2020 OPEN ENROLLMENT ENDS (most states)

Time: D H M S

Big MACs: Meet the 7 private corporations who would see their business grow 8x larger under Medicare for All...sort of.

I've written several times over the past few months about the confusion regarding how much of an impact on the private insurance industry the move to a universal, 100% publicly-financed single payer healthcare system would have.

Most recently I noted that not only would the latest versions of the House and Senate "MFA" bills expand their reach even further by adding in Long-Term Services & Support (thus legally denying private insurers yet another range of services that they'd be legally allowed to duplicate), but in an interview ahead of the rollout, Bernie Sanders himself stated point-blank that private health insurance companies would be "reduced to nose jobs" and the like (which is of course the whole point).

In all of my posts, though, I've also made sure to include a caveat that there'd still likely be some small role for private insurance carriers, even if they'd only be a shadow of their current selves. I mostly had in mind things like elective procedures, upgraded services (private hospital rooms, extended numbers therapy sessions, etc), experimental treatments and a few other odds and ends.

HOWEVER, there's one more area where private health insurance carriers would not only survive, but likely increase their revenue a good 8 times over their current business: MACs:

A Medicare Administrative Contractor (MAC) is a private health care insurer that has been awarded a geographic jurisdiction to process Medicare Part A and Part B (A/B) medical claims or Durable Medical Equipment (DME) claims for Medicare Fee-For-Service (FFS) beneficiaries. CMS relies on a network of MACs to serve as the primary operational contact between the Medicare FFS program and the health care providers enrolled in the program. MACs are multi-state, regional contractors responsible for administering both Medicare Part A and Medicare Part B claims. MACs perform many activities including:

  • Process Medicare FFS claims
  • Make and account for Medicare FFS payments
  • Enroll providers in the Medicare FFS program
  • Handle provider reimbursement services and audit institutional provider cost reports
  • Handle redetermination requests (1st stage appeals process)
  • Respond to provider inquiries
  • Educate providers about Medicare FFS billing requirements
  • Establish local coverage determinations (LCD’s)
  • Review medical records for selected claims
  • Coordinate with CMS and other FFS contractors

Section 911 of the Medicare Prescription Drug Improvement, and Modernization Act (MMA) of 2003 directed CMS to replace the Part A Fiscal Intermediaries (FIs) and Part B carriers with MACs. CMS procures all MAC contracts according to the Federal Acquisition Regulation. Various elements of the Agency’s original strategy for implementing Section 911 of the MMA evolved over the years.

Currently there are 12 A/B MACs and 4 DME MACs in the program that process Medicare FFS claims for nearly 68% of the total Medicare beneficiary population, or 38.5 million Medicare FFS beneficiaries. The MACs serve more than 1.5 million health care providers enrolled in the Medicare FFS program. Collectively, the MACs process more than 1.2 billion Medicare FFS claims annually, 218 million Part A claims and more than 1 billion Part B claims, and paid $386 billion in Medicare benefits.

It's important to understand that MACs have nothing to do with Medicare Advantage, or "Part C" plans. Those are actual Medicare policies which are offered by private companies contracted & authorized by the Centers for Medicare & Medicaid. Medicare Advantage is a whole different business division for insurance companies. MACs are used by traditional Medicare.

The text above makes it sound like there are a total of 16 MACs contracted by CMS to process claims, but in some cases the same private contractor operates more than one region. As far as I can tell, there's actually only 7 different MAC companies:

  • Noridian Healthcare Solutions, LLC
  • CGS Administrators, LLC
  • Wisconsin Physicians Service Government Health Administrators
  • Palmetto GBA, LLC
  • National Government Services, Inc.
  • Novitas Solutions, Inc.
  • First Coast Service Options, Inc.

What's that? You've never heard of any of these companies? Yeah, except it turns out that you have. I did a little quick searching, and it turns out...

  • Finally, regarding Novitas Solutions, Inc: "In January, Diversified Service Options Inc, a wholly owned subsidiary of Blue Cross and Blue Shield of Florida Inc, acquired MAC Highmark Medicare Services (HMS) from its parent company, Highmark Inc. As a result, HMS changed its name to Novitas Solutions Inc."

...which I think means that Novitas is also owned by the same company which owns BCBS Florida.

So, there you have it, folks: BCBSND, BCBSSC, BCBSTN, BCBSFL, Anthem and WPS appear to be in charge of processing all 1.2 billion fee-for-service Medicare claims annually for over 38 million people.

Of course, if Bernie Sanders' flavor of MFA (which woild stick with the fee-for-service structure) were to actually come to pass, that means instead of 38.5 million Medicare FFS enrollees, these companies would presumably be handling claims processing for all 330 million Americans, or roughly 8x as many people.

How much money do these seven companies get paid for their efforts? Well, I'm not sure what it is for 2019, but according to this 2014 Administrative Contractors' Performance Report from the HHS Dept. Office of the Inspector General, all 16 MACs were collectively awarded $4.3 billion in contracts over a 5-year period. Accounting for inflation and Medicare enrollment growth since then, I'm going to assume that amounts to a bit over $1.0 billion per year. Assuming a direct extrapolation (and obviously there'd likely be some pretty significant changes), that would likely jump up to around $8.5 billion per year, give or take.

Of course, the top five carriers alone brought in $361 billion in total revenue in 2017...and as far as I can tell, they only make up around 40% of total 2017 health insurance revenue, which would mean the grand total is closer to $933 billion in 2017. The MAC contracts would still be chump change compared to that even at 8x the revenue.

So there you have it: Proof positive that if Medicare for All were to completely replace all private health insurance throughout the United States, for good or for bad, private insurance carriers would still have...um....0.9% of their current revenue stream.

Oh, as an aside:

All told, it looks like these seven companies employ somewhere around 18,000 people. Assuming they were to grow in direct proportion to the volume of Medicare enrollees they service (which of course there's no guarantee of), that would increase to something like 150,000 people, a net increase of perhaps 130,000 government contractor jobs.

Of course the theoretical elimination of the rest of the health insurance industry would result in the loss of between 500,000 - 1.7 million jobs:

  • Around 500,000 people work directly for health insurance companies in the U.S.
  • An additional 1.17 million work indirectly as insurance brokers, agents, or other insurance-related businesses such as claims adjusters etc...although that includes life, property and casualty insurance.

I'm going to assume the actual number whose jobs depend directly or indirectly on the private health insurance industry specifically would be somewhere in the range of 600,000 - 1 million people.

UPDATE 4/17: Well imagine that! This 200-page Political Economy Research Institute (PERI) study from last fall estimates that there'd likely be roughly 747,000 direct/indirect health insurance employees who'd likely face "displacement"...right in the middle of my rough estimate above!

However, they also point out that there'd likely be another 936,000 employees on the healthcare sedrvices side (i.e., billing/administrative services at hospitals, doctor's offices, clinics and so forth) who would likely lose their jobs as well.

Combined, that's roughly 1.7 million people.

Let's assume 130,000 were shifted over to work for the MAC contractor subsidiaries of those companies to cover the 8x Medicare claims processing load from having all 330 million of us in the program.

Let's further assume another, say, 70,000 were hired to fill other new openings in related positions (either by the federal government or other private contractors) to fill additional MFA-related needs (the IRS, perhaps, to deal with changes to the tax system due to MFA?)

Finally, let's assume that the "supplemental health insurance market" left behind to cover oddball stuff employed, say, 5% of the original workforce...another 30,000 - 50,000 people. I should also note that this might generate perhaps another 5% of the private industry's current revenues...let's call it 6% when you include MACs.

If so, that would leave perhaps 350,000 - 800,000 people who'd have to find a completely new career.

This is far lower than some other projections, but far higher than others.