To Save Money, Employers Are Moving Their Retirees to Medicare Advantage

About 250,000 retired employees of the city of New York recently learned their health benefits would be funded in part by the federal government’s Medicare Advantage program — a move estimated to save the city $600 million a year.  But the city of New York isn’t alone in this tactic.  Seeking to save money, a growing number of large employers are shifting their retired employees from their own retiree health plans, which included traditional fee-for-service Medicare, to private Medicare Advantage plans.

Critics say the details, including the cost to taxpayers, are for the most part kept hidden because the Centers for Medicare and Medicaid Services (CMS) is not a party in the negotiations.  TSCL suspects that these arrangements are contributing to the rapid rise in Medicare Part B premium costs for every Medicare recipient — affecting beneficiaries who aren’t even enrolled in a Medicare Advantage plan.  Medicare Advantage plans include coverage for Medicare Part B, and when the costs in those plans increase, that has an impact on Medicare Part B premiums.  Those premiums grew by 14.5% in 2022, one of the largest increases in program history.

To save money on healthcare benefits, employers negotiate with private insurers to create Medicare Advantage plans that are available only to the retirees of the employer.  Like all Medicare Advantage plans, the federal government pays the insurer a fixed amount for each person in the plan.  These employer-sponsored Medicare Advantage plans receive billions in federal payments, but their Medicare Advantage plans are not held to the same requirements that apply to policies available to individual beneficiaries who shop for plans.  Among other things, plans can have weaker requirements for provider networks and have different enrollment deadlines.

Although the federal government’s payments to Medicare Advantage plans are supposed to be equal to what it would cost if beneficiaries stayed in the traditional fee-for-service Medicare, the arrangement doesn’t save money for Medicare.  In fact, the federal government spends about 4% more, according to the Medicare Payment Advisory Commission which advises Congress.  Considering that Medicare Part B is expected to spend about $449 billion in 2022, the extra costs for Medicare Advantage could amount to roughly $18 billion.

In 2017, CMS paid Medicare Advantage plans $6.7 billion more than the cost of caring for those beneficiaries in traditional Medicare, according to an investigation by the inspector general for the U.S. Department of Health and Human Services.  Much of that difference occurs when Medicare Advantage plans inflate their “risk” scores, — even when services are not provided or medically necessary — to receive higher reimbursements from CMS.  Medicare pays more for patients who are sicker.

Editor’s note:  Employees who are shifted to private employer Medicare Advantage plans earn their Medicare coverage through payroll tax withholdings from wages.  These shifts, however, are occurring at a time when the Medicare Part A Hospital Insurance Trust Fund is just four years from insolvency.  To keep Medicare Part A solvent, our elected lawmakers need to come up with a plan for addressing the coming Trust Fund shortfall and to educate voters about these plans.  Let us know which options you support (or don’t).  Take our new survey: