Ending Privatized Medicare: A First Step

| Wed Apr. 8, 2009 2:14 PM EDT

The Obama administation has taken an important first step toward reducing what are basically a set of handouts to private insurers, embedded in the Medicare system. These government subsidies to private industry enrich insurance companies at the expense of taxpayers and beneficiaries.

The particular handouts in question come in the form of subsidies to so-called Medicare Advantage plans. As the Wall Street Journal reported on Monday:

The federal government made good on its plan to cut 2010 payments for private Medicare plans, whittling the subsidies to health insurers sooner than the industry originally expected.

The cuts, announced late Monday by the Centers for Medicare and Medicaid Services, are slightly less severe than the 5% reduction the federal agency signaled in February, but still raise concerns about what has been a critical source of profit growth for many health insurers. Reimbursements to private insurers that administer so-called Medicare Advantage plans would fall by as much as 4% to 4.5% next year.

Even the WSJ acknowledges that “Republicans during the Bush administration pushed the plans’ extra benefits for seniors and subsidies to insurers to promote more private-sector involvement in Medicare.” 

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I described the genesis of Medicare Advantage plans in more detail in a post back in January on my blog Unsilent Generation:

Medicare Advantage (MA) plans–-which offer managed care run through private insurers, paid for by the federal government–-are the point of the stake that conservatives have long been trying to drive into the heart of traditional Medicare (which, for all its shortcomings, is the closest thing to a single-payer program that this country has ever seen). Columnist Saul Friedman recently wrote about the history of  of this effort, recalling a 1995 press briefing in which Dick Armey, Newt Gingrich’s collaborator on the “Contract With America,” announced their intent to “wean our old people away from Medicare.”  The first step was to introduce private Medicare HMOs–-what later evolved into Medicare Advantage plans, with a big boost from the Republicans’ 2003 Medicare bill.

MA plans have come under increasing fire for their hard-sell tactics to elderly Medicare recipients, shoddy coverage, and rip-offs of the public purse. “Competition” from the private plans was supposed to reduce growth in Medicare spending–but in fact, they cost the government more. A September 2008 report from the Commonwealth Fund calculated that “payments to MA plans in 2008 will be 12.4 percent greater than the corresponding costs in traditional Medicare–-an average increase of $986 per MA plan enrollee, for a total of more than $8.5 billion. Over the five-year period 2004-2008, extra payments to MA plans are estimated to have totaled nearly $33 billion.”

If the Commonwealth Fund’s figures hold true for this year as well, then by my calculations the Medicare Advantage plans are still getting a subsidy of some 8 percent over traditional Medicare, even after a 4 percent cut. (In fact, the baseline payments to private plans will still go up slightly in 2010, but they’ll be offset by adjustments in other areas—so the 4 percent is just an estimate.) Nonetheless, the insurance companies are already whining about (and lobbying against) the cuts, claiming that they will harm the 10 million Medicare beneficiaries who’ve been convinced to switch to private plans. According to Reuters:

Analysts say the new rates will force insurers to cut benefits for elderly and disabled patients enrolled in Medicare Advantage plans or increase premiums in order to maintain profit margins.

That last phrase, of course, is key: It’s the profit margin that matters to these companies, which is why they shouldn’t be in the Medicare business in the first place—especially if they require extra government subsidies just to make enough money to satisfy their greed. The insurers know that in order to maintain their high profits, they’ll now be “forced” to cut the benefits on their private plans, and more and more Medicare patients will just switch back to conventional, government-run Medicare.

That can’t happen soon enough, as far as I’m concerned. The government’s next step should be to boot the insurance companies out of the Medicare Part D prescription drug program, which would likewise save the taxpayers a bundle while improving benefits to the old and disabled. I’d love to see this done before I fall into the coverage gap, which usually happens around August. But to accomplish this change, Congress will need to act—and they’ll have to battle Big Pharma as well as the insurance giants. So I’m not holding my breath.

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