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Extra Payments = Extra Profits
August 16, 2007 • Volume 7, Issue 32Medicare private health plans should keep the extra payments they get from the government—so the argument goes—because they provide members with extra benefits. But while Congress debated cutting overpayments to Medicare private health plans, which average 12 percent more than what Original Medicare spends to care for patients, insurance company execs were laughing all the way to the bank.
The business pages of many newspapers have reported that insurance company profits are rising thanks to the government’s generosity.
Medicare Advantage program—which allows private plans to provide Medicare benefits—is a “bright spot” for UnitedHealthcare, a financial analyst told clients in July. The company’s latest report showed that profits rose 22 percent due to government-sponsored health plans during the second quarter, according to the business wire service Bloomberg News.
UnitedHealth is the country’s largest health insurer, but its rivals also reported rising profits during the second quarter of this year. Coventry Health Care profits rose 12 percent after its Medicare enrollment tripled. Aetna reported a 16 percent increase in profits, during the same time period.
Humana, another familiar name in the Medicare private health plan business, reported that profits more than doubled compared to a year ago, even surpassing the optimistic predictions of financial experts.
Every dollar that winds up as profit is a dollar that was not spent on health care. And it’s worth pointing out that the companies’ good news comes despite setbacks in other areas, like the increased costs of employer-sponsored health programs.
The Centers for Medicare & Medicaid Services (CMS), which is supposed to oversee the Medicare private plans, could be doing a better job tracking how private plans spend their government reimbursement. A July study by the Government Accountability Office (GAO), the investigative arm of Congress, found that Medicare private plans should have spent approximately $35 million on additional benefits, lower copayments or lower premiums in 2003, but they did not. In May, CMS informed GAO investigators that it does not have the legal authority to force the companies to refund the money.
GAO also found that CMS is lagging behind in complying with a requirement to audit a third of all plans every year: only 14 percent of plans were examined in 2006—a smaller proportion than in 2005—and less than half the required number.
At that rate, it will take CMS almost three years to complete its financial reviews of one-third of the plans. That’s too long, the GAO concluded, to catch and fix problems.
But the news about the companies’ healthy profits from their government contracts reveal what the audits may find some day—that the government is paying too much.
Legislation passed by the U.S. House of Representatives would eliminate extra payments to Medicare private health plans. The bill, called the Children’s Health and Medicare Protection Act, would also increase premium subsidies for people with Medicare whose incomes are low and provide free preventive medical care. The legislation would also expand the State Children’s Health Insurance Program (SCHIP) to cover more than six million children.
The U.S. Senate passed its version of the bill that extends children’s health insurance, but it omits any mention of Medicare. The two bills must be reconciled into one and then voted on again before it goes to the president for his signature.
The prospect of losing the profitable Medicare payments worries insurance companies. Their insurance industry’s trade association has bought TV ads and sponsored rallies to pressure Congress to maintain the extra payments.
The concern subsided momentarily when President George W. Bush promised earlier this month to veto any bill that cuts payments to insurance companies. That announcement alone had an immediate effect in the financial world: the president’s support for future profits boosted the share prices of the country’s five top insurance companies—by as much as 7 percent.
Medical Record
“Shares of Humana, Inc., the second-largest provider of U.S.-sponsored Medicare Advantage health plans, rose 7 percent today after President George W. Bush vowed to veto a bill that would trim government payments. …Last week, after Humana said its second-quarter profits more than doubled because of higher earnings in its government programs, the company predicted it could weather reduced U.S. subsidies” (“Humana Leads Insurers’ Shares Higher on Bush Threat,” Avram Goldstein, Bloomberg News, August 2, 2007).
“CMS will not complete the proposed [2006] financial reviews until almost three years after the bids are submitted…. Such an extended cycle for conducting reviews of financial records to meet the one-third requirement will affect CMS’s ability to address any identified deficiencies in MA organizations’ and prescription drug plans’ bid processes in a timely manner” (“Medicare Advantage: Required Audits of Limited Value,” U.S. Government Accountability Office, July 30, 2007)
“We need to reform our health care system by making private health insurance more affordable and available. We need to reduce our dependence on foreign oil by promoting alternative fuels. We need to confront the rising cost of entitlement programs like Medicare and Medicaid and Social Security. I look forward to working with Republicans and Democrats to come up with sensible solutions to solve these problems, so that we can say we solved the problems and not pass them on to future generations” (President George W. Bush, meeting with economic advisors, Washington, D.C., August 8, 2007).
“UnitedHealth Group Inc., the largest U.S. health insurance provider, revised up its second-quarter profit and 2007 earnings forecast after an increase in government payments for last year, sending the shares higher . . . The increased revenue came from the U.S. Medicare program for the elderly. Enrollment in employer-sponsored health plans has been eroding industrywide, and insurance providers are becoming more dependent on Medicare and other public programs for profits” (“UnitedHealth Adjusts Profit for Higher U.S. Payments,” Avram Goldstein, Bloomberg News, August 6, 2007).
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