GAO Medicare Audit Reveals Waste and Fraud

September 11, 2007

Bill Novelli, CEO of AARP, told an audience at the Center for American Progress back in July that, unless we act, “overpayments to Medicare Advantage plans will total about $54 billion over five years.” This week, the Government Accountability Office confirmed that this is not just waste but possibly fraud. Private insurers pocket tens of millions of dollars every year, if not a far higher amount, in overpayments from the federal government that legally must be used to improve coverage for enrollees.

In 2003, 220 private insurers participated in Medicare. The Centers for Medicare and Medicaid audited 49 of the organizations and found significant errors at 41 of them. But Medicare did not take action to collect the $59 million in overpayments that could have helped to increase benefits, lower co-payments, and lower premiums.

Even if these overpayments were not lining the pockets of insurance executives, questions have been raised about paying private plans more than it costs to deliver care in the traditional program. In July, Novelli spoke of the need to create a level playing field for payments. “Overpayments to Medicare Advantage raise costs for beneficiaries in the traditional program,” he emphasized. “Theses payments are inequitable and fiscally irresponsible—they waste Medicare dollars.”

Others look to the fiscal impact of these overpayments. The Medicare Payment Advisory Commission estimates that every senior must pay $2 more per month in premiums to finance HMO overpayments. And, the Bush administration’s own actuaries project that overpayments reduce Medicare’s trust fund solvency by three years.

The Children’s Health and Medicare Protection Act, or CHAMP Act, which passed the House in July, would reduce these needless subsidies to private insurance companies and use the money to strengthen Medicare’s low-income protections, improve its preventive and mental health benefits, and expand essential health coverage provided to children through the State Children’s Health Insurance Program, or SCHIP.

The American public supports both Medicare reform and expanded health insurance for kids. Both the House and the Senate passed bills to reauthorize and expand SCHIP. Policymakers should listen to the call for reform and ensure that private insurers stop receiving needless overpayments and that seniors and low-income children alike receive quality health coverage that meets their needs.

For more information on this topic, see:

• Getting Medicare Right
• Progressive Prescriptions for a Healthy America