Medicare Plans Were Overpaid by Up to $5.1 Billion, Audit Finds

By Alex Wayne - Mar 4, 2013 11:01 PM CT

Health insurers that offer private plans in the U.S. Medicare program for the elderly and disabled were overpaid by as much as $5.1 billion over the past three years, government auditors said.

The report, from the Government Accountability Office, the investigative arm of Congress, comes as insurers are fighting a proposed 2.2 percent cut in a rate used to determine their payments in the Medicare Advantage program. About a quarter of Medicare’s 49 million beneficiaries sign up for Advantage plans, in which their care is covered by insurers led by UnitedHealth Group Inc. (UNH) instead of the government.

The plans were paid about $135 billion in 2012, according to the GAO. Payments will fall by about $11 billion in 2014 if the proposed cut is enacted, UnitedHealth said in a March 1 letter to Medicare’s acting administrator, Marilyn Tavenner.

“The cuts result in higher costs for millions of beneficiaries, diminish choice for Medicare enrollees, compromise the viability of the Medicare Advantage program and undercut Medicare Advantage’s ability to deliver better quality at lower costs,” John Larson, chief executive officer of UnitedHealth’s Medicare and Retirement unit, wrote in the letter.

A spokesman for UnitedHealth, Matt Stearns, said in an e- mail that the company wouldn’t comment on the GAO report. UnitedHealth had about 2.6 million Medicare Advantage members in the fourth quarter of 2012, the most of any insurer, according to data compiled by Bloomberg Industries.

Sicker Patients

The overpayments happened because Medicare Advantage plans claimed that their patients were sicker on average than those in the traditional fee-for-service program, the GAO said in its report. Medicare didn’t adjust its payments to the plans to sufficiently account for what the GAO called “differences in diagnostic coding” by the insurers.

The report “doesn’t take into account what plans are doing to identify beneficiaries who have potential health risks and then putting into place programs and services to make sure patients are getting the care they need,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry’s Washington lobby group.

Advantage plans “go out of their way to make sure they know patients’ health risks so they can intervene early and avoid complications down the line,” he said in a phone interview.

The 2010 health-care overhaul, the Affordable Care Act, reduced payments to Advantage plans by about $206 billion through 2019. The GAO report “makes it clear that there is more to be done” to reduce overpayments to Advantage plans, said Senator Sander Levin, a Michigan Democrat, in a statement. He requested the report with Representative Henry Waxman, a California Democrat.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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