Medicare Advantage Providers Getting Rich?

  It has been discovered that private Medicare providers underestimated the profits that they will receive or have received, which will inflate the government reimbursement rate.

The Government Accountability Office (GAO) states that the private Medicare Advantage plans on average reported spending 85.7% of incoming revenue on medical expenses in 2005 but in actuality, they had projected that they were going to spend 90.2%.  That may not seem like a lot of extra profit, but it amounts to quite a lot, considering that millions of Medicare recipients have opted for coverage through Medicare Advantage.  Therefore, at the end of the year, their profits would be higher than projected because their expenses were lower.

What does this mean in actuality?  It means that when all was said and done, profits for private Medicare Advantage providers totaled about $1.4 billion more than they had projected.  This is not a small chunk of change, and nobody has said exactly what will happen to that extra profit.

Medicare expanded by law in 2003, and added prescription drug coverage that created better incentives for private plans to sell insurance to provide that coverage. Though 44 million elderly or disabled people are enrolled in Medicare, about 10 million are enrolled in the additional private plans sold by several companies.

The way the law works, if the private companies report revenue, and as a result, profits, lower than a set rate, they are supposed to compensate for this by providing extra benefits or reducing costs to the individuals in the program.  According to critics of the plans, it has been estimated that these Medicare Advantage plans are paid from 13% to 17% more than the government spends treating Medicare patients not enrolled in a private plan.

Time will tell how this situation will be addressed and how these expenses and savings can be used or applied to go toward fixing the Medicare financial issues that have been the subject of such heated debate during the past few years, as well as these past months leading up to the presidential election.