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During COVID Insurers Collected Full Premiums But Paid Less for Care, Forcing Government to Bail Out Providers

Summary: In 2020, private insurer profits – largely from Medicare Advantage and Medicaid managed care – jumped 20-30% because they collected full premiums even as claims from health care providers fell due to decreases in elective care. Meanwhile, the government also compensated providers for revenue shortfalls. So taxpayers paid two-fold for the care dip.

Taxpayers Paid Twice for Healthcare: Private insurers are profiting more than ever during the pandemic
MedPageToday
May 25, 2022
by Steffie Woolhandler and David U. Himmelstein

While 2020 may have been a bad year for Americans, it was a great one for America’s health insurance firms. Profits at UnitedHealthcare, the nation’s largest private insurer, shot up 20%, reaching more than $12 billion. The second biggest, Anthem, collected $16.1 billion more in premiums than it paid out in benefits, a 30% jump over 2019, and CVS/Aetna’s take from its insurance business rose 29%.

It turns out that taxpayers footed the bill for this explosion in profits by, in effect, paying twice for healthcare.

. . . what could justify the nearly $65 billion increase in private insurers’ overhead? And how is it that two thirds of that increase came from private insurers’ subcontracts with Medicare and Medicaid?

. . . In setting 2020 payment rates to Medicare Advantage plans, federal officials boosted payments by nearly $49 billion, anticipating the usual annual increases in medical care use and costs. But with many doctor visits and non-urgent surgeries during the pandemic cancelled, Medicare Advantage plans pocketed most of that increase. Their overhead rose to $2,256 per enrollee. Meanwhile, the overhead of private Medicaid managed care plans also surged.

The flip side of insurers’ windfalls were financial shortfalls faced by many hospitals and doctors. Even hospitals full of COVID-19 patients hemorrhaged money, because the reimbursement for a case of COVID-19 was far lower than they would have gotten for the knee or hip replacements that were cancelled.

Private insurers’ payments to hospitals actually fell in 2020, even as hospitals faced sharp increases in costs for the staff and equipment needed for the tsunami of COVID-19 patients. The financial distress of hospitals and health professionals triggered congressional bailouts — the Provider Relief Fund and Paycheck Protection Program — that totaled about $165 billion in 2020.

In essence, government paid twice for care: once through premiums paid to private insurers for Medicare Advantage and Medicaid managed care, and a second time to fill the hole in hospitals’ and doctors’ budgets caused by falling reimbursements from private insurers.

Comment by: David Himmelstein and Steffie Woolhandler

This article traces the spectacular increase in insurance overhead in 2020, which was attributable mostly to their Medicare Advantage and Medicaid managed care businesses.

While insurers’ profiteering from taxpayers in 2020 was extreme, Medicare Advantage plans have been fleecing the taxpayers for years, and look set to continue doing so. Indeed, the Biden Administration recently granted them a huge payment increase for 2023.

MedPAC estimates that between 2008 and 2019, Medicare Advantage plans’ upcoding raised Medicare’s costs by $132 billion, costs borne both by taxpayers and by Medicare enrollees’ as higher Part B premiums. And Medicare Advantage overcharges are projected to add as much as $355 billion to Medicare’s costs by 2030.

Medical spending should pay for care, not to line the pockets of insurance executives and shareholders. 

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