Why Is Medicare Advantage So Popular? A Real Life Squid Game

Medicare Advantage (MA) is so popular and growing because of the intricate business model based on overpayments, risk-score gaming, and relationships with healthcare providers. The Medicare Gold Rush, involving billions of dollars in recent investments, is linked to these dynamics, creating a distorted market that ultimately drains taxpayers and obstructs serious healthcare reform. The Medicare Advantage game is a way some health companies make extra money by taking advantage of the rules in the Medicare system. They do this by finding more health issues to report, getting paid more from the government, and then using those extra payments to offer more attractive insurance plans to seniors. The government pays more than it should for these plans, while the involved companies make a bigger profit. This game includes companies paying doctors to report more health problems, sharing the extra money with doctors, and even owning the doctor's offices. However, it's important to remember that not all Medicare Advantage plans are part of this game.

Khang T. Vuong, MHA

Khang T. Vuong received his Master of Healthcare Administration from the Milken Institute School of Public Health at the George Washington University. He was named Forbes Healthcare 2021 30 under 30. Vuong spoke at Stanford Medicine X, HIMSS conference, and served as a Fellow at the Bon Secours Health System.

TL;DR: Medicare Advantage (MA) is popular due to the increase in Medicare enrollees, the intricate business model based on overpayments, risk-score gaming, and relationships with healthcare providers. The Medicare Gold Rush is linked to these dynamics, which drain taxpayers and obstruct healthcare reform. MA plans use extra payments to offer attractive insurance plans, while companies make a profit, but not all MA plans partake in this.

What percentage of Medicare is private today?

Medicare Advantage (MA) plans have gained traction, with enrollment nearly doubling in the past 15 years. As of 2023, 49% of Medicare enrollees are enrolled in privatized Medicare or Medicare Advantage over traditional fee-for-service (FFS) Medicare. Although this growth is often attributed to the private sector's efficiency, factors like induced utilization and risk-score gaming contribute significantly to MA rebates and profitability.

Data suggests that risk scores in MA plans are approximately 8% higher than in FFS, despite no evidence of worse health conditions. This risk score inflation results in an overpayment of about $10 billion annually, casting a shadow on the apparent savings in MA plans.

Why is Medicare Advantage so popular?

1. Increase in Medicare Spending and Predicted Growth in Baby Boomers

One of the primary drivers behind the boom in Medicare Advantage is the expected rise in Medicare spending. Over the next ten years, spending is anticipated to double from $800 billion in 2019 to $1.6 trillion in 2028 as Baby Boomers age. This demographic shift creates an attractive investment opportunity for healthcare organizations and investors alike.

2. Lots of Money To Be Made Due To Overpayments

Over the past 12 years, the Medicare Payment Advisory Committee (MedPAC) has documented approximately $140 billion in MA overpayments. Risk-score gaming leads to CMS consistently overpaying MA Plans with little-to-no demonstrable clinical benefit to patients. The inflated HCC risk scores allow MA plans to draw enormous overpayments, enabling them to maximize profits without improving patient care. These overpayments contribute to heavily subsidized and distorted market dynamics.

3. Convoluted Dynamics of Costly Plans = Easier to Sell

MA Plans' overpayments are used to bolster extra benefits, making costlier plans easier to sell to consumers. Consequently, the more costly a plan is to the payer, the greater the profit, leading to significant start-ups in healthcare and a pillaging effect in the industry.

4. Direct Contracting: The Ultimate Catalyst

The Trump administration introduced Direct Contracting to move traditional Medicare beneficiaries into privatized Medicare coverage. This model inadvertently converts traditional beneficiaries into Medicare Advantage-like arrangements without consent or knowledge.

The Medicare Gold Rush & Risk Scoring Game: A Simplified Explanation

The risk scoring game can be compared to a restaurant that earns more money by adding extra items to customers' orders. MA plans submit diagnosis codes to inflate risk scores, making the patient population appear sicker to get paid more by CMS. However, many enrollees are being under-coded, creating opportunities to attach more diseases.

Magnitude and Impact: Micro Level

Consider a physician's panel of 400 MA patients. Each 0.1 increase in risk scores grows annual payer cost per beneficiary by $870, leading to $3.5 million in extra payouts. This boosts physician profits.

Magnitude and Impact: Macro Level

The risk-score gaming phenomenon results in about $140 billion in MA program overpayments over 12 years. If these were eliminated, an estimated $355 billion could be saved over the next eight years. Risk-score gaming increases costs by an estimated $15 billion or 10% for every 0.1 increase in risk scores.

Profiting Off Overpayments - The Medicare Advantage Money Machine

MA plans have found methods to maximize profitability through strategic relationships with providers. This leads to inflated reporting and obscured motives behind acquiring diagnosis codes.

Pay Providers for Submitting More Codes:

MA plans incentivize coding more diagnoses, using performance metrics and AI tools to identify opportunities, leading to more codes being submitted.

Share the Risk Premium with Providers:

MA plans sign contracts encouraging providers to focus on increasing risk scores, resulting in a financial windfall for both parties.

Own the Providers:

Some insurers and investors have chosen to own healthcare providers outright, giving them control over data submission and coding, integrating providers into the MA Money Machine.

Do Medicare Advantage Plans Actually Save Tax Payers Money?

The short answer is no.

Consider a store offering a significant discount on a product. If the original price was inflated, then the discount is an illusion.

Real vs. Apparent/Phantom Savings: Understanding the Difference.

Real savings: Tangible reduction in healthcare costs.

Apparent savings: Inflated cost reductions unrelated to better care. In MA plans, apparent savings arise from inflated benchmarks and risk score gaming, which increase payments without real value.

How Medicare Supplements Help MA Plans Win the Bidding Process

A CMS study in 2022 found that those with additional coverage on top of Medicare cost 18% more than those without.

Medicare Supplement makes traditional Medicare more costly, making MA appear as a better deal. These policies cover out-of-pocket costs, leading to higher utilization of medical services, termed "induced utilization."

The average costs of traditional Medicare beneficiaries with supplemental coverage are significantly higher, increasing overall costs and enabling MA plans to offer zero-premium products.

Implications for MA enrollees and taxpayers

Due to inflated benchmarks and risk score gaming, MA plan rebates have doubled, driving enrollment and growth.

Implications on Impact on Medicare Trust Fund and Healthcare Delivery

The rise in Medicare Advantage has implications for healthcare delivery, taxpayers, and the Medicare Trust Fund. The current Medicare Gold Rush distorts healthcare delivery, draining resources from essential services. The financial rewards from inflated MA payments create market distortions affecting care quality and leading providers to focus on coding optimization over quality care.