Introduction

Sen. Al Franken, D-Minn. (Manuel Balce Ceneta/AP)

Sen. Al Franken didn’t mince words when he accused Medicare Advantage plans of overcharging the federal government — and praised legislation to slash their payments by billions of dollars.

“These insurers were getting much more than they should have based on the benefits they were providing to seniors. So we cut what Medicare gives to these private insurance companies,” the Minnesota Democrat intoned in a Dec. 13, 2012, speech on the Senate floor in praise of the Affordable Care Act.

Franken rebuked Republican Mitt Romney for his 2012 presidential campaign promise to “restore those billions and billions of dollars in overpayments to private insurance companies for no reason, for no good effect, just so that, I guess, these insurance companies could have more profit.”

Yet less than four months later, Franken was in the company of more than 160 lawmakers publicly thanked by industry surrogates for their help in killing some of the same Medicare Advantage cuts he’d previously supported so forcefully.

By most accounts it was a stunning policy reversal for many Democratic members of Congress and the Obama administration, and a forceful flexing of the Medicare Advantage industry’s growing political might in Washington.

John Gorman, a top Medicare Advantage consultant, hailed the lobbying victory in early 2013 as a “direct reflection of muscle this program has obtained.” Gorman noted: “It’s now nearly 30 percent of the [Medicare] program and that gives it a lot of juice.”

Indeed. Congress created Medicare Advantage in 2003 to encourage private insurance companies to jump into the senior care market without hesitation. Since then, the program has hit its stride as a health care colossus that now cares for nearly 16 million elderly and disabled people, nearly a third of those eligible for Medicare, at a cost expected this year to top $150 billion.

Some of the nation’s mightiest insurance carriers — UnitedHealth Group and Humana Inc. are two of the biggest — dominate the market and are deeply invested in keeping Medicare Advantage alive and thriving. The health insurance industry’s main trade group, America’s Health Insurance Plans, or AHIP, funds its own “grassroots” lobbying group and its members dole out millions of dollars in federal campaign contributions.

The top 10 Medicare Advantage companies in terms of enrollment unleashed as many as 145 lobbyists in 2013, according to Senate Office of Public Records data. AHIP spent nearly $2.5 million in the first quarter of 2013 lobbying senators and congressmen on health care issues, according to Senate filings. Ultimately, the group’s assertion that cuts to the insurers would harm seniors trumped criticism that the health plans can be a poor value for taxpayers.

The magnitude of Medicare Advantage overcharges is staggering by any measure. An investigation by the Center for Public Integrity found that Medicare paid the health plans nearly $70 billion in “improper” payments — mostly inflated charges from overstating the health risks of patients — from 2008 through 2013 alone.

The health plans, which are paid a varying fee for each person they enroll, also have driven up Medicare costs in many parts of the country. The Center’s analysis of Medicare enrollment data uncovered more than 550 counties where payments to Medicare Advantage plans have been at least 25 percent higher than the average costs of treating seniors who remain on standard Medicare.

But the threat of riling up elderly voting blocs and the sheer complexity of the program’s finances has kept the overpayment controversy largely in the province of academics. Elderly patients have no reason to question how much the government pays their health plan or the fine points of the billing process.

That the industry can enlist seniors’ help in beating back attempted rate cuts comes as no surprise to many supporters of the program. They say many seniors are pleased with their Medicare Advantage plans because they offer extra benefits, such as dental care and hearing aids, which standard Medicare does not cover. Seniors often shell out less in out-of-pocket expenses and some pay no premium at all.

Low end care

A generation ago, putting elderly people into privately-run health insurance plans, the forerunners of Medicare Advantage, was a tough sell. It didn’t help that these “managed care” plans in Florida and other states were plagued by scandals, from failing to provide vital medical care to enrolling people who didn’t understand what they were signing. Many seniors chafed at the restrictions the plans imposed over which networks of doctors and hospitals they could use.

But as baby boomers, who are more familiar with managed care, hit their retirement years, those objections are fading — and enrollment has risen sharply.

Whether American taxpayers are getting a good deal remains controversial.

Policy hands and some academic researchers have argued for years that many private health plans appeal to healthy people likely to cost them little to treat, a practice known as “cherry picking.” Conversely, they argue, some plans steered clear of people with serious diseases for fear of losing money on them.

Congress stepped in to fix things in 2003, by adopting a highly complex payment formula called a “risk score.”

The idea was simple enough: pay higher rates for sicker people with chronic diseases and less for people in good health. Lawmakers believed the new formula would cut costs and reduce waste and billing abuses that occur when doctors and hospitals are paid for each service they offer.

The industry has nearly tripled in size since the risk scores were phased in — and barring sharp payment cuts that may make insurers fold up operations in some communities — is expected to expand even more.

Print ad from Coalition for Medicare Choice’s campaign “Seniors are Watching” (medicarechoices.org)

A turnaround in sentiment

Democrats, generally hostile to the idea of “privatizing” Medicare, complained for years that the private health plans milked the system for richer payments than they deserved.

President-elect Barack Obama suggested big changes were on the horizon during a Dec. 11, 2008, press conference in Chicago when he said: “We’re also going to examine programs that I’m not sure are giving us a good bang for the buck. The Medicare Advantage program is one that I’ve already cited where we’re spending billions of dollars subsidizing insurance companies.”

Medicare Advantage was also a target of a February 2010 White House health reform plan which asserted that the insurers “have gamed the payment system in ways [that] drive up the public cost of the program.” The White House added: “All of this is why Medicare Advantage has become a very profitable line of business for some of the nation’s largest health insurers.”

Not surprisingly, the Affordable Care Act took aim at Medicare Advantage payment levels. The law, passed in 2010, mandated some $200 billion in cuts to the health plans over a decade and redirected the savings to help cover millions of uninsured people under what’s become known as “Obamacare.”

But many of those cuts weren’t scheduled to take effect for years or were postponed by the administration, critics argue, in order to mute the issue in advance of the 2012 elections.

When federal officials in February 2013 did announce cuts of 2.2 percent — amounting to more than $2 billion a year — AHIP pounced.

The trade group mobilized its forces to turn that policy around using a “grassroots” lobbying organization. That group, The Coalition for Medicare Choices, claims to have 1.5 million members who are working together “to protect and improve Medicare Advantage.” Coalition members “actively communicate with members of Congress about issues that affect their coverage,” according to the website. The coalition also pitches its agenda through television commercials and print advertising that demands and end to rate cuts with the explicit message: “Seniors are (Done) Watching.”

Similar ads did the trick last year. By April 2013, the industry had turned the proposed two percent cut in rates into a three per cent rate hike. In explaining, CMS said that the rates would give patients “more value in the care they receive and greater protections against increasing costs.”

And AHIP, the insurance trade group, thanked 160 members of Congress from both parties — including Franken — who had helped make that happen by adding their names to petitions demanding that the cuts be restored, and thus putting pressure on federal health officials.

Those same 160 legislators collected more than $6.5 million for their campaign coffers from the health services industry over the past three election cycles, according to data from the Center for Responsive Politics. Franken alone has received at least $90,000 from the health services industry since first running for the Senate in 2008.

Stacey Sanders, federal policy director with the Medicare Rights Center in Washington, a nonprofit consumer service organization, criticized the industry. She said it mounted a “scare campaign” that involved “contacting seniors and saying their benefits were going away.”

“They had a very simple message that resonates with seniors” and that left politicians “uncomfortable,” Sanders said. “It was tough for members to really dig in and find out what’s behind that message.” She said it was “pretty remarkable” to see Democrats get in line. “It was sort of stunning to me.”

Asked to respond, AHIP spokeswoman Clare Krusing wrote in an email: “There is plenty of evidence to show that cuts to Medicare Advantage payments have harmed seniors in the program.” She said that as a result of these cuts seniors have “faced higher costs, reduced benefits, and fewer choices.”

Sen. Marco Rubio, a Florida Republican, talks with business leaders concerned about Obamacare in Gainsville, August 2013. (The Gainesville Sun, Brad McClenny/AP)

Sensing political gain, Republicans have stepped up their longstanding support of Medicare Advantage. Florida’s Marco Rubio, in a Senate speech in August of last year, said a Medicare Advantage plan got his mother’s business not only because it had good doctors but also because it picked her up at home and took her to medical appointments.

Rubio went on to cite industry figures showing that 53 percent of Hispanics on Medicare choose the health plans and that 38 percent of Medicare Advantage members make less than $30,000 a year.

The payment brouhaha isn’t quieting down. As federal officials contemplate further Medicare Advantage rate cuts under the Affordable Care Act, the industry is doing its best to back the government down.

The AHIP website notes that it has “recently launched its largest ever mobilization to remind Washington that seniors are following this issue closely and to urge the Medicare agency to protect them from further harm by maintaining current payment levels.”

Since the television ad campaign and other lobbying efforts, Medicare Advantage has drawn praise from many Democrats.

Sen. Charles Schumer, D-N.Y., was one of 40 members of Congress who signed a February 2014 letter to Centers for Medicare and Medicaid Services Administrator Marilyn Tavenner supporting Medicare Advantage. The letter said seniors who join the plans “enjoy better health outcomes and receive higher quality care than their counterparts in the Medicare fee-for-service program.”

The politicians called the program a “great success” and urged the CMS chief to maintain payment levels to protect seniors from “disruptive changes in 2015.” A March 11, 2014 letter to CMS administrator Tavenner signed by 200 members of Congress expressed similar sentiments.

There was no mention of the longstanding Democratic criticism that the plans overbill.

Not all critics have given up the fight. In a March 2014 memo to its members, the Democratic staff of the House Committee on Energy and Commerce accused the Medicare Advantage industry of making “exaggerated claims” about the impact of funding cuts. Rep. Henry A. Waxman, D-Calif., a die-hard critic of Medicare Advantage, is the committee’s ranking member.

“The leading insurance companies have multi-billion dollar annual profits, their stock prices have risen substantially in recent years, and they expect significant growth in customers and revenues in the coming years,” the memo concludes.

When federal officials announced the final 2015 rates on April 7, they took pains to call it a small rate gain — not the reduction officials had planned.

The industry disagreed. Given the complexity of Medicare Advantage rate setting, it’s difficult to know for sure who is right.

As for Franken, his office did not respond to requests for comment. Franken recently defended the Affordable Care Act and the cuts it makes to Medicare Advantage. But he also said he wants to shield seniors from any ill effects.

“I voted to stop the overpayments and make the program run more efficiently,” he told the Minneapolis Star Tribune in early April. Franken, who is up for re-election in the fall, told the newspaper he wanted CMS to “prioritize seniors when setting their policies.”