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Curbing Medicare Advantage Overpayments Could Benefit Millions of Low-Income and Minority Americans

February 19, 2009

More than 25 million Americans belonging to minority groups lack health coverage; minorities constitute 34 percent of the nation’s population but nearly 55 percent of the uninsured.  Enactment of comprehensive health reform that achieves universal coverage would therefore disproportionately benefit minorities.

One way to help finance universal coverage, as President Obama has noted, would be to curb excessive payments to the private insurance companies that serve some Medicare beneficiaries through the Medicare Advantage program.  Although private insurers were brought into Medicare to reduce costs, Medicare pays them an average of $1,000 more per beneficiary per year than it costs to treat the same beneficiaries through traditional Medicare.  These overpayments threaten Medicare’s finances and increase the premiums paid by participants in traditional Medicare.  As a result, Congress’ official expert advisory body on Medicare payment policy, the Medicare Payment Advisory Commission, has recommended “leveling the playing field” and paying private plans the same amounts as traditional Medicare. 

Private insurers contend that curbing the overpayments would harm low-income and minority Medicare beneficiaries, whom they claim rely disproportionately on Medicare Advantage for benefits that supplement their Medicare coverage.  In fact, however, Medicaid is the overwhelming source of supplemental coverage for low-income beneficiaries and beneficiaries of color.  Furthermore, overpayments to private plans represent a poorly targeted approach to making health care more affordable for these beneficiaries.  Only a portion of the overpayments actually go to reducing beneficiaries’ out-of-pocket costs and covering additional services, and only a small portion of these enhanced benefits accrue to low-income and minority beneficiaries.

A better approach would be to eliminate the overpayments and use the savings in two ways that would directly assist low-income and minority individuals to a much greater degree.  The first is to help finance comprehensive health reform legislation that achieves universal coverage.  The second is to strengthen two programs that help low-income and minority Medicare beneficiaries with their out-of-pocket health care costs:  the Medicare Savings Programs within Medicaid and the Low-Income Subsidy program within the Medicare prescription drug benefit.

Click here to view a PDF of the full report (8pp.)