Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.
The private health insurers in America have been working for decades to privatize Medicare, our public health insurance for all seniors, so they can make profits off this large public funding stream. Not surprisingly, they made dramatic new inroads during the Trump administration.
If we want to improve quality and control costs in our health care system, the privatization of Medicare must be stopped and rolled back. This and two subsequent posts will summarize:
- The history and background of Medicare and efforts to privatize it (this post),
- The unsuccessful efforts to control the costs and improve the quality of the privatized Medicare Advantage plans, and
- What Medicare needs to do to fix what’s gone wrong and to control runaway costs while improving quality. 
The U.S. health care system is the most expensive in the world with some of the worst outcomes. It costs nearly twice as much per person as in peer countries. It is eating up nearly $1 out of every $5 spent in the U.S. economy. Our policies (i.e., laws and regulations, or lack thereof) have allowed our private health care system to rip off consumers with high prices and poor quality for the sake of profits that enrich shareholders and executives.
The public, meanwhile, is less healthy and its economic security is at-risk, because even with insurance a major health problem is often astronomically costly. Surveys have found that of the adults who are not old enough to be eligible for Medicare roughly one in four (26% or about 52 million people) face challenges paying medical bills. Roughly 1 million individuals declare bankruptcy each year and for many of them (estimates range from 26% to 62%) medical bills are a significant – if not the driving – factor. This makes medical costs the number one cause of personal bankruptcies. 
Medicare was created in 1965 to provide health insurance for seniors that would pay their doctor and hospital bills. The Centers for Medicare and Medicaid Services (CMS) oversees Medicare (and Medicaid which is for low-income families and individuals) and sets the regulations for health insurance plans for seniors. Private insurance companies process the payments for health care services under a contract with CMS. The insurers get paid for services according to CMS regulations. However, the insurance companies manage the payments to health care providers and the processing and paperwork requirements.
Privatized Medicare Advantage (MA) plans were introduced in 1985 because private insurers claimed they were more efficient and, therefore, could save Medicare money and deliver better services – despite their poor performance record in the general health care market. MA plans are publicly funded, privately run, currently enroll 26 million seniors (40% of Medicare enrollees), cost $343 million a year, and are very profitable for the private insurers. Moreover, two corporations, Humana and UnitedHealthcare, are the insurers for half of all MA enrollees. As is true in so many sectors of the U.S. economy, this market has a few huge corporations with a very large portion of the market. Due to this limited competition, these huge corporations have monopolistic power (e.g., to raise prices and lower quality). This is a classic example of the hyper-capitalism that emerges when corporations aren’t strongly regulated.
The portion of Medicare that is privatized through Medicare Advantage (MA) plans is growing and has resulted in increased costs and a bewildering array of choices that often confuse and manipulate seniors – 3,834 MA plans are offered by nine different health insurance companies. This makes seniors’ health care complex, confusing, and costly, thereby undermining confidence in Medicare and in government programs in general.
Seniors buy MA plans because they typically cover services Medicare doesn’t cover (such as vision, hearing, and dental services) and/or reduce Medicare’s out-of-pocket costs (e.g., deductibles and co-pays). To cover their overhead and make a profit, MA plans aggressively control costs by requiring enrollees to only use in-network providers and to get prior approval for many services, especially expensive ones.
MA plans deny 4% of requests for prior approval of health care services and 8% of requests for payments for services that have been delivered. There is an appeal process but few people use it. When they do, the denials are reversed 75% of the time. Denying coverage for health care services not only saves the MA plans money, it also tends to drive seniors who have serious and expensive health issues off their MA plan and back onto traditional Medicare. This is a creaming-the-crop technique that leaves healthier, less expensive (and more profitable) seniors in MA plans and shifts the less healthy, more expensive seniors onto the public Medicare program. As a result, MA plans spend 10% to 25% less per enrollee than traditional Medicare does for comparable enrollees.
Nonetheless, over the 12 years from 2009 to 2021, Medicare paid MA private insurance companies $140 billion more than it would have spent if those seniors had stayed in traditional, public Medicare. (A further explanation of how this happens is in my next post.) MA plan insurance companies made a gross profit of $2,256 per enrollee in 2020 (which is more than double what they make on non-senior enrollees in the general health care market).
The bottom line is that the partial privatization of Medicare through Medicare Advantage plans has not saved Medicare money as promised (quite the opposite) and it has not produced better outcomes for seniors.
My next post will summarize the unsuccessful efforts to control the costs and improve the quality of the privatized Medicare Advantage plans. A subsequent post will describe what Medicare needs to do to fix what’s gone wrong and to control runaway costs while improving quality.
 Caress, B., 1/24/22, “The dark history of Medicare privatization,” The American Prospect (https://prospect.org/health/dark-history-of-medicare-privatization/)
 Amadeo, K., 1/20/22, “Medical bankruptcy and the economy,” The Balance (https://www.thebalance.com/medical-bankruptcy-statistics-4154729)
2 thoughts on “MEDICARE IS BEING PRIVATIZED AND IT’S A RIP OFF”
If o.k. with you I’m going to send this to Jon Weissman who sent in the question about Medicare for all, which he is very involved with, and was on the zoom this morning. – I’m assuming it is o.k to share your blogs widely but wanted to double check so please let me know.
Corinne, yes, please share my blog whenever and to whom you’re ever motivated to do so. By the way, at a hearing in Congress on Wed., Sen. Warren and others called for the Biden Administration to shutdown the latest Trump Administration initiated privatization of Medicare. Read more here: https://www.commondreams.org/news/2022/02/03/warren-warns-corporate-vultures-are-circling-medicare-bidens-watch