The Hunt for the Most Lucrative Patients

Privately run Medicare Advantage programs get paid more when members look sicker—even if they don’t receive more care

- James E. Ellis

Medicare is big business for insurance companies such as UnitedHealth Group, Humana, and CVS Health’s Aetna unit. Selling private versions of the U.S. government health program for seniors—known as Medicare Advantage plans—is among the fastest growing and most profitable markets in health care. About 26 million Americans, or 42% of all Medicare beneficiaries, choose to get their Medicare benefits through private plans, bringing more than $300 billion annually into insurers’ coffers.

Now federal authorities are raising alarms about the program’s cost. Private Medicare plans, pitched as a way to deliver better care at lower costs, have never saved the government money, according to the Medicare Payment Advisory Commission (MedPAC), a panel of independent advisers to Congress that earlier this year note that some “policies are deeply flawed and in need of immediate improvement.”

The private plans in fact collect 4% more from the government than what the feds would pay to cover the same enrollees in the traditional program, MedPAC says. Those higher costs go toward perks such as vision and dental care that aren’t covered by traditional Medicare—a key draw for new members—as well as administrative expenses, marketing, and profits for private insurers. But they also reflect payments to companies that have mastered Medicare’s arcane “risk adjustment” insurance coding system to generate higher payments from the government, maximizing their revenue and boosting their bottom lines.

The Department of Health and Human Services Office of Inspector General has urged the government to boost oversight of Medicare Advantage “so that plans will ensure practices drive better care and not just higher profits.”