Medicare is supposed to cover healthcare services for the elderly and disabled. In 1997, Congress passed some Medicare reforms, calling the program "Medicare+Choice" that covered some costs that Medicare didn't.
In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act paid for patient's drugs, and thus was born Medicare Advantage. It was originally devised to reduce Medicare costs. Previously, the government paid separately for each physician visit, hospital stay, test, and prescription drug. This inflated the volume of low-value medical services. Medicare Advantage, run by private insurers, looked to change that "by paying private insurers up front to deliver all covered Medicare benefits to enrollees," according to Chris Pope, writing in City Journal.
Overpayments to Medicare Advantage plans have caused costs to soar. Taxpayers are now going to owe an additional $1 trillion over the next decade. What sort of "overpayments"?
One popular Medicare Advantage plan in California, Clever Care, pays for greens fees at six Los Angeles-area golf courses. In Utah, Select Health boasts encouraging healthy living by paying for ski passes at resorts around the country. Humana covers “pet food, pet toys, kitty litter and flea shampoo.”
What happened? In the mid- 2010s, Medicare Advantage plans were doing what they were created to do. They were reducing costs and hospitalizations, and patient outcomes were steadily improving. They were eliminating needles, costly procedures, and unnecessary operations.
The Bipartisan Budget Act of 2018 allowed plans to offer additional benefits, as long as there was a “reasonable expectation of improving or maintaining the health or overall function” of chronically ill enrollees. For some reason, Congress made eligibility for these Special Supplemental Benefits for the Chronically Ill (SSBCI) so broadly drawn that we get the taxpayers paying for a seniors' pet food.
"In 2024, 10 million Medicare beneficiaries were entitled to non-medical 'supplemental benefits as part of their coverage," reports City Journal. Meanwhile, the government doesn't have much of an idea of what taxpayers are footing the bill for.
The Medicare Payment Advisory Commission, an independent agency established by Congress, notes that the imperfect categorization of medical needs means that the program currently “overpays for beneficiaries who have very low costs and underpays for beneficiaries who have very high costs.” This is why Medicare Advantage plans are eager to offer costly supplemental benefits that are disproportionately attractive to physically active enrollees. Purchasing new golf clubs for Medicare beneficiaries with diabetes won’t reduce their risk of costly hospitalizations, while paying for their ski passes may actually increase it. But doing so will encourage the relatively healthy among them to enroll in plans.
Because of these “coding and selection” effects, from 2015 to 2024, Medicare payments to Medicare Advantage plans rose from 112 percent to 120 percent of what the program would have spent just purchasing medical services for beneficiaries directly. Over that time, overpayments to plans surged from $18 billion to $77 billion per year. Much of this largesse was spent expanding “supplemental benefits” from $960 to $2,520 per beneficiary. But it has also served to swell insurers’ profits.
Overpayments to Medicare Advantage will cost taxpayers $1.2 trillion over the next decade, according to the Committee for a Responsible Federal Budget.
Cutting these overpayments makes a lot more sense in funding the extension of Donald Trump's tax cuts than cutting Medicaid. Goodness knows that there's plenty of waste to find in both Medicare and Medicaid, but vastly limiting Medicare Advantage overpayments is low-hanging fruit.
This is a bipartisan issue. Democrats have suggested trimming these overpayments as well, but they want to roll the savings into expanding other social welfare programs. Using these savings to reduce the burden on working Americans is more in keeping with what Donald Trump wants to do.
