Medicare Advantage is a scam


After years of frustrating insurance churn, I was relieved when an aging family member reached the qualifying age for Medicare. I was looking forward to enrolling them into the much-vaunted and supposedly straightforward program. I ended up spending a shocking number of hours reading government publications, third party analysis, private insurer advertisements, and then repeatedly explaining why they shouldn't opt for the scam that is Medicare Advantage. Here's what I learned:

Medicare is government health insurance: You pay premiums to the government, and when you see a provider, the US government pays the provider.

Patient <> US Government <> Providers

Medicare is relatively affordable and covers many services for only a 20% coinsurance payment. Part of the reason it is cheap is because Medicare has much lower overhead: its billing and reimbursement model is public and straightforward, most premiums are spent paying providers for services rendered, collecting premiums is cheap because it can be deducted out of social security checks, and there are no profits to send to shareholders. Also, Medicare sets relatively lower reimbursement rates for providers, which lowers hospital, doctor, and drug profit margins. Many providers grumble about this, but do business anyway because Medicare brings a lot of volume (they can always fraudulently submit bills to receive what they think is "fair," and Medicare is "low overhead" enough that only the most egregious cases of this are ever detected and prosecuted). The result is a popular, efficient, low-cost health insurance program for seniors with a huge, hassle-free network of providers.

To be brief: Republicans (specifically) hate this, because it's an example where the government clearly does something better than the private sector with no downsides (well, one "downside" is private actors can't squeeze as much profit out of healthcare). It's obviously so much better that lots of people ask a very good question: why limit Medicare to people over the age of 65? Why not give everyone the option to get Medicare? [1]

This is a scary question, because if there was a clearly superior government health insurance option with no downsides, everyone would flock to it and it would annihilate the private healthcare industry essentially overnight. This would be moderately beneficial for almost everyone (healthcare would be cheaper, although still expensive), but extremely bad for a small subset: entire ecosystems of industries would drastically shrink overnight, like "medical billing administration", "formulary consulting", and "pharmacy benefit management."

Anyways, Republicans decided they had to go on the offensive - not just to prevent expansion of government health insurance, but to actually roll it back (but through trickery, because patients overwhelmingly love Medicare). So during the George W. Bush administration in 2003, they enacted a law to deliberately sabotage Medicare, completing a project that had been started in 1997 with support from Clinton. The new law created Medicare Advantage, a scheme in which patients enroll in private insurance, funded by their Medicare dollars:

Patient <> US Government <> Private Insurer <> Providers

Why is this bad?:

Given these facts, why would anyone want to enroll in Fake Medicare Advantage instead of traditional Medicare? Wouldn't the free market solve this problem, since seniors would obviously just pick the best option for them?

The insurers and legislators came up with a genius plan: Medicare Advantage providers are allowed to bribe prospects with extra goodies that are not covered under traditional Medicare. After all, as a big insurer, it is very profitable to cash a big guaranteed check from the government every month (you already have lots of experience fighting patients and providers to spend as little as possible). If you will accept slightly lower profit margins by providing fringe benefits[2], you can sign a lot of people up even though the product is worse; it's just a marketing expense. And so that's what the insurers do. My family has been absolutely bombarded with frantic-sounding mailers from private insurance companies using the "Medicare" name to sell fake Medicare Advantage. There are literal sales agents embedded in communities where seniors go, carrying thick glossy brochures touting the vision benefits and other goodies that enrollees get with their plan.

That's not all. The 2003 law creating fake Medicare Advantage was maliciously and deliberately designed to be confusing, to make fake Medicare Advantage look more appealing. The name itself is deceptive: "Medicare Advantage" isn't a government program and isn't Medicare; it's the equivalent of a private school tuition voucher, where public funds go into a completely private system. But the name makes it sound like it's the "plus" version of the popular government program.

Fake Medicare Advantage coverage is also conveniently labeled so that enrolling in traditional Medicare will appear to be leaving a coverage gap. To explain, Medicare enrollment is traditionally made up of several "parts":

Traditional Medicare calls this...fake Medicare Advantage calls this...
Hospital InsurancePart APart C (includes A)
Medical InsurancePart BPart C (includes B)
Prescription drug coveragePart D (optional)Part C (usually includes D)

Here is where the confusion comes in. Someone who opts for traditional Medicare would buy parts A, B, and might decide to get D, but they would skip "C" because that's the totally different (mutually exclusive) fake Medicare Advantage.

Someone who elects to get (fake) Medicare Advantage instead "buys part C" which will be marketed as including the benefits of A, B, and D. And who wouldn't want to get all the Medicare parts? ABCD sounds more complete than the alternative, ABD? Notice the sleight of hand: The Medicare "Parts" are not disjoint sets. In fairness, this confusing naming is a result of repeated legislative changes to Medicare, but it's awfully convenient that the resulting confusion makes fake Medicare Advantage look more appealing.

The result of more than two decades of this swindle is fairly predictable: about half of Medicare enrollees are actually on fake Medicare Advantage, and rising. It costs taxpayers more money and provides worse service to patients. Fake Medicare advantage is now the most profitable line of business for insurers, savings that rightfully belong to the public. After all, the argument for fake Medicare Advantage is roughly "private industry driven by profit motives will find ways to deliver better care for less money, saving taxpayers money through the magic of capitalism."

This is actually a totally plausible hypothesis. We should want this! It would actually be great for Americans if conservatives distinguished themselves from the opposing party on policy grounds; using markets to be good stewards of public funds should be their brand. But good faith experimentation with market-oriented solutions means we should stop or tweak the experiment if its going wrong. Yet we continue to double down on this insanity.

As patients, we should avoid this cesspool: Don't enroll your family members in fake Medicare Advantage. If they're already enrolled, switch them back to traditional Medicare before they get sick.

As taxpayers, we should demand better from officials: fake Medicare Advantage shouldn't be allowed to use the name "Medicare." Enrollment options shouldn't be deceptively named and marketed. Insurers should be penalized when enrollees switch back to traditional Medicare (at a minimum, they should pay back any actuarial profits earned). Upcoding should be aggressively investigated and penalized, something the Biden administration is already working on. The entire "Medicare Advantage" program should be sunset if it doesn't show it can save money or provide better care. Right now it does neither [3].

[1] Medicare-for-all is the name of this policy platform, and it's extremely popular with the public, but extremely unpopular with elected officials of both parties, because it's hard for a governing majority to get elected on a platform of annihilating a powerful, politically active business interest, and "slippery slope" arguments really do carry weight here.
[2] One example fringe benefit is a medical alert system, which is basically a panic button you can press if you've fallen and need someone to send help. This usually costs a monthly fee of $30 to $50 a month, and isn't covered by traditional Medicare. Another is that Medicare Advantage plans often bundle prescription drug coverage at no additional cost.
[3] I want to be clear: This is not to say that nobody ever benefits from being on fake Medicare Advantage. The typical person who benefits is a healthy individual who doesn't mind the more restrictive provider network, and takes advantage of the extra benefits. But this privatizes the benefit of lower Medicare obligations from healthy retirees, while socializing the costs of sicker retirees.