Who’s really paying for United Health Group’s profit spike?

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The biggest U.S. health insurance conglomerate, UnitedHealth Group, was basking today in a 13% profit increase, to more than $1 billion, even though it lost nearly 10% of its private customers (no job=no health insurance). Where it boosted revenue was in its Medicare managed care plans–meaning that its profits are subsidized by people who have regular plain-vanilla Medicare.

medadvantage.pngThe heavily marketed (see left) Medicare Advantage plans, which offer managed care plans to seniors, have cut themselves a sweet deal in which Medicare pays them 14.5% more than the average cost of providing for Medicare members. But the costs of Medicare, including the member-paid Part B doctor coverage, are rising steeply because of that bonus payment.

The federal MedPAC–the Medicare Payment Advisory
Commission–directly links the price increases for Medicare Part B
to the bloated payments for Medicare Advantage plans. Here’s some January 2008 testimony (PDF) by the executive director of MedPAC:

Medicare pays far more for each beneficiary who opts
for [a Medicare Advantage] plan than it would if they stayed in
[traditional Medicare].  In addition to promoting inefficiency in
[Medicare Advantage], this misalignment increases the burden on
taxpayers and beneficiaries, who must pay higher Part B premiums,
whether they are in managed care plans or not.

It’s this overpayment that United Health Group and its insurance industry brethren are battling to keep, by frightening seniors with warnings that their Medicare Advantage coverage will be cut if the government doesn’t keep up the overpayments. (Here’s a copy of one insurers’ letter, obtained by Huffington Post). These letters, like the lavish marketing materials sent by Medicare Advantage plans, were paid with Medicare (i.e. taxpayer) funds.

Medicare Advantage programs were invented as a way to reduce Medicare spending through managed care, competitive bidding and the free market. The insurance industry made big promises. Then, through intense lobbying, the industry turned Medicare Advantage into a profitable goodie bag, using "free" vision care, gym memberships and other carefully designed perks to lure the healthiest and youngest of seniors.

Medicare Advantage as it currently works is a scam. United Health Group plays the system like a pro, especially with the leverage of AARP’s endorsement. 

President Obama is right to want to cut the overpayments and demand the efficiencies that Medicare Advantage originally promised. Congress appears ready to cave in to the insurance industry’s scare campaign. But UnitedHealth’s profit report tells us that it’s taxpayers boosting the bottom line, for no reason other than profit itself.

Consumer Watchdog
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