The Problem with Medicare Advantage

Everyone understands why Congress was so reluctant to cut physicians’ fees. Reimbursements for primary care physicians are very low—so low that 30 percent of Medicare recipients who are looking for a new medical home can’t find one. Cut fees, and fewer doctors will take Medicare patients. The AMA, seniors and the AARP are all up-in-arms. Few politicians like to disappoint this trio.

But why are so many Congressmen willing to cut Medicare Advantage? After all, one out of five seniors is in the program: Won’t they be upset?

The truth is that, as many seniors have discovered, Medicare Advantage fee-for-service (the plan Congress has now voted to phase out by 2011) is not turning out to be an advantage for them.

Here is what David Fillman, an International Vice President of the American Federation of State, County and Municipal Employees (AFSCME), which represents some 1.4 million workers, had to say about MA’s fee-for-service insurance when he testified before Congress in January:

“Insurance companies have targeted our employers for the hard sell, including offers to pass through some of the federal subsidies to state and local governments.”

Fillman rightly calls the subsidies a “windfall” –Medicare pays fee-for-service Medicare Advantage 17 percent more than Medicare would spend if it delivered the services itself.

Fillman goes on to explain: “The new accounting rules issued by the Governmental Accounting Standards Board (GASB) place a tremendous strain on public retiree health benefits and add to the lure of these private Medicare plans.  The GASB rules require public employers to estimate future costs of their retiree health benefits – 35 years into the future – and publish them on their annual financial statements. To reduce this paper liability, more public employers are proposing a switch from their own solid retiree health plans, which include traditional Medicare, to these private Medicare plans. This is a major factor in public employers’ decisions to switch to Medicare Advantage private fee-for-service plans.

“In my state [Pennsylvania] Governor Rendell plans to replace our Retired Employees Health Program (REHP) for state government retirees with a Medicare Advantage private-fee-for-service plan and proposes to cut our prescription drug benefits,” Fillman explained. “He is removing retirees who are aged 65 and older from the secure state plan and forcing them out of the traditional Medicare program. By removing retirees from the secure state public plan (REHP), the Governor is denying them their right to access the secure Medicare program they have paid into all their lives.

“Our retirees are moving from the Medicare defined benefit plan with a solid wrap-around supplemental, to an unknown plan. Although these private Medicare replacement plans must be the actuarial equivalent of Medicare they have a broad hand in shaping the details and setting co-payments, premiums and the real value of benefits from year to year.” In other words, the plans are complicated, and the plan you sign up for this year may not cover the same benefits next year. As Fillman puts it, “Experts have joked that if you have seen one Medicare Advantage fee-for-service plan then you’ve seen one MA plan – for that year.

“Aside from the confusion and added complexity, the forced shift to a Medicare replacement product can obscure a reduction in benefits and a shift of costs onto beneficiaries who have limited incomes and may be in fragile health.”

Advantage supporters like U.S. Senator Tom Coburn, like to argue that Advantage fee-for-service offers choice. “Medicare Advantage offers seniors personal choice and control over their health care decisions,” he has said. But if benefits aren’t transparent, how can seniors make a real choice?

“We oppose this forced switch both from our understanding of its impact on Medicare generally as well as our fellow AFSCME members’ experiences in West Virginia,” Fillman observed. “Those retirees were forced out of Medicare and into an MA private fee-for-service plan last July. We also are beginning to hear from AFSCME retirees in Ohio who were just switched over this month to a Medicare Advantage private fee-for-service plan.

“In West Virginia, 37,000 retired state employees and teachers covered by the Public Employees Insurance Agency (PEIA) were forced out of traditional Medicare and stripped of their supplemental plan. They were enrolled in Advantra Freedom, an MA plan administered by the for-profit giant, Coventry Health Care. In November, in PEIA hearings, hundreds of angry West Virginian retirees testified against Advantra Freedom.”

Seniors Tell Their Stories

One senior at the Charleston hearing, Peggy Beavers, complained that Coventry is “known throughout the country to cut costs any way they can”, and said she did not understand why she would be forced out of Medicare into a replacement product offered by “a company that’s all about making a profit for itself.”

“Specifically,” Filllman testified, “AFSCME is concerned about the following complaints we have received from West Virginia and other states regarding PFFS plans. These concerns are typical of the problems inherent to MA private-fee-for service plans.

