Medicare at a disadvantage

This article, Questions and Answers: Medicare Cuts May Fund Overhaul, appeared in the Denver Post about a month ago. There is, so far as I can see, very little understanding out there about “Medicare Advantage”, or the private sector part of the Medicare program. At one time, President Obama openly talked about cutting it back.

Medicare Advantage came about in 1997 (it was then called “Medicare Choice”) when Medicare beneficiaries were given the option to receive their benefits via private insurance companies instead of through Medicare Parts A and B. (The private plan was known as “Part C”, which is why the drug benefit passed in 2003 was called “Part D”.)

When the Medicare Part C was first offered, care was offered through Health Maintenance Organizations run by the private sector, and HMO’s were reimbursed by funds given the insurers by the government. Given the choice between traditional Medicare and private HMO’s, most Medicare recipients chose the former.

To remedy the problem, private insurers in 2003 sought and got from Congress a huge subsidy, and “Medicare Advantage” was born. Private insurers are typically paid around $800 a month for their Medicare patients, far more than the federal government pays to cover the average Medicare patient.The premium can go as high as $2000 depending on the risk status of the patient. The additional premium is used by insurers to lure clients out of Medicare and into Medicare Advantage. In essence, we subsidize their marketing.

Medicare Advantage generally offers better benefits than traditional Medicare. Even so, the private insurers do not want Medicare’s expensive patients, and are so doing the usual cherry-picking and claim denial. And again, as usual, there are a dizzying array of plans, and patients are being funneled into fewer choices of facilities, treatments and doctors than traditional Medicare offers.

Drs. David Himmelstein and Sidney Wolfe talked about insurance company marketing practices for Medicare Advantage on the Bill Moyers Journal back in May:

Himmelstein:…the private insurers have all kinds of tricks to avoid sick patients, who are the expensive patients. So, you put your signup office on the second floor of a walkup building. And people who can’t navigate stairs are the expensive people.

Wolfe:Get rid of the heart failure patients.

Himmelstein: Or you have your signup dinners in a rural area at night, where only relatively healthy people are able to drive and stay up that late. So, there’s a whole science to how you sign up selectively healthier patients. And the insurance industry spends millions and millions of dollars on that. And would continue to as they’ve done under Medicare. Selectively recruiting healthier patients, who are the profitable ones, leaving the losses to the public plan.

And there’s really, despite regulations in Medicare that says you can’t do that, that’s continued to happen. And it means that every time a patient signs up with a private plan under Medicare, we pay 15 percent more than we would pay if that same patient were in the Medicare program.

Essentially, Medicare Advantage was a plan to undermine Medicare by stripping it of the healthy patients that are the bulwark of any viable health insurance plan. Medicare would be left with the expensive patients, and would eventually sink.

At one point President Obama talked about undoing Medicare Advantage, saving the larger Medicare program $27 billion per year that currently subsidizes M.A. (I am citing that from memory from one of his speeches, and could be wrong on specifics.) I haven’t heard him talk about it lately, although the right wing and private insurers have menaced seniors with the idea that Democrats want to cut Medicare.

From the Denver Post story first linked above:

Benefits under traditional Medicare won’t be cut. But seniors who’ve signed up for private insurance plans through Medicare Advantage could lose valuable extra benefits, according to the Congressional Budget Office.

For years, the government has been paying the private plans more than it costs traditional Medicare to deliver similar services. The plans used the money to provide extra benefits — mainly lower copayments and deductibles. Seniors on tight budgets responded by signing up, and now nearly one-fourth of Medicare recipients are in private plans.

…After accounting for proposed Medicare improvements, the House plan would reduce net spending on the program by $218 billion over 10 years, according to an analysis by the Kaiser Family Foundation. The Senate Finance Committee proposal would decrease net spending by $377 billion over the same period.

Kaiser found that the House cuts amount to 3 percent of projected Medicare spending from 2010-2019, while the Senate reductions are about 5 percent.

On the other hand, there would ideally be improved coverage under traditional Medicare:

Coverage for preventive care would also get better. The House and Senate bills eliminate copayments and deductibles for prevention. The House would also increase subsidies to help low-income seniors with copayments and deductibles.

“When you look at the improvements in traditional Medicare — filling the doughnut hole, free prevention, help for low-income seniors — I think all of those things narrow the gap between what Medicare Advantage has been providing and what traditional Medicare provides,” said John Rother, top strategist for AARP. “In effect, they are improving the benefit for everyone.”

Medicare Advantage was carved out of Medicare to create a profit center for private insurers, and has managed to take 25% of the Medicare base – the healthiest 25%. Reforms as proposed would take back some of that advantage and apply it to the regular base. But industry does not easily give back subsidy.

In general, private health insurance is a leach on the health care system. Insurers in the 1960’s struck a deal with reformers to allow Medicare to cover only 80% of costs, with private insurance picking up the other 20%. It created a profit center for private health insurance companies – United Health Care, for the third quarter of 2009 reported that 36% of its $21.7 billion in revenues came from Medicare Advantage and Medicare supplements.

So while we like to think of Medicare as the efficient part of our health care system, private insurers have made significant inroads and have carved out significant profits for themselves out of the public purse.

Proposed “Cuts” to Medicare are really cuts to private industry, which is why insurance companies (and AARP – which works with the private companies and takes a cut of the subsidy) are using that feature of reform to scare seniors into opposing it.