The Biden administration this week finalized a highly anticipated rule to rein in billions of dollars in overpayments to private insurers through the federal government’s Medicare Advantage program.
But the overhauls were weaker than expected following an aggressive lobbying blitz from private health insurers. Reforms to overbilling will phase in over a three-year period instead of immediately, and insurers will enjoy a higher reimbursement rate than expected, both key wins for the industry.
About half of all eligible Medicare beneficiaries are currently enrolled in Medicare Advantage, which contracts with private insurers to provide benefits that aren’t included in traditional Medicare, such as vision and dental coverage.
Throughout Medicare Advantage’s 20 years, private insurers have been accused of “upcoding” beneficiaries, tacking diagnosis codes on to patients for conditions they may not even be treated for, in order to boost the revenue they earn from Medicare.
The Medicare Payment Advisory Panel, which advises Congress on Medicare issues, estimates that nearly $124 billion in overpayments were made to private insurers between 2007 and 2023, including $44 billion over the last two years alone.
New rule takes aim at excessive charges
The Centers for Medicare and Medicaid Services (CMS) is essentially aiming to reduce the number of factors that could result in a beneficiary’s risk score being improperly or excessively raised through its new plan.
The effects of these actions will go into effect over three years, which could give insurers time to push for additional changes.
CMS originally proposed changes it estimated would result in a 1 percent increase to Medicare Advantage payments for next year, but the final number rose to 3.2 percent after insurers warned the measure could raise premiums for seniors.
When asked whether industry lobbying efforts made an impact, Deputy CMS administrator Meena Seshamani said that the decision to gradually phase in policy changes is “consistent with prior practice.”
“We are really driving toward advancing health equity, improving payment accuracy, driving high quality care, expanding access to care,” Seshamani told reporters.
The agency will also begin the process of recovering improper payments made to Medicare Advantage plans by performing audits, the first time the agency has audited these plans since 2007.
Lobbying blitz targeted White House, Democrats
When the White House began discussing changes to the Medicare Advantage payment model last year, the health insurance industry launched a multimillion dollar lobbying campaign against the proposed changes, claiming the federal government was cutting Medicare funding.
The Better Medicare Alliance (BMA), a group funded by multiple major insurance companies, ran Super Bowl ads warning that the White House was planning to cut Medicare. BMA blanketed the airwaves in the nation’s capital and Arizona and Nevada, where Democrats will defend key Senate seats.
The American Action Network, a House-GOP aligned advocacy group that previously received millions of dollars from health care interests, including Aetna, a Medicare Advantage provider, launched $2 million in ads last month putting pressure on swing-district Democrats to oppose Biden’s plan. The ads accused Biden of “proposing massive Medicare Advantage cuts to seniors,” citing a BMA study.
America’s Health Insurance Plans (AHIP) said that Democrats and Republicans were instrumental in getting the Biden administration to change course, touting a letter from over 60 senators urging the Biden administration to “provide a stable rate and policy environment” for Medicare Advantage.
The insurance industry group said that the final CMS rule “recognized the serious concerns” raised by the industry.
AHIP spent $13.3 million on lobbying last year, its highest ever mark, according to nonpartisan watchdog OpenSecrets. The group in December hired Josie Villanueva, a for-hire lobbyist who served as a counselor to Health and Human Services Secretary Xavier Becerra.
BMA spent $1.1 million on lobbying in 2022, more than double the previous year. Also in December, BMA contracted with Emily Holland, a for-hire lobbyist who served as a senior adviser at the CMS under Trump.
Experts cast doubt on industry claims
Opponents of the administration’s reforms warned of higher rates and weaker benefits. But experts are dubious that consumers will feel a financial impact as a result of these changes, owing to the fact that Medicare Advantage plans are provided through private companies.
“They’ve got a strong incentive to stay at zero premium. Many of these plans — most companies have plans in most markets that are at zero premium,” said Jack Hoadley, research professor emeritus in the Health Policy Institute of Georgetown University’s McCourt School of Public Policy.
According to Hoadley, insurance providers will still want to remain competitive, maintain their enrollment numbers and stay careful to not push patients towards traditional Medicare.
“They’ll find other ways to tighten their belts,” Hoadley said. “Can I guarantee that there will never be a higher cost to beneficiaries? No, there’s just lots of things affecting this market. If rates do go up a bit, it would simply be, I think, an adjustment to the fact that there’s been this generosity.”
Medicare Advantage is lucrative
Medicare Advantage is a hugely profitable program for insurers. A February report from the Kaiser Family Foundation found that insurers’ profit margins on Medicare Advantage plans were double that of other types of health plans in 2021.
Humana, which enrolls more than 5 million Medicare Advantage beneficiaries, brought in roughly 79 percent of its premiums and service revenue from Medicare Advantage plans last year, according to an annual report to shareholders.
UnitedHealth Group, the largest Medicare Advantage provider, saw its stock soar 3.5 percent following Wednesday’s CMS announcement, while Humana’s stock rose 2.5 percent.
Raymond James analysts on Wednesday upgraded the outlook for UnitedHealth and Cigna shares, pointing to an “improving regulatory backdrop” and the three-year phase-in period that is “a win for the industry.”
The insurance industry has defeated proposed Medicare Advantage changes before.
Former President Obama ran on the promise of reforming Medicare Advantage through his health care overhaul. But Congress and the Obama administration ultimately boosted Medicare Advantage rates following a lobbying blitz from the health insurance lobby.
Marilyn Tavenner, Obama’s CMS administrator, left in 2015 to become CEO of AHIP, a position that paid her $4.6 million over three years.
