Medicare Advantage: the Floating Crap Game that Threatens Medicare

Medicare celebrated its 59th anniversary last month. As is its custom, the California Alliance for Retired Americans (CARA) marked the occasion with demonstrations around the state. But this year’s birthday was something less than happy. The program is in danger.

Medicare has long been a target of the right, which sees it as a threat to individual freedom and an unacceptable government intrusion into the private market. Ronald Reagan launched his political career by denouncing it as “socialist”; today, the 2025 Project calls for its abolition, part of a larger agenda of getting rid of “entitlements” and dismantling the “administrative state.” 

In past years CARA used its birthday parties to counter attacks on Medicare by free market ideologues. But Medicare now faces a more serious threat: with startling speed, it is being privatized at the taxpayer’s expense.

“Medicare for All” has a long been a progressive watchword, for good reason. Medicare is one of the few bright spots in a health care system marked by waste, inequity, and needless suffering. When functioning as it should, it’s a model of how a publicly financed health care system could work. 

Medicare patients have free choice of physicians, whose clinical judgment is rarely challenged by bean-counters who call the shots under private insurance. Health care providers are paid directly, avoiding the middlemen who drive administrative overhead for private plans through the roof. And Medicare is truly universal—its benefits are available to everyone over 65, regardless of where they live or what health issues they may have. When everyone is part of part of the same system and the risks are shared equally, there’s no discrimination against those whose treatment might cost more.  

Unfortunately, Medicare does not cover dental, vision, hearing, and long-term care. Once, many retirees could fill the gaps in their coverage with supplemental health benefits, paid for by their employers.  Nowadays, far fewer people are able to stay on a job long enough to qualify for such benefits, and far fewer employers are willing to pay for them. You can still buy supplemental coverage for yourself, but it’s expensive, especially if you have a “pre-existing condition” that makes actuaries consider you a poor risk. 

Early in the Biden administration, Bernie Sanders proposed an amendment to the Build Back Better Act that would have expanded Medicare coverage to include vision, dental, and hearing. His proposal wound up on the cutting room floor. As a consequence, seniors who need those benefits and can’t pay out of pocket for them have increasingly turned to Medicare Advantage plans. They now account for over half of all Medicare enrollees. 

Medicare Advantage plans are private entities operating on the public dime. Their cost is borne by the Medicare Trust Fund, using funds that could easily go to expand coverage under traditional Medicare. According to one estimate, they have raised Medicare’s overall costs by $140 billion a year, thanks the added expenses of advertising, profits, and administrative overhead that is four to five times as high as traditional Medicare. 

For insurance giants like United Health and Aetna, it’s one more opportunity to feed at the public trough. United Health saw its profits rise 44% in a single year once it decided to invest more heavily in Medicare Advantage. It now controls nearly 30% of the market, expanding into new geographic areas while ramping up its marketing efforts in existing ones. 

To some extent, these profits are achieved through outright fraud. The government compensates Medicare Advantage plans based on how many people they enroll; to discourage the private plans from favoring healthy patients over sicker ones, individual enrollees get a preliminary exam and the rates are adjusted to take the results into account—a process known as “risk adjustment.” 

But risk adjustment is too imprecise to be very helpful, and insurers know how to game it. A patient who could stand to lose a few pounds is diagnosed as “morbidly obese,” a patient whose blood tests show a little too much glucose suffers from “diabetes with retinopathy,” and so on.  Patients may not actually be treated for these conditions, but the insurance plan is compensated as if they were. A 2021 Justice Department probe of “upcoding,” as it’s called, indicated that seven of the largest Medicare Advantage plans were ripping off the Medicare Trust Fund by as much as $30 billion a year. 

It's not just the government that’s being gamed. Federal subsidies allow Medicare Advantage plans to charge affordable premiums for benefits like hearing aids and costly dental work that traditional Medicare won’t cover.  It seems like a pretty good deal at first, but all too often buyer’s remorse sets in.

Start with those low premiums, As is usually the case with private insurance, they mask other, higher costs. A medical issue that requires repeated doctor visits means that any co-payments will mount up in a hurry. High deductibles discourage people from getting treatment when they need it, often leading to more serious conditions that are far more expensive to treat.

When you enroll in a Medicare Advantage plan, you lose the right to choose your providers. That, too, can be financially ruinous. According to Physicians for a National Health Program, more than one-third of Medicare Advantage enrollees live where less than 30% of the doctors are part of their plan’s network. If you need to go “out of network” for the care you need, it could set you back thousands of dollars. This is a particular risk for people who are rushed to the emergency room and are attended to by whomever happens to be available.

Nor are your doctors free to treat you as they see fit. Treatments must be “pre-authorized,” and in 2021 insurers denied an estimated 2 million claims. Most denials that are appealed get overturned, but in the meantime patients get sicker. The American Medical Association reports that one in three doctors it surveyed reported claim denials that led to hospitalization, permanent disability, or death.

Another problem with Medicare Advantage: once you’re in, it’s hard to get out. A bill before the California state legislature would have given enrollees a chance to opt back into traditional Medicare once a year, while barring supplementary private plans from discriminating on the basis of pre-existing conditions.  The bill cleared the Senate Health Committee but died in Appropriations—unaccountably, since its impact on the state budget would have been minimal.

The private disasters of Medicare Advantage suggest a larger public one in the making. Health care already consumes 10% of the federal budget; by 2032, that figure is expected to rise to 18%. Far from alleviating the situation, Medicare Advantage makes it worse. It assumes that greater market discipline will bring costs down, when the actual result will be a valuable public program undermined to the point where it is no longer sustainable, fiscally or politically.

Defending public goods from expropriation by private capital is central to DSA’s mission. That’s one reason for our participation in Healthy California Now, the statewide coalition that fights for a single, publicly funded, universal health care plan in California. By expanding the benefits of traditional Medicare and extending it to everyone, not just seniors; andby putting the available federal health care dollars coming into the state to fairer and more efficient use, our state could not only ease the fiscal pressures on Medicare nationally. It could show what is possible under a truly public system—one that treats health care as a right, not a commodity.