You likely do not know that the corporate health insurers offering Medicare Advantage plans are required to spend at least 85 cents of every dollar they receive from the federal government on enrollees’ health care and can reserve up to 15 percent of their payments for administrative expenses and profits. If insurers get caught spending less than required, the government can prevent them from enrolling new members, as it just did with Centene Medicare Advantage in Missouri. But, Medicare Advantage insurers have ways to get around their spending requirement, leaving many wondering how much of their revenue they spend on enrollees’ health care.
The well-intentioned goal of the government’s medical spending requirement for insurers, called “the medical loss ratio” or “MLR,” is to help ensure that insurers do not stint on care in Medicare Advantage plans. They have an incentive to do so since they are paid upfront for the services they deliver, regardless of the amount they spend on care. The less they spend, the more they profit. However, the insurers have ways to circumvent the MLR requirements, including through vertical integration. They can pay their subsidiary companies–which might employ providers or distribute medical supplies and prescriptions–for the services they offer, at rates higher than their actual cost.
No question that CMS should punish Centene for failing to meet its medical loss ratio requirements. But, it’s probably the case that UnitedHealthcare, Aetna and Humana have engaged in similar conduct, and they are not being punished. Experts at Brookings explain that it is permissible for insurers to pay their subsidiary businesses more than they actually spend, when calculating the MLR. For example, UnitedHealthcare can pay its subsidiary OptumHealth, which employs providers, 85 percent of the amount it receives from the government, and then pay its providers less than that amount. It can then keep, as part of its Optum business, whatever it doesn’t spend as profits.
Centene is facing a suspension of its enrollment of new members in Wellcare of Missouri, its Medicare Advantage plan, because it violated the medical loss ratio requirements, as well it should. The question is why Medicare Advantage insurers should be allowed to escape penalty for not spending enough money on patient care by transferring payments to subsidiary companies?
Until Congress and the administration find ways to prevent insurers from gaming the Medicare Advantage program and to hold insurers accountable through meaningful penalties when they engage in fraud, insurers will continue to do so and patient care will be at risk.
Here’s more from Just Care:
- AHA warns Medicare oversight agency about dangers of Medicare Advantage
- Medicare Advantage plans fail to release data required for oversight
- Medicare Advantage plans continue to endanger hospitals and patients
- 2024: Too little known about Medicare Advantage
- Low-income communities are particularly at risk in Medicare Advantage
