Sick Patients Are Bailing Out of Medicare Advantage (And it’s Costing You)

It is not hard to understand the tantalizing allure of Medicare Advantage (MA) plans—also known as Medicare Part C. The private insurers behind the government-funded plans promise to provide seniors and people with disabilities the same benefits they would get from traditional Medicare plans at low or even $0 premiums.

Furthermore, they often offer extra benefits like dental care, eye care, and even free gym memberships. With 33 million enrollees, Medicare Advantage plans now cover more than half (54%) of all total Medicare beneficiaries.

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But there is an economic challenge that Medicare (and therefore all taxpayers) is facing increasingly. Here’s how it breaks down:

Insurance companies offering Medicare Advantage plans receive a fixed monthly payment per enrollee from the federal government, which is based on the expected health care costs of a beneficiary in their county, their health status, and how much the insurance company bid during a bidding process.

The insurance companies then are solely responsible for the enrollees’ medical costs. These insurance companies have a powerful profit motive to keep actual medical costs down.

One of the ways MA plans reduce costs is to actively manage the care of their clients, including limiting which doctors and hospitals patients can use, and requiring patients to get prior authorization for certain services.

Prior authorization is rarely used in traditional, government-only Medicare. Critics say it is inappropriate for an insurer to insert itself in the decision-making process between doctor and patient.

They maintain that prior authorization is overly and improperly used by private insurers and often results in treatment delays.

Insurance industry observers say a rough estimate would suggest that there are as many as 1.5 million improperly denied Medicare Advantage prior authorizations a year. Bill Kadereit, the director of the National Retiree Legislative Network, said insurers’ aggressive use of prior authorization can be lethal.

“The time factor is as much of an issue as the fact that a service is denied,” he said. “People can die in the interim.”

Because Americans who rely on the safety net of Medicare are increasingly being denied coverage under their MA plans, they are dropping out of those plans and enrolling in traditional Medicare.

This exodus is particularly high among the sickest Medicare Advantage patients, who are altering their coverage as their health care needs rise. The result is exploding costs for taxpayers.

A Wall Street Journal investigation found that the rate of seniors in the final year of their lives leaving MA plans for traditional Medicare doubled from 2016 to 2022, compared to other enrollees. The investigation also found that MA insurers netted more than $6 billion in savings during that period, but left the government (which means us taxpayers) with the tab.

A report from the U.S. Senate Permanent Subcommittee on Investigations echoed the WSJ findings. This report detailed how three of the nation’s largest MA insurers are increasingly denying post-acute care coverage to seniors and individuals with disabilities, resulting in limited access to critical care for hundreds of thousands of Medicare Advantage beneficiaries.