Cuts to Medicare Advantage, or Cogs in the Money Machine?

In recent months, you may have seen pop-up advertisements and opinion pieces (like this one published in the Virginia Mercury) issuing dire warnings about cuts to Medicare Advantage, the privatized portion of Medicare. These cuts to Medicare Advantage supplemental benefits, the authors claim, will threaten the quality of care for the program’s 28 million beneficiaries. On closer examination, however, it appears that these dire warnings are motivated by corporate greed rather than quality of care.

The supposed “cuts” are in fact a set of new regulations that would change the way Medicare Advantage beneficiaries’ risk scores are calculated and audited. Risk scores take into account a patient’s medical history and diagnoses to determine how much Medicare will pay a private insurer to cover them. The more diagnoses a patient has, the more private providers are paid. The intent of the new regulations is to curb the practice known as risk upcoding, in which Medicare Advantage providers deliberately inflate the risk scores of beneficiaries in order to extract higher payments from the Centers for Medicare and Medicaid Services’ (CMS) and thus secure greater profits for themselves. 

This practice of risk upcoding has been described by former CMS leadership as the “Medicare Advantage Money Machine.” And a lucrative machine it is, averaging over $10 billion annually in Medicare Advantage overpayments for the past fifteen years. This upcoding money machine is projected to increase to over $60 billion per year by 2030 as Baby Boomers age, and the new CMS regulations are merely trying to recoup some of these overpayments by changing coding standards and improving audit practices.

What is Risk Upcoding?

First piloted in the 1970s and enshrined into law in 1997, Medicare Part C, or Medicare Advantage, was a major step towards privatization of Medicare. Medicare Advantage plans are all government-funded but administered by private insurance companies. Today, nearly half of Medicare’s 65 million beneficiaries are enrolled in Medicare Advantage plans.

Unlike the fee-for-service model of traditional Medicare, Medicare Advantage is a capitated program that pays private health insurers a set amount per year per beneficiary. The amount insurers receive varies depending on the beneficiary’s health conditions — based on the logic that high-risk patients with more health concerns will require more treatment and thus more reimbursement. Insurers receive these risk-based payments whether the beneficiary is receiving treatment for their conditions or not. 

This funding scheme provides insurers an incentive to inflate their risk scores  in order to maximize their payments from Medicare Advantage. Insurers use a scoring system known as the Hierarchical Condition Categories (HCCs) to gauge patient risk, with scores below 1.0 indicating a relatively healthy patient and scores above 1.0 indicating higher risk. 

Wait, isn’t it good that high risk beneficiaries are getting covered? The problem here isn’t in covering patients at high-risk of illness or disease, but in the way private corporations have identified ways to exploit a patient’s condition in order to expand their payout from the taxpayer.

As an example, imagine a 75-year old man named Joe who is being treated for type 2 diabetes. Based on his age and condition, Joe would have an HCC risk score of 1.053, with his insurer receiving more than $8,200 annually from Medicare Advantage. If the insurer learns that Joe also has rheumatoid arthritis and inflammatory bowel syndrome, they can upcode his risk score to 1.755 and receive an additional $5,000 per year, even if Joe is not receiving treatment for either condition. 

Multiplying this practice by millions of patients per year results in billions of dollars in overpayments to private insurers. In recent years, an ecosystem of tech startups and service providers has sprung up to extract maximum profit from this system, from in-home upcoding consultations to AI-enabled apps that help providers and insurers code beneficiaries with the highest risk scores possible. Insurers sometimes offer cash rewards to health providers for using these upcoding apps. With the vertical integration of insurer and provider in managed care organizations, some doctors receive even bigger kickbacks via profit-sharing incentives in exchange for upcoding their patients.

This all may sound like a corrupt racketeering scheme, but these are just standard business practices enabled by our privatized healthcare industry. And it is this lucrative industry and their astroturf advocacy groups who are now behind the public relations blitz placing op-eds about CMS allegedly “cutting Medicare Advantage” by merely attempting to recoup some of the billions of dollars lost through years of overpayments.

Pop-up advertisement in the New York Post warning of Medicare Advantage cuts for 30 million seniors, sponsored by the Coalition for Medicare Choices, a “grassroots” organization run by insurance industry lobbying group America’s Health Insurance Plans (AHIP).

Medicare Advantage is the wrong direction for American healthcare

While CMS’ regulatory efforts to reduce upcoding and recoup overpayments is a good development, these efforts will do little to reduce the estimated $7 trillion that will be doled out to private insurers over the next decade via the Medicare Advantage program. Ultimately, the program will continue to be a money machine for the private sector for years to come. 

This increasing privatization of Medicare — including insidious schemes such as the Trump-era ACO REACH program — is the wrong direction for the already dysfunctional US healthcare system. We should instead be returning Medicare to its roots as a fully public health coverage system, expanding it to cover Americans of all ages, and improving it with the addition of dental, eye care, and mental health coverage.

In short, we need national, improved Medicare For All: a universal healthcare system supported by more than 70% of Americans. We need to shut down the Medicare Advantage Money Machine for good.

The prospects of a credible left-wing challenge for the Presidency in 2022 is looking bleak, which narrows the window on any serious change on the national front for moving away from our private health insurance system. However, activists at the local level can keep the long-goal of a national health-insurance system alive. Ensuring we elect national representatives who know not to fall for Medicare privatization and who support the construction of a national health insurance system is a start. 

Through the DSA and other community alliances, regional organizers have been building grassroots support for Medicare expansion. In 2021, Prince George’s County Council, the Montgomery County Council, and the DC Council passed resolutions in favor of Medicare for All. Now, socialist organizers in Alexandria have been calling for the Alexandria City Council to do the same. (Readers living in Alexandria, Virginia are urged to sign this petition in support)

The goal of these local mobilizations is two-fold – first, to build a wider awareness of the real health-care reforms our system needs so that elected officials know to resist privatization schemes cooked up by private health-care financiers. The second is to put pressure on local elected officials operating at the federal level – many of whom are skeptical of Medicare for All systems – to come around to seeing healthcare as a human right by demonstrating that there are strong bases of support for these proposals.

If you live in Alexandria, please sign this petition in support of the Alexandria Medicare For All Resolution, and help us grow the movement for universal healthcare!

Additional reading:

Is the Biden Administration Proposing Cuts to Medicare Advantage? Published February 17th, 2023 by the progressive Kaiser Family Foundation

Cuts to Medicare Advantage threaten Virginia seniors, people with disabilities. Propaganda published by privatization lobbyists in the Virginia Mercury.

The Dark History of Medicare Privatization. Published January 24, 2022 by left-labor publication The American Prospect.

Upcoding: one reason Medicare Advantage companies pay clinicians to amke home health checkups. Published January 19th, 2023 in the trade publication Stat News.

Medicare Advantage and the Medicare 'Money Machine', Part 1. Published September 29, 2021 in the trade publication Health Affairs.

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