Study: Medicare Has Overpaid Private Insurers $283B Since 1985

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Three physicians and health policy directors with Physicians for a National Health Program conducted a study on how Medicare pays private insurers, also known as Medicare Advantage plans, and they identified overpayments totaling $282.6 billion since 1985.

Medicare Advantage plans, also known as Medicare Part C and formerly known as Medicare HMOs, are Medicare plans run through private companies to provide beneficiaries with their Part A and Part B benefits. MA plans also compete with the traditional fee-for-service plans.


Ida Hellander, MD, David Himmelstein, MD, and Steffie Woolhandler, MD, conducted the study (pdf), which will appear in the International Journal of Health Services. The researchers found MA insurers gained excess payments from the Medicare program in five ways:

1. Selective enrollment of healthier beneficiaries before 2004 ($41 billion).

2. Enrolling Medicare beneficiaries who have lower health costs and are within Medicare's "Hierarchical Condition Categories" after 2004 ($122.5 billion).

3. Overpayments mandated within Congress' 2003 Medicare Prescription Drug, Improvement, and Modernization Act, including duplicate payments for indirect medical education ($84.4 billion, which includes point four).

4. Bonus payments from CMS' Medicare Advantage Quality Bonus Payment Demonstration, which the Government Accountability Office said will cost $8.35 billion over 10 years.

5. Duplicate payments on behalf of beneficiaries who receive all or part of their care at VA facilities, which is already covered by the government ($34.8 billion).

The researchers used several sources to collect the data, including the GAO, the Medicare Payment Advisory Commission, the National Bureau of Economic Research, the Commonwealth Fund and others.

"We've long known that Medicare has been paying private insurers more than if their enrollees had stayed in traditional free-for-service Medicare, but no one has assessed the full extent of these overpayments," Dr. Hellander, lead author of the study, said in a news release. "Nor has anyone systematically examined the many ways that private insurers have gamed the system to maximize their bottom line at taxpayers' expense."

More Articles on Medicare Advantage:

5 Things No One Told Me Before I Launched an ACO

HHS: Medicare Advantage Enrollment Expected to Swell 11%

4 Managed Care Trends With Health Systems, Surgical Hospitals and ASCs

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