Medicare Advantage Is Still Breaking the Bank

The L.A. Times has an article entitled “The next healthcare battle” which focuses on the overpayments currently being made by the federal government to Medicare Advantage plans. I suppose you could call it the next health care battle, if you’re defining “next” as “something we realized has been a mistake and have been trying to fix almost since we started it.”

I’ve written so much about this program and am so stunned that it continues to be “controversial” that I sometimes feel like a parent who has now told his child six consecutive times she needs to clean her room and – guess what – discovers there are still clothes and stuffed animals everywhere. Here’s the deal: If a Medicare beneficiary so chooses, s/he can opt out of traditional Medicare and sign up instead for a private insurance plan (“Medicare Advantage”). Sometimes they come with extra goodies like free gym membership or an optical plan, sometimes not. But one thing they don't come with are measurable better health outcomes – never have. They’re also not tied to traditional Medicare fee-for-service or cost per beneficiary rates. This was originally billed in 1997 as a way for the always-efficient private sector to deliver the same quality at lower costs. It hasn’t worked out. The Medicare Payment Advisory Committee noted back in 2004 (when the program was still called Medicare + Choice) that compared to traditional fee-for-service Medicare, that the HMOs cost 7% more per beneficiary for no real reason – and indeed, these HMOs cost more “in all counties,” not just high cost areas of the country. They recommended the plans only be paid at 100% of traditional Medicare. Congress ignored them. They’re now at 114%.

In 2009, after five years of saying the same damn thing, MedPAC kicked their rhetoric up a notch:

Paying more than [fee-for-service Medicare] is unfair to taxpayers and beneficiaries not enrolled in [Medicare Advantage] plans who subsidize those payments. We estimate that in 2009 Medicare is paying about $12 billion more for the beneficiaries enrolled in MA plans than it would have spent if they were in FFS Medicare and that the Part B premium is increased by about $3.00 a month for all beneficiaries, whether or not they are enrolled in an MA plan.

Then President-elect Obama described it as an example of “programs that don’t work.” In his budget, he made it clear he would do away with paying them more than 100% of the cost of traditional Medicare beneficiary. Max Baucus and the Senate Finance Committee were counting on cutting the fat off Medicare Advantage to help fund health care reform. The House bill does the same thing explicitly.  Obama has recommended it time and again, perhaps by using competitive bidding to set their payments (an idea also endorsed by MedPAC… this time in 2003). So I don’t think I’m being unreasonable to ask why the hell we’re still overpaying them.

In many ways, the L.A. Times answers my question for me. After citing all the problems with overpaying Medicare Advantage, the cost savings potential ($177 billion over 10 years) and even showing that the AARP is against overpaying for Medicare Advantage, the L.A. Times gives the defense of the program through a single guy signed up for a Medicare Advantage plan who’s pretty happy with it. He may not have gotten any better care than he would have through traditional Medicare (measuring health outcomes, he probably didn’t), but the guy likes it. And, by gum, how dare Uncle Sam take it away from him?

Thus we see the insurance industry’s ace in the hole: superior marketing. As far as most folks are concerned, Maurice Engleman can have his HMO substitute for Medicare, if he likes it so much. But is it too much to ask for private insurance companies to make a better mousetrap rather than a better marketing pitch?

(Photo credit:  Fiber! on Flickr.)