Medicare Advantage health plans are expected to have payment cuts by Obama administration and Democratic congress
25 11 08 - 11:49
MedicareÂ’s private insurers await impending cutbacks
By Jeffrey Young
Congress and the incoming Obama administration are poised to slash subsidies to private insurers under Medicare, a move that could significantly change the landscape for health plans in the entitlement program — and their beneficiaries.
A longstanding ideological battle between liberals and conservatives over the propriety of turning over a growing portion of the Medicare entitlement to private companies is meeting head-on with the need for Congress to make cuts to certain programs in order to finance other priorities.
Democrats — and, increasingly, some prominent Republicans — cite multiple studies that show private insurance plans cost the taxpayer an average of 13 percent more per beneficiary than traditional Medicare costs.
The government spends $94 billion a year on Medicare Advantage subsidies. Democrats say $15 billion of that amount is excessive and that these so-called overpayments to private insurers could be spent on other things, such as comprehensive healthcare reform.
Earlier this year, Congress overrode President BushÂ’s veto to enact $14 billion in cuts to Medicare Advantage over five years.
“Further cuts are coming to the program. The payments are so high that they really don’t make any sense right now. There really is no rationale for the level of payments,” a Democratic congressional aide said Monday at an event sponsored by the journal Health Affairs.
Democrats are not alone in their skepticism about the value of the dollars set aside for Medicare Advantage, though Republicans generally are skeptical of Democratic plans to make deep cuts to the subsidies.
A Republican aide emphasized at the event that government-run Medicare, by far the largest healthcare purchaser in the United States, influences the market to such a degree that the private plansÂ’ performance cannot be evaluated fairly.
“The underlying Medicare fee-for-service program hugely distorts the market for healthcare services,” the GOP aide said. “Generally, Republicans have concerns about public programs crowding out private options.”
Private health insurance companies, which provide benefits under the Medicare Advantage program, count nearly one-quarter of Medicare enrollees on their rolls.
Deep cuts in the subsidies to these plans could cause them to abandon Medicare, creating uncertainty for the more than 10 million seniors and disabled people signed up for Medicare Advantage plans.
The funds targeted for cuts allow private plans to offer extra benefits, such as vision and dental coverage, which traditional Medicare does not provide. In addition, the plans can reduce beneficiariesÂ’ out-of-pocket costs.
Enrollment in the private plans grew — simultaneous with the introduction of private Medicare Part D prescription drug plans — but so did costs.
Despite the increasing popularity of private plan options, lawmakers and Obama see the $15 billion in so-called overpayments to private insurers as money they would rather spend on other things, such as comprehensive healthcare reform.
Indeed, the Democratic aide noted, Senate Finance Committee Chairman Max Baucus (D-Mont.) views action on Medicare issues like these to be part of his overall effort on health reform. Baucus indicated as much in the health reform “white paper” he introduced two weeks ago.
Even Sen. John McCain (R-Ariz.) came to embrace cutting these subsidies during his presidential campaign, citing the need to find financing offsets to pay for his own health reform platform.
The Republican-controlled Congress conceived Medicare Advantage, formerly known as Medicare+Choice, as a means to bring market forces to bear on Medicare, the costs of which have been skyrocketing for decades. In addition to eyeing cost savings from private competition, the programÂ’s backers point to its potential to provide better benefits than the government-run plan.
After health plans fled the program in the late 1990s and early 2000s, citing inadequate federal subsidies, Congress and the Bush administration in 2003 created generous subsidies to bring them back into the fold. Since those subsidies took effect, Medicare Advantage enrollment has nearly doubled.
But the Medicare Advantage debate is about more than ideology and government financing, Mathematica Policy Research senior fellow Marsha Gold explained at the Health Affairs event.
“We know we’re spending a lot more but, frankly, we don’t know what we’re buying,” said Gold, the author of a study on Medicare Advantage published on the Health Affairs website Monday.
Private plans can play an important role in Medicare, especially when it comes to coordinating patients’ care between their medical providers, but Congress needs to re-evaluate exactly what it wants these plans to do for beneficiaries and taxpayers, Gold said. “They need to decide first when private plans are valuable and at what cost,” she said.
Medicare Advantage is not the only segment of the programs that could be refined to find budgetary savings, said Simon Stevens, the CEO of Ovations, a subsidiary of UnitedHealth that is the largest provider of Medicare-related plans to seniors.
“Remember, there are also very big opportunities in the traditional part of Medicare that should also be part of this discussion,” said Stevens, who was a senior health policy aide to then-British Prime Minister Tony Blair.