  • Even though these plans are marketed as nationwide and have no networks – this is false. They limit access to care and choice because significant numbers of doctors and hospitals have refused to accept the card, especially out-of-state. For example, many West Virginia retirees who moved out of state could get no doctor to accept the private MA plan.
  • MA private fee-for-service plans may offer additional benefits, such as gym memberships (the only major additional benefit in West Virginia), or hearing aids and eyeglass coverage, but they modify their benefits to cut corners in more important areas, such as limiting hospital days or charging higher co-pays for nursing homes than Medicare. Indeed, officials in West Virginia actually told a state legislative committee in November that “we know that … retirees who use more medical care will be worse off under this plan.”
  • PFFS plans more frequently deny claims in order to hold down costs.
  • The appeals processes are more difficult under the private plans. Retirees are no longer enrolled in traditional Medicare and must go through the company rather than Medicare’s transparent appeals process. Further, beneficiaries are often bounced between CMS and the insurance company seeking redress.
  • The subsidy to the private plans causes government employers, many of whom have secure, self-insured medical plans, to switch control of their medical decisions to these private companies, break up their efficient risk pools, and allow private companies to profit off our retirees.
  • The plans are not stable. They can and do pull out of markets, disrupting health care services and causing much anxiety among beneficiaries.

“There is a lack of quality and accountability.  These private replacements for Medicare are exempt from basic quality reporting requirements.

“In addition,” Fillman concluded, “we are concerned that Medicare Advantage plans are a drain on our state and its retirees. The more than one million Pennsylvania seniors who are enrolled in traditional Medicare are paying about $25 million in extra premiums to subsidize the 32 percent of beneficiaries who are enrolled in Medicare Advantage plans. The State is also paying for these subsidies. The Medicaid program in Pennsylvania pays Part B premiums for low-income beneficiaries and this cost was an extra $6.3 million in FY 2007.

“When Congress opened up Medicare to private plans, it was based on the claim that the health insurance industry would be more efficient, provide more care coordination, and do so at less cost to taxpayers. PFFS plans do none of the above, and enrollees who are forced into them are no longer enrolled in Medicare.

“Again, the root of these problems is the excessive financial incentives to develop and market these products which are designed to replace the tried and true Medicare program. These problems, the trend towards private plans, and the devastating privatization of our traditional Medicare program must be addressed. We concur with the recommendations made by the Medicare Payment Advisory Commission (MedPAC) that MA private plans should compete with traditional Medicare on a level payment playing field.”

Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in the New York Times, Barron’s and Institutional Investor. She is the author of  “Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much,” an examination of the economic forces driving the health care system. A fellow at the Century Foundation, Maggie is also the author the increasingly influential HealthBeat blog, one of our favorite health care reads, where this piece first appeared.

16 replies »

  1. Can anyone tell me, besides the $96 with held from SS, what is the negotiated per month amount that the government pays the Advantage provider?

  2. Amazed to come across all these comments on Medicare Advantage – I actually knew nothing of these policies and in my case for once “ignorance is bliss”. Believe we will stick with Medicare and our extremely high monthly supplemental policy – $250 deductible -plus it includes RX – ambulance charges- and ER costs when you are admitted to the hospital, and on and on. The cost $892 a MONTH for 2 persons. However, putting first things first, we do not go out to dinner several times a week,do not have a boat, but are more than comfortable with our simple social life and enjoying our home, family and friends. Being 80 yrs. young has its ADVANTAGES too despite health problems of 30 yrs. I never thought I would live to see what is happening now in the takeover of our country. A NO vote on Obama health care is a must as even he doesn’t know what the bill contains.

  3. This information is not at all strange and hard to find a blog …. keep it up. It is very important if the costs of Medicare services, tools and medicines, reduced the level the body can not use.

  4. I am a psychologist in Pennsylvania providing services in nursing homes. Increasing numbers of my patients are being recruited into Advantage plans. These, in turn, have begun carving out mental health coverge to middle men. For an initial psychiatric evaluation, traditional Medicare allows about $150, and pays 80% of that. For the same service, MHNet (the mental health middle man for Advantra and other plans) pays $40.00. How am I to respond to that?

  5. I have been a Insurance Agent for 4 years and started out selling the Medicare Private fee for service plans (MAPD) and Prescription Plans (PDP). It has been a roller coaster ride the whole 4 years. The plans change every year and most seniors have to be completely reliant on Insurance agents because the plans are to complicated for most to understand. Many agents take advantage of this concept.
    Medicare and the Insurance companies create lengthy certification programs for agents each year that further complicate the programs and drive good agents away. Also for 2009 there has been a furthur cut in commissions and it’s already difficult to get paid and receive renewals each year from the Marketing Companies (FMO’s). The whole program can be a scam for the beneficiary and the agent, again greedy corporate America has ruined the concept for seniors. They have had there chance and they have blown it. It’s a whole lot of time for very little commission in the long run, compared to Med Supps. All agents who want to help there senior clients and also receive a renewal paycheck stick to Medicare Supplements. The M.Advantage plans are good for beneficiaries who are on Medicare and not Medicaid and absolutly can’t afford M. Supplements and some people on disability (pay more for M.supplements). It was a great idea if corporate America could care about the care of our seniors versus making a huge profit. Not possible in today’s greedy CEO climate.

  6. I have been an Insurance Agent for over 15 years and see a lot of the MA/MAPD problems with my own clients and have had to go as far as apeal with the reegional Medicare office located in Atlanta to get issues resolved that are clearly the fault of Advantra Freedom and somtimes Medicare themselves, or they blame each other. It is a more complex system and I truly believe insurers use this as a leverage to confuse.
    and belive it or not they rip off their agents also by not paying them fairly as agreed by contract, So I guess Advantra’s winning? Good luck on your MAPD endeavor and dont forget to fasten your seatbelts, It could be a rough ride,

  7. Well this type of information is barely rare and difficult to find like in the blog ….keep it up.
    It is highly appreciable if the cost of medicare services,Equipments, and medicines are reduced to level that any body can avail that.
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  8. I switched my 90 year old mother to Aetna PFFS plan this year and now I believe it was a mistake. She spent 2 weeks in the hospital and when it was time to go to a rehab facility, my first 2 choices near my home were denied. Now I have to drive 17 miles 1 way to visit her. Her care has not been very good there and we are moving her out early as she is depressed and not eating. The 2 other facilities close to my home did not want to accept Aetna PFFS plans. One of them was a mile from me and is much newer than where my mother ended up. The senator says seniors have more control over decisions but I find it to be the opposite.

  9. I commend you on your article and thank you for clarifying the issues with Medicare Advantage PFFS plans. I happen to work for a health insurer with a Medicare Advantage plan, however it is a Medicare Advantage HMO. Actually an MA plus part D plan to be more specific. Our plan is designed and directed by physicians within each community we serve. We clear the roadblocks for our members by empowering our physician partners to make the most appropriate care decisions for their patients and we afford them time to provide true care coordination and focus on patient long term health. We consistently have the lowest out of pocket costs of any competing plan and we offer additional benefits beyond Medicare such as dental, vision, and transportation to and form the doctor. I believe our approach is what MA was intended to be, i.e., a private company that can offer more benefits and drive better health outcomes but do so more efficiently and effectively. Not all MA plans are created equal but I think it is important to not throw the baby out with the bath water here. A clear distinction needs to be made between Medicare Advantage PFFS plans and Medicare Advantage HMOs. There are countless seniors, most of which are on tight fixed incomes who benefit from MAPD HMOs and I hope that our legislators continue to make a clear distinction going forward.

  10. Splasy—
    You’re basically right. All of the “choices” of
    Medicare Advantage create an opportunity for much smoke and mirrors . .

  11. I figure if it’s confusing, it’s probably a scam. That’s how con artists work, baffle people with confusing talk while they steal from them.
    Give me as simple as possible any day. It’s more honest and clear.

  12. Abby–
    Under Medicare Advantage every insurer has a different plan –which, as you say, is what makes it
    so confusing.
    I haven’t heard of one that pays 80 percent of mental health. I tend to doubt that anyone does since this could be very expensive (unless there was a cap on how much they paid each year–say $300.)
    And even then,
    since people with mental health problems often have other problems that affect there physical health (self-medicating by drinking, smoking, etc.to try to feel better) private insurers would not want to attract these patients by offering generous mental health benefits.
    Basically for-profit insurers don’t like to insure sick people.

  13. Ideologically, I’m opposed to Medicare Advantage, particularly given the fact that the system is needlessly complex, and the differences are not transparent. I’m curious, though, about their mental health benefits. Traditional Medicare pays only 50% of the cost of mental health visits whereas it pays 80% of the cost of medical visits.