The Centers for Medicare and Medicaid Services has created a system in which Wall Street actors and insurance conglomerates have increasingly extracted large profits at the expense of Medicare, its patients and taxpayers – according to a new report by the Center for Economic and Policy Research (CEPR) co-authored by a Cornell professor.

Privatized senior care offered by Medicare Advantage insurance plans has led to higher costs for Medicare and is a drain on the Medicare trust fund, according to the report, “Profiting at the Expense of Seniors: The Financialization of Home Health Care,” authored by CEPR co-director Eileen Appelbaum and Rosemary Batt, the Alice Cook Professor of Women and Work in the ILR School. The study also finds that these plans diminish the amount and quality of care provided to patients.

 In contrast to traditional Medicare, in which Medicare both administers and pays for the care seniors receive, Medicare Advantage (MA) is a program operated by private insurance companies and paid for by Medicare. Initially established with the idea that privatized care would lend itself to preventative care and keep seniors healthier for longer, the report finds the opposite is true. Large Medicare Advantage insurers have “gamed the system,” Batt said. 

“The evidence shows that the Medicare Advantage plans cost much more than the traditional Medicare plans because they use many financial tactics to increase their profits,” said Appelbaum, an economist; Batt and Appelbaum are longtime collaborators. In 2020 alone, large MA insurance plans received an estimated $12 billion in overpayments, according to the Medicare Payment Advisory Commission.

Patients and care workers pay the costs. On the surface, Medicare Advantage plans appeal to seniors because, unlike traditional Medicare, they may include coverage for dental and vision or provide other benefits not available in traditional Medicare. But “there are hidden costs that people often fail to see,” Appelbaum said. “Medicare Advantage plans limit which providers and facilities a patient can use. They often require pre-authorizations for treatment, and denial rates are high for services that seniors are entitled to.”

Appelbaum and Batt explain in their report why the Centers for Medicare and Medicaid Services system policies have led to the “financialization of home health” – that is, financial actors with little or no experience in health care increasingly own and operate health care provider organizations, with the primary goal of maximizing shareholder profits. The report outlines how these companies have profited at the expense of patients, health care workers and the Medicare trust fund.

Additionally, many Medicare Advantage insurers are vertically integrated monopolies that have bought medical practices, pharmacy benefit providers, hospitals, home health care agencies and hospices. As a result, enrollees are limited in their treatment and locked into a system in which the same company controls every aspect of their care.

“These conglomerates are like an octopus with a tentacle in every aspect of the health care system,” Batt said.

Because Medical Advantage plans are given a fixed prepayment per patient by the centers, as opposed to traditional Medicare, which uses a pay-for-service reimbursement model, the belief, according to Appelbaum and Batt, was that this system would incentivize Medicare Advantage plans to provide services efficiently and to provide better preventative care upfront to save costs and keep people out of hospitals.

Instead, according to Batt, many of these insurers reduce the quality of services to maximize profits. “Research shows that MA plans have made money by cutting the number of days of post-acute care following surgery compared to traditional Medicare, and patients are more likely to be sent to less expensive home health agencies with a star rating of one or two, and less likely to be sent to one with a four or five rating.”  

Appelbaum also points out that the insurers use a tactic called “upcoding” to diagnose a patient as having a worse condition than they actually have to charge centers a higher rate.  “If they’re caught, that would be fraud,” said Appelbaum, “but the federal oversight system is underresourced, and the Centers for Medicare and Medicaid Services does not prosecute upcoding as fraud. So, the practice of upcoding is rampant.”

The authors conclude, “Medicare services are almost entirely funded by the payroll taxes of working people. They deserve a health care system in their older years that is patient-centered, not profit-driven.”

Their policy recommendations include strengthening traditional Medicare, creating and enforcing regulations to keep financial firms that own home health agencies honest, discouraging vertical mergers that reduce competition in home health markets, and specific recommendations for the centers and state public health agencies.

Julie Greco is a senior communications specialist for the ILR School.