Medicare Advantage: Why Are We Paying for "Sham" Insurance?

So, here we are, handing billions of dollars a month to insurance industry executives so they can buy new Swiss chalets, private jets, and luxury yachts...

Image by Gerd Altmann from Pixabay

They’re competing unfairly with Medicare, and you and I are paying for it. It’s obscene.

When George W. Bush and congressional Republicans (and a handful of bought-off Democrats) created Medicare Advantage in 2003, it was the fulfillment of half of Bush’s goal of privatizing Social Security and Medicare, dating all the way back to his unsuccessful run for Congress in 1978 and a main theme of his second term in office.

Medicare Advantage is not Medicare. These plans are private health insurance provided by private corporations, who are then fully reimbursed by the Medicare trust fund regardless of how much their customers use their insurance. Thus, the more they can screw their customers and us taxpayers by withholding healthcare, the more money they make.

With real Medicare, if your doctor says you need a test, procedure, scan, or any other medical intervention you simply get it done and real Medicare pays the bill. No muss, no fuss, no permission needed. Real Medicare always pays, and if they think something’s not kosher, they follow up after the payment’s been made so as not to slow down the delivery of your healthcare.

With Medicare Advantage, however, you’re subject to “pre-clearance,” meaning that the insurance company inserts itself between you and your doctor: You can’t get the medical help you need until or unless the insurance company pre-clears you for payment.

These companies thus make much of their profit by routinely denying claims — 1.5 million, or 18 percent of all claims, were turned down in one year alone — leaving Advantage policy holders with the horrible choice of not getting the tests or procedures they need or paying for them out-of-pocket.

Given this, you’d think that most people would stay as far away from these private Medicare Advantage plans as they could. But Congress also authorized these plans to compete unfairly with real Medicare by offering things real Medicare can’t (yet). These include free or discounted dental, hearing, eyeglasses, gym memberships, groceries, rides to the doctor, and even cash rebates.

You and I pay for those freebies, but that’s only half of the horror story.

This year, as Matthew Cunningham-Cook pointed out in Wendell Potter’s brilliant Health Care un-covered Substack newsletter this week, we’re ponying up an additional $64 billion to give to these private insurance companies to reimburse them for the freebies they relentlessly advertise on television, online, and in print.

And here’s the most obscene part of the whole thing: the companies won’t tell the government how much of that $64 billion they’ve actually spent. They just take the money and say, “Thank you very much.” And then, presumably, throw a few extra million into the pockets of each of their already very-well-paid senior executives.

For example, the former CEO of the nation’s largest Medicare Advantage provider, UnitedHealth, walked away with over a billion dollars in total compensation. With a “B.” One guy. His successor made off with over a half-billion dollars in pay and stock.

Good work if you can get it: all you need do is buy off a hundred or so members of Congress, courtesy of Clarence Thomas’ billionaire-funded tie-breaking vote on Citizens United, and threaten the rest with massive advertising campaigns for their opponents if they try to stop you.

And while the companies refuse to tell us how much of the $64 billion that we’re throwing at them this year to offer “free” dental, etc. is actually used, what we do know is that most of that money is not going to pay for the freebies they advertise. As Cunningham-Cook noted, in one study only 11 percent of Advantage policyholders who’d signed up with plans offering dental care used that benefit.

Another study showed over-the-counter-drug freebies were used only a third of the time, leaving $5 billion in the insurance companies money bins just for that goodie. A later study found that at least a quarter of all Advantage policyholders failed to use any of the freebies they’d been offered when they signed up.

That’s an enormous amount of what the industry calls “breakage”; benefits offered but not used. Billions of dollars left over every month. And, used or not, you and I sure paid for them.

In my book The Hidden History of American Healthcare: Why Sickness Bankrupts You and Makes Others Insanely Rich, I lay out the story of this scam and how badly so many American seniors — and all American taxpayers, regardless of age — get ripped off by it.

When he was president, Donald Trump substantially expanded Medicare Advantage, calling real Medicare “socialism.” Project 2025 and candidate Trump both promise to end real Medicare “immediately” if Trump or when another Republican becomes president.

These giant insurance companies ripped off our tax dollars last year to the tune of an estimated $140 billion over and above what it would’ve caused us if people had simply been on real Medicare, according to a report from Physicians for a National Health Program (PNHP). If there was no Medicare Advantage scam bleeding off all that cash to pay for executives’ private jets, real Medicare could be expanded to cover dental, vision, and hearing and even end the need for Medigap plans.

But for now, the privatization gravy train continues to roll along. The insurance giants use some of that money to buy legislators and some of it for expensive advertising to dupe seniors into joining their programs. The company (Benefytt) that hires Joe Namath to pitch Medicare Advantage, for example, was recently hit with huge fines by the Federal Trade Commission for deceptive advertising.

The FTC news release laid it out:

“Benefytt pocketed millions selling sham insurance to seniors and other consumers looking for health coverage,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The company is being ordered to pay $100 million, and we’re holding its executives accountable for this fraud.”

And what was it that the Federal Trade Commission called “sham insurance”? Medicare Advantage. Nonetheless, the Centers for Medicare Services continues to let Benefytt and Namath market these products: welcome to the power of organized money.

And it’s huge organized money. Medicare Advantage plans are massive cash cows for the companies that run them. As Cigna prepares for a merger, for example, they’re being forced to sell off their Medicare Advantage division: it’s scheduled to go for $3.7 billion. Nobody pays that kind of money unless they expect enormous returns.

Traditional Medicare has been serving Americans well since 1965: it’s one of the most efficient single-payer systems to fund healthcare that’s ever been devised. But nobody was making a buck off it, so nobody could share those profits with greedy politicians. Enter Medicare Advantage, courtesy of George W. Bush and the GOP.

While several bills have been offered in Congress to do something about this — including Mark Pocan’s and Ro Khanna’s Save Medicare Act that would end these companies’ ability to use the word “Medicare” in their policy names and advertising — the amounts of money sloshing around DC in the healthcare space now are almost unfathomable.

So far this year, according to opensecrets.org, the insurance industry has spent $45,173,132 showering gifts and persuasion on our federal lawmakers to keep their obscene profits flowing.

It’s all one more example of how five corrupt Republicans on the US Supreme Court legalizing political bribery with Citizens United have screwed average Americans and made a handful of industry executives and investors fabulously rich.

Thus, here we are, handing billions of dollars a month to insurance industry executives so they can buy new Swiss chalets, private jets, and luxury yachts. And compete — unfairly — with Medicare itself, driving LBJ’s most proud achievement into debt and crisis.

Enough is enough. Let your members of Congress know it’s beyond time to fix the Court and Medicare, so scams like Medicare Advantage can no longer rip off America’s seniors while making industry executives richer than Midas.