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Controversy Swirls (Again) Over Medicare Advantage

Medicare Advantage is at the forefront of congressional bickering. Again. Indeed, a large chunk of yesterday’s health reform debate in the Senate Finance Committee revolved around the contentious MA program. And the debate is continuing straight into this morning.

But to understand the controversy, it’s important to understand what Medicare Advantage is. And despite the misleading name, MA isn’t Medicare. It’s a system, created by Republicans in 2003, under which the government pays private insurers to cover Medicare patients. That is, it allows seniors to opt into taxpayer-funded HMOs in lieu of the traditional fee-for-service program. It’s not Medicare; it’s Medicare’s competitor.

Trouble is, it also costs taxpayers about 14 percent more, on average, to cover MA patients than traditional Medicare patients. And many plans cost much more than that. The Congressional Budget Office estimates that capping MA rates at 150 percent of Medicare would still save the government money. That means some plans are charging much more than 114 percent of Medicare — money subsidized not only by taxpayers, but also by seniors in the traditional program, who pay higher premiums to cover the difference.

Senate Budget Committee Chairman Kent Conrad (D-N.D.) warned this week that those extra costs — combined with the growing popularity of MA, which now covers 25 percent of seniors — are largely the reason that Medicare spending will swamp the nation’s entire economy in just a few short decades unless Congress reins it in.

“We have a runaway train,” Conrad said Thursday.

Recognizing low-hanging fruit when he sees it, Senate Finance Committee Chairman Max Baucus (D-Mont.) has proposed to slash MA payments by $123 billion over the next 10 years.

But there’s a great deal of dispute about where the extra money goes. In many cases, MA plans are using the subsidies to fund services not covered by the traditional program, things like eye care, dental services, and even gym memberships to encourage fitness. Rural communities, where medical care is often lacking, also benefit tremendously from the subsidies, which encourage HMOs to move into those under-served areas.

“We did this because it was necessary,” Sen. Orrin Hatch (R-Utah) said Thursday of MA’s creation. “We couldn’t get the care in the rural communities.”

It’s not simply a partisan issue. Sen. Ron Wyden, a Democratic who represents largely rural Oregon, argued yesterday that, although there are certainly abuses among MA plans, not all of those plans are made alike. Those operating in Oregon, Wyden said, are not only working well, but they’re vital to the state.

Yet there’s also truth in the argument, popular among many liberal Democrats, that a large chunk of MA subsidies go, not to cover patient benefits, but to pay administrative costs and pad profit margins. What happened, these critics ask, to the efficiencies the private insurers had promised when the program was launched? Bolstering their argument, officials at the federal agency that runs Medicare estimate that seniors in traditional Medicare pay an additional $3.60 per month to subsidize the extra benefits going to MA patients (and the extra profits going to the insurance industry.)

Both sides appear to have valid arguments. Some plans seem to be providing valuable care to underserved folks; others are clearly gaming the system. The pickle for Congress is to separate those plans that charge taxpayers more because they have to, and those that charge more because they can. Considering the number of plans out there, just be happy that isn’t your job.

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