Earlier this week, I wrote about the government’s long-overdue move to cut back subsidies to private Medicare Advantage plans, much to the chagrin of the insurance companies that have profited so handsomely from this setup. As reported by the Medicare Rights Center, these insurers are already threatening to pass on the cuts to the old and disabled people who subscribe to their private plans:
The lobbyists for the insurance companies say the subsidy cuts could mean sharp premium increases and reductions in the extra benefits provided to enrollees in these plans. It is up to the companies offering these plans to decide whether to pass through the subsidy reductions to plan members. There is another option, of course.
Insurance companies can become more efficient at providing services. Universal American, a company with over 240,000 Medicare Advantage enrollees, spent just over 83 percent of its premium income on medical services for its enrollees last year. The other 17 percent went toward administrative costs and agent commissions (13 percent) and profit (4 percent).
Original Medicare spends about 3 percent on administrative costs. It does not make a profit. If Universal American and the other insurance companies could reduce their administrative costs, or even their profits, then their plan members might see little, or no, premium increase or reduction in benefits. Such a strategy, of course, puts the interests of people with Medicare ahead of the financial well-being of shareholders and insurance agents, whom Universal American recently enlisted to fight the subsidy reductions.
Actually, Universal American is trying to enlist more than just insurance agents in the struggle to hold on to their sweet deal. It's trying to bring Medicare Advantage subscribers and other ordinary old people into the fray, through a PR initiative misleadingly named The Coalition for Medicare Choices.