Obama administration budget proposes cuts for Medicare Advantage

Introduction

President Obama’s proposed 2016 budget takes a major swipe at waste and abuse in Medicare Advantage plans for the elderly, seeking more than $36 billion in cuts over the next decade to curb costly government overpayments to the industry.

The cuts are spelled out in the more than $1 trillion budget proposal to fund the giant Department of Health and Human Services. HHS includes the Centers for Medicare and Medicaid Services, which oversees the privately-run Medicare Advantage plans that now provide health insurance to more than 16 million seniors.

The White House is focusing its budget scalpel on mounting concerns that some health plans exaggerate how sick their patients are to overcharge the government — the subject of a recent Center for Public Integrity investigation.

The White House budget, released on Monday, brought a quick retort from the Better Medicare Alliance, a group formed late in 2014 to advocate for Medicare Advantage plans.

“Medicare Advantage has been subject to billions in real cuts for each of the last four years. These annual cuts have resulted in higher out-of-pocket costs and lost benefits for seniors across America,” the group’s interim executive director, Krista Drobac, wrote in a statement.

“Piling on billions more cuts will only do more harm to the 16 millions of seniors who count on Medicare Advantage for higher quality, more affordable health coverage,” wrote Drobac, a veteran health care lobbyist.

Unlike standard Medicare, in which doctors and hospitals bill for each service they provide, private Medicare Advantage plans and other managed care organizations are often paid a flat monthly rate for each patient using a formula called a “risk score” that estimates the health challenges facing individual patients.

Basically, Medicare pays higher rates for sicker patients and less for people judged to be in good health.

But federal officials concede that billions of tax dollars are misspent every year because some Medicare health plans exaggerate how sick their patients are, a practice known as “upcoding.”

At least six whistleblower lawsuits alleging that Medicare health plans inflated risk scores to overbill the government are pending in federal courts.

CMS officials have tried in the past to curb overpayments, but have run into stiff opposition from Congress. Many members note that the program is expanding rapidly and is popular with seniors in their district. As a result, many are loathe to support cuts.

The Center for Public Integrity’s “Medicare Advantage Money Grab” series, published in June, revealed that officials have struggled for years to prevent health plans from charging too much.

The series found that Medicare made nearly $70 billion in “improper” payments to health plans — mostly inflated fees from overstating patients’ health risks — from 2008 through 2013 alone.

The Medicare Advantage program has grown rapidly under the risk-scoring formula, which Congress enacted in 2003. Officials expect Medicare Advantage to cost taxpayers as much as $160 billion this year, as enrollment tops 16 million, or about one in three elderly and disabled people on Medicare.