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Senior Citizen Opinions & Analysis
Medicare Advantage: You Get What You Pay For
‘Big changes to Medicare are coming, beginning with
Medicare Advantage, the program that provides private insurance
alternatives to traditional fee-for-service Medicare’
Austin Frakt, Assistant Professor of Health Policy and Management
Boston University’s School of Public Health
15, 2010 - The Obama administration seems worried. In an election year,
any change to Medicare that adversely affects beneficiaries is a
political liability for incumbents. And big changes to Medicare are
coming, beginning with Medicare Advantage, the program that provides
private insurance alternatives to traditional fee-for-service Medicare,
the program’s public option.
Last Monday, private insurers that offer Advantage
plans submitted their 2011 bids, estimates of the cost of providing a
fixed set of basic Medicare benefits next year. It is through this
annual bidding process that the generosity of coverage and level of
cost-sharing for each plan is established. With 2011 government payments
to plans fixed at 2010 levels by the new health overhaul law, it is
likely that beneficiaries will pay more to get less from Advantage plans
next year. The bids will reveal how much.
According to the Wall
Street Journal, in advance of the bid deadline, Department of Health
and Human Services Secretary Kathleen Sebelius sent a letter to
insurance companies warning them not to dramatically increase premiums
or cost-sharing of Advantage plans. If they do, they run the risk that
Sebelius will reject their proposals.
Despite the secretary’s threat, it’s inevitable
that Advantage plans will adjust their premiums and cost-sharing upward
in the long run, if not in the short run. Over the next few years, the
new health law gradually reduces Advantage payments from today’s
generous levels that are about 15% above fee-for-service costs. The
lower levels will depend on local
costs and plan quality.
That’s good news for taxpayers, even if it isn’t
welcome news to Medicare beneficiaries. According to the Congressional
Budget Office, the reduction in plan payments is expected to save
over $100 billion in the next decade. The lower spending on Advantage
plans inevitably will lead to reductions in plan availability. Some
beneficiaries will have access to fewer plans, some to none at all, a
fact illustrated by a Health
Care Financing Review paper I co-authored.
Our earlier paper in the International
Journal of Health Care Finance and Economicsindicates that even
where plans continue to be offered, their benefits will be less generous
as government payments decrease. Though beneficiaries will object to the
loss of benefits, they actually don’t value those benefits anywhere near
their full cost to taxpayers. In a study published last year, also in
Journal of Health Care Finance and Economics, we found that for the
benefits provided by each additional dollar paid to Advantage HMOs since
2003, beneficiaries would have paid just $0.14 out
of their own pocket. In monetized terms, a dollar saved makes a Medicare
beneficiary worse off, but by far less than one dollar.
This relatively poor return of value on taxpayer
dollars is why I support reductions in Advantage payments. The
administration and congressional Democrats have chosen the right path
for Advantage payment policy. Having done so, they are now faced with a
political problem. How can they avoid the potential ire of disgruntled
Medicare beneficiaries? It will be hard, if not impossible.
Sebelius’ letter is a good try. It’s an attempt to
bully plans into self-subsidizing their products or finding creative
ways to hide the reduction in generosity this year. If she succeeds,
then she’ll have achieved a short-term political victory. But she’s
facing an uphill battle.
In the long run, there’s no getting around the fact
that Advantage plans will shrink in generosity and availability.
Anything else would defy a fundamental law of economics that also
happens to be a fundamental law of politics: you get what you pay for.
Austin Frakt is a health economist and an Assistant
Professor of Health Policy and Management at Boston University’s School
of Public Health. He blogs at The
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information was reprinted from
kaiserhealthnews.org with permission from the Henry J.
Kaiser Family Foundation. You can view the entire Kaiser
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