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Democrats Take Aim at Medicare Private Plans

Image has not been found. URL: /wp-content/uploads/2009/08/baucus-and-grassley.jpgSens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa) (WDCpix)

The Democratic push to slash tens of billions of dollars for private insurers who cover Medicare patients has been met on Capitol Hill by something unusual: a relative silence, even from supporters of the program.

In past years, the Democrats’ proposals to cut subsidies to the popular but controversial Medicare Advantage program — which allows seniors to receive their Medicare benefits through private companies — have been greeted with howls of protest from both the insurance industry and conservative lawmakers, who argue that the private marketplace can offer efficiencies and benefits that traditional Medicare doesn’t. Yet this year, even as the Democrats hope to trim more than $100 billion from the MA program over a decade to help pay for their larger health reform effort, the focus of the critics’ attacks has been largely directed elsewhere.


Illustration by: Matt Mahurin

Health care experts from across the political spectrum list a host of reasons why that’s been the case. First and foremost, much of the health reform debate so far has centered around the strategy of Democrat leaders to create a government-backed insurance option to compete with the private marketplace — a proposal that’s anathema to the industry and roughly every Republican on Capitol Hill. With that threat hanging over the insurers’ heads, experts say, the companies have largely focused their lobbying efforts on defeating the so-called public plan proposal.

“They’ve decided they don’t want to open a two-front war,” said Robert , senior fellow at the Urban Institute who headed Medicare’s payment and managed care division in the late stages of the Clinton administration.

Another reason, some health experts say, revolves around simple marketing and image creation. After contributing heavily to the defeat of President Bill Clinton’s health reform push 16 years ago, the insurance lobby has vowed to support the general goal of health reform this year. With that in mind, it doesn’t want to be seen fighting tooth and nail against every provision that affects it. Capitulating on some reforms, some experts contend, will lend the industry greater voice in defeating others.

Then there are the Republicans who are trying to kill the Democrats’ health reform plans at all costs. They’re banking on the simple theory that in-the-weeds debates about obscure Medicare policies like MA cuts don’t resonate with the public nearly so well as, say, the more provocative (though false) charges that the Democrats’ reforms would encourage abortion, promote euthanasia and establish “death panels.”

Under the Medicare Advantage program, created by a Republican-led Congress in 2003, the government buys private insurance coverage for Medicare patients in lieu of paying for health services directly. Supporters say MA plans have the advantage of delivering additional care to Medicare patients, including dental and eye services not covered under the traditional program. Those additional benefits, combined with a heavy dose of marketing, have made the program enormously popular. This year, a record-high 10.5 million seniors — or 23 percent of all Medicare beneficiaries — are enrolled in MA plans, according to a June report from the Medicare Payment Advisory Commission, or , an independent panel that recommends Medicare reforms to Washington policymakers.

But the extra care doesn’t come cheap. Despite promises that private plans operating under MA could eventually save money, the cost to treat the average patient in the MA program is 14 percent higher than the cost to treat the average senior under traditional Medicare. A part of that additional cost, noted, “consists of funds used for plan administration and profits and not direct health care services for beneficiaries.”

The argument that private plans are necessary to keep Medicare sustainable, said, “is belied by the fact that private plans always seem to require more money.”

“It’s hard to make the case,” added, “that these are justified.”

Kathleen , deputy director of Families USA, a health care consumer group, said the relatively tepid nature of this year’s MA debate is some indication that even the most adamant defenders of the program recognize that the 14-percent discrepancy is too large.

“There’s a sense of consensus that there’s an overpayment problem,” said.

has long advocated for reforms in the way MA payments are structured. But recommendations are non-binding, and defenders of the MA program on Capitol Hill have successfully thwarted most Democratic attempts to scale back the program in recent years to pay for other health care initiatives.

This year, the Democrats hope that will change. Under the House health reform bill, which has already passed through the Energy and Commerce, Ways and Means, and Education and Labor committees — the three panels with jurisdiction over the issue — MA payments would be scaled back over several years in an attempt to eliminate the 14 percent differential. The Congressional Budget Office estimates that the cuts will save taxpayers $156 billion over 10 years.

The White House has taken a different tack. As part of its 2010 budget proposal released in February, the Obama administration aimed to control MA costs by creating system that would require plans to bid competitively for regional contracts under MA. Those plans bidding higher than the regional average would nonetheless get paid only the regional average.

At an -sponsored health reform forum last month, Obama promoted his proposal. “We’ll eliminate billions in unwarranted subsidies to insurance companies in the Medicare Advantage program — giveaways that boost insurance company profits but don’t make you any healthier,” he said.

Both Medicare Advantage vs Medigap plans are offered by commercial insurers, but there are significant distinctions. Medigap insurance is supplementary and fills gaps by covering out-of-pocket expenses connected with Original Medicare, while Medicare Advantage plans replace Original Medicare and usually offer extra coverage. You may pick between the two, but you cannot have both a Medigap insurance and a Medicare Advantage plan.

Many health policy observers expect that the Senate Finance Committee, which is expected to unveil its much-anticipated health reform bill next month, will come up with an MA strategy akin to the White House proposal.

Sen. Charles (Iowa), the highest ranking Republican on the Finance panel, has long-expressed concerns about MA cuts, arguing that such reductions would threaten rural patients who, without the plan subsidies, might not have access to the same range of health care services. concerns haven’t disappeared, but the powerful Iowan has also been open to the administration’s blueprint.

“I’m all for competitive bidding if it doesn’t cut services for rural America,” said in March, in response to the White House budget plans.

Joel White, executive director at the Coalition for Affordable Health Coverage, pointed to one reason why the Democrats will likely choose a compromise like the competitive bidding model over a strategy that simply chops the MA down to the size of Medicare rates. “[I]f the majority attacks MA too hard,” White wrote in an email, “it weakens their argument for the public option as they would be eliminating the ‘private’ choice in Medicare.”

The competitive bidding approach, he added, would also allow the insurance companies a good deal of freedom to determine their own fate under the reforms.

“They figure it could be a lot worse,” said White, a former senior aide to then-Ways and Means Chairman Bill Thomas (R-Calif.), who helped write the 2003 law that created the MA program. “Heck it could be eliminated.”

Not that the insurance industry is pleased with the proposals to slash MA. Robert , spokesman for America’s Health Insurance Plans, the industry’s mouthpiece in Washington, warned that the cuts being proposed by the Democrats would have “a devastating effect on the seniors in the program.” Premiums could go up; benefits could be reduced; and the Democrats’ vows to allow people to keep their current coverage would not be met if the cuts are realized, said.

Still, remains outwardly supportive of health reform — including changes to the MA program, he added.

If the Democrats are successful in their efforts to rein in MA, it could mark a set-back to the decades-old Republican push to privatize Medicare. In October 1995, for example, then-House Speaker Newt Gingrich (R-Ga.) took the podium at a Blue Cross/Blue Shield conference in Washington and promoted a health reform strategy he knew would be music to his audience. Labeling Medicare “a centralized command bureaucracy,” Gingrich proposed to shift the popular program from “a government monopoly plan” to “a free-market plan.”


“Now we don’t get rid of it in round one because we don’t think that that’s politically smart,” he said. “But we believe it’s going to wither on the vine because we think people are voluntarily going to leave it — voluntarily.”

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