Medicare Advantage Providers Profiting Too Much

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 is because millions of Medicare recipients have opted for coverage through Medicare Advantage. This means that when the end of the year, their profits would be higher than projected because their expenses were lower.

This means that when everything was added up at the end of the year, profits for private Medicare Advantage providers totaled over $1 billion more than they had projected. This is a pretty hefty profit, and it is not clear what will happen to that extra profit.

Medicare added prescription drug coverage in 2003. Better incentives were created 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 law says that if the private companies report revenue and profits, lower than a set rate, they can compensate for this by providing extra benefits or reducing costs to the individuals in the program. Critics of the plans say that it has been estimated that these Medicare Advantage plans are paid 13% to 17% more than the government spends treating Medicare patients not enrolled in a private plan.

This situation is being addressed, including 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.