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Senior Citizen Opinions & Analysis
Privatizing Medicare: The Train has Already Left the
Station
By
The Center for Medicare Advocacy
 October
25, 2006 - While the country debates the merits and concerns about
Social Security privatization, Medicare has been morphed into a set of
private plans with little attention or discussion. The private Medicare
train is already out of the station.
Medicare Privatization on A Fast Track
The movement to privatize Medicare began in the
1980s with the introduction of Medicare managed care, and has continued
on this perilous track ever since. In 1997 Medicare Part C introduced a
variety of private plans under the banner of “Medicare+Choice”.
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These private options, largely managed care,
thrived for a few years and then began to withdraw from Medicare as
government payments and plan profit margins diminished. The plan
withdrawals left many beneficiaries with no private options and with the
insecurity of “losing their Medicare.”
Most dramatically, the Medicare Modernization Act
of 2003 began a major restructuring of the traditional Medicare program,
relying exclusively on private plans to deliver the new Part D
prescription drug coverage.
The 2003 law and the Deficit Reduction Act of 2005
provide substantial subsidies to private companies that offer Medicare
plans in 2007. Private Medicare options, now known as “Medicare
Advantage,” (MA) plