicare — our final act. 

MIDROLL

DG: We’re back. What do you do with a program that’s wildly popular with millions of voters but also the source of serious amounts of waste and abuse? That’s the trouble for politicians as Medicare Advantage continues its rapid rise. 

Two out of every three seniors is on track to enroll in the program by 2030 because people like Carol Berman in West Palm Beach love how little they pay and the goodies they get, like help with rent and rides to the doctor.

But taxpayers subsidize private insurers handsomely to do that. Some companies are exploiting the rules of the game and some patients don’t get the care they need.

So what does the path ahead look like for Medicare? Act Three: A Fork in the Road.

Michael McWilliams is a focused guy — intense, a doctor, a professor of health policy at Harvard Medical School and a senior advisor to the Centers for Medicare and Medicaid Services, which runs Medicare. Michael’s a true wonk — a wonk really concerned about the future of the program.

Michael McWilliams: What I’m basically afraid of is that we’ll chicken out — that we won’t have a full debate that treats the future of Medicare as a pressing, urgent matter.

DG: Michael tracks the Medicare program more closely than most of us watch our fantasy sports teams and there’s one chart that’s had him worried for a while now.

MM: We’ve been spending more and more on enrollees in Medicare Advantage than in traditional Medicare — at this point now, billions and billions of dollars more.

DG: Michael fears that competitive edge that Medicare Advantage has is sending traditional Medicare hurtling towards extinction — a point of no return. And that’s the conversation he thinks we all need to have. No one is prepared for what that collapse would mean for this 900 billion-dollar-a-year program that serves 65 million seniors and people with disabilities.

So when Michael saw the news last spring that Medicare Advantage plans would get yet another pay raise — that much more of a leg up — he felt he had to do something.

And in true wonk-style, he picked up a pen. Michael wrote an article for the journal Health Affairs. He titled his thirty-five hundred word piece ‘Don’t Look Up’… 

Leonardo DiCaprio: A comet between five to 10 kilometers across that we estimate came from the Ort Cloud. 

DG: …inspired by the movie of the same name starring Leonardo DiCaprio…

DiCaprio: And using Gauss’s method of orbital determination…

DG: …where two wonky scientists try to warn politicians about a comet on track to destroy civilization.

DiCaprio: …the average astrometric uncertainty of .04 arc seconds. // Streep: Whoa. // Hill: I’m so bored. Just tell us what it is.

DG: Michael felt he had a duty to warn America about this comet headed for Medicare. But unlike some object from outer space, Michael says this Medicare Advantage comet is an existential crisis of our own making — one first set in motion back in 2003 when Congress decided the way to improve care and lower federal spending was to give private insurers’ extra payments compared to the original program.

MM: Letting it cannibalize the very program that controls it, which is traditional Medicare.

DG: Michael says if policymakers want to stop waiting and start tackling this crisis head on, they have two clear paths. Both are hard.

The first: Give traditional Medicare a fighting chance by giving it a makeover.

MM: The traditional Medicare basic benefit package includes things like 20 percent co-insurance for physician services, $1,600 deductibles for hospital episodes and no cap on out-of-pocket costs. So it is just not great basic coverage.

DG: In other words, make the basics of traditional Medicare look more like what Carol Berman gets — very little out-of-pocket exposure with a few extra benefits like dental and hearing thrown in. Lawmakers did try to do some of that as part of the Build Back Better Act. It died.

A reminder of how hard it is to get some kind of traditional Medicare overhaul through Congress.

The second path Michael sees: let traditional Medicare wither away. Embrace ‘Medicare Advantage for all.’ 

But to pull that off, Michael says we’d have to regulate private insurers more tightly than we do today. Make it easier for every consumer to get a high quality plan that meets their needs and foster enough competition between insurers to drive down costs and improve benefits. 

MM: It is workable [but] it’s really all about the execution, how well we regulate markets. And in this country, we kind of have a tendency to let market forces get away from us and take us somewhere we don’t want to be. 

DG: Even if you like the upside of Medicare Advantage for all, Michael believes the whole country got a sneak peek earlier this year of just how hard this market would be to regulate after the Biden administration proposed a modest pay cut for private insurers…

Ad: Medicare. They might cut Medicare advantage. Come on! They’re talking about it in Washington!

DG: The industry clapped back, launched a multimillion dollar ad blitz, bought a slot during the Super Bowl.

Ad continued: That’s nuts! For 30 million seniors, Medicare Advantage is Medicare. Tell the White House not to cut it.

DG: The administration eventually walked back some of the cut and decided to roll it out more slowly.

MM: Did it make me question whether we want to hand the keys to Medicare over to the industry right now? Yeah, it did.

DG: That’s one big reason that Michael says although there are pros and cons to both paths forward, he prefers what’s behind door number one: preserving the traditional Medicare program as a kind of public option and igniting some real competition.

MM: A viable traditional Medicare program gets us more out of Medicare Advantage. It forces Medicare Advantage to up its game.

DG: Michael acknowledges it’s unlikely either plan gets through Congress any time soon. But he thinks people in Washington and beyond should get their heads out of the sand. Move on from the easy political buzzwords like ‘choice’ or ‘freedom’ and wrestle with the hard policy questions.

What should Medicare cover? How much should it cost? And what’s the right role for private companies in delivering a government program?

MM: All of the easy narratives have now been used up and really the only conversation we can now have if we’re going to engage in effective Medicare reform is an honest one.

DG: In conversations we had with the nation’s leading health insurer trade group and the head of Medicare neither was ready to declare traditional Medicare cooked.

The Biden administration has changed how Medicare Advantage companies get paid and how they manage and market their plans. Congress has made traditional Medicare a little more affordable adding a cap on out-of-pocket drug costs.

But Michael McWilliams worries without bolder moves we’ll soon wake up to a Medicare program dominated by two or three insurance giants with regulations too weak and a traditional Medicare competitor too small to keep costs low or quality high.

The exact kind of uncertain and expensive future that President Lyndon Johnson promised seniors back in 1965 that they would never see again…

LBJ: Millions do not now have protection or security against the economic effects of sickness. And the time has now arrived for action.

I’m Dan Gorenstein. This is Tradeoffs.