Opinion: Medicare Advantage plans: The “junk bonds” of healthcare

This Nov. 8, 2018 file photo shows a page from the 2019 U.S. Medicare Handbook in Washington.

This Nov. 8, 2018 file photo shows a page from the 2019 U.S. Medicare Handbook in Washington. Pablo Martinez Monsivais / AP

By JAMES FIESEHER

Published: 09-19-2024 6:00 AM

James Fieseher MD (retired) lives in Dover.

September starts the open enrollment period for seniors choosing a healthcare plan, either traditional Medicare (TM) or any one of a number of commercial “Medicare Advantage” plans (MA). Picking the one plan that is right for you depends upon your overall health status, your financial situation, and your ability to predict your health in the future.

For the next three or four months, you’re going to be flooded with advertisements for various MA plans, pitched by older celebrities like Joe Namath, Jimmy “Dy-no-mite” Walker, and William Shatner. You’ll hear them say the word “free” a lot, and if you think commercial health care is being offered for free, there’s a famous bridge in Brooklyn you might be interested in buying.

Congress established Medicare in 1965 to provide a highly transparent, cost-effective mechanism for publicly funding the health care needs of American seniors. It came with a set of clear guidelines for doctors and patients alike letting them know which services would be paid and which were not. 98% of taxpayers’ dollars through Social Security went directly back to medical costs for seniors while roughly 2% went to administrative fees. Once the doctor and patient agreed on the medical services needed, those costs were promptly paid. That same formula is still in effect today, 59 years later, although the administrative costs are now closer to 3%.

By contrast, Medicare Advantage plans started in the 1970s but didn’t come into its own until 2004 when commercial insurances started aggressive advertising. They boasted “free” everything as well as dental and eye coverage, “depending upon your zip code.” Clearly, their healthcare isn’t free. They bill the Medicare Trust Fund directly, with a built-in 10% profit margin for administrative services.

Commercial health insurers found a number of loopholes in the way MA (a.k.a. Medicare Part C) was structured that enabled them to increase their profit margins at least three-fold. One of the larger “loopholes” was the notion that medical insurers would self-regulate, meaning that there was little chance that outright fraud would be detected. In last year alone, commercial insurers overcharged CMS (the Center for Medicare and Medicaid Services) an estimated $88 billion. But because of a lack of transparency, that number could be as high as $140 billion.

What does that mean to you when deciding on which plan to choose?

One of the ways commercial MA insurers can extract more money from the Medicare Trust Fund is through a process known as “upcoding.” This is a way of taking a past or present medical condition and redefining it as a more serious problem than your medical practitioner originally listed. Suddenly an elevated blood pressure is redefined as a serious blood pressure problem, or pre-diabetes becomes uncontrolled diabetes. This enables the private insurer to bill CMS at a higher rate.

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At the same time, commercial MA insurers have the right to “manage” your health care by having a say in whether or not they will pay for a medication or procedure that you and your medical practitioner have decided is necessary through a mechanism called “prior authorization.” Waiting for a for-profit health insurer to approve a medication or procedure has caused serious delays or outright denials of urgently needed medical care, often resulting in patients paying the entire cost out of their own pockets, saving the highly profitable health insurer millions.

Because of upcoding, patients on MA plans appear to have more serious health problems than patients on TM, while at the same time those same patients receive fewer medications and procedures due to prior authorization denials. MA plans may save you some money in the up-front costs of Medicare, but you’re going to lose your shirt and a lot more if you develop more than a minor medical condition.

In many ways, Medicare plans resemble the bond market. Traditional Medicare, managed by the U.S. government is like government treasury notes, they’re AAA rated and a guaranteed safe investment. Medicare Part C, MA plans are like C-rated bonds (a.k.a. “junk bonds”), they may entice you with higher yield offerings, but the pay-off is risky and they’re more likely to fail you when you need them the most.

What about if you’re on a MA plan and want to switch back to traditional Medicare?

You might not be able to, or it might cost you a higher rate, depending upon your health and the number of years you’ve been on an MA plan. There are a number of commercial plans that cover “gaps” in traditional Medicare, such as hearing, dental, and eye care. These can be covered at fairly low cost through supplemental plans known as “Medigap” plans. But if you have a pre-existing condition, especially if it’s serious enough, you might be ineligible or have to pay a much higher rate for any of the Medigap coverage plans. (Remember that “upcoding” I mentioned earlier?). Plus, switching from MA to TM is intentionally complicated, confusing, and difficult, even if you don’t have a pre-existing condition.

So, if you are living on the margins, but are in excellent health and don’t think you’ll ever need any serious hospitalization or surgery for the rest of your life, then an MA plan might be right for you. For the rest of us, I would suggest sticking to the tried-and-true TM, which will save you lots of money in the long run and will avoid the frustrating delays in care waiting for a prior authorization from an insurance agent.