Private health plans such as Humana Inc. Aetna and UnitedHealth Group Inc. participating in Medicare Advantage (MA), an alternative to the traditional fee-for-service program made billions more in profits than they projected they would for 2005, according to a new study by the Government Accountability Office.
Health plans participating in Medicare Advantage, an HMO program, estimated that in 2005 they would spend 90.2 percent of their total revenue on medical expenses, but reported spending only 85.7 percent. GAO said the accuracy of MA organizations' projections is important because it helps to determine what additional benefits, if any, can be granted to Medicare fee-for-service beneficiaries.
The GAO study, released June 24 was based on 120 MA plans, treating some 3.9 million people. The study was commissioned by Rep. Pete Stark (D-Calif.), chairman of the House Ways and Means Committee, Subcommittee on Health and comes at a time of heated bipartisan debate over the program, said to cost the federal government more than traditional fee-for-service Medicare.
According to GAO, the MA organizations studied received a total of $35 billion in revenues, $1.3 billion more than projected, after weighting for actual enrollment. MA organizations over-projected their medical expenses compared to actual medical expenses and under-projected non-medical expenses and profits, GAO said.
Kerry Weems, acting administrator for the Centers for Medicare & Medicaid Services overseeing the program said the report was "factually accurate," but MA has "changed significantly" since the period examined. CMS is now able to more accurately estimate the costs of care in advance, Weems said.
The projections submitted by MA organizations in 2005 may be "less reliable" than those submitted in 2006 and subsequent years because, among other factors, actuaries were not required to attest to the accuracy of projections until 2006, Weems added.
The report follows a bitter and yet unresolved bipartisan battle over funding Medicare payments to physicians, expected to take a 10.6 percent pay cut July 1. Democrats would like to fund a pay increase for physicians through cuts to MA. President Bush has said he will veto any bill that cuts MA.
GAO said it plans to issue a similar report on private health programs participating in Medicare Advantage using 2006 data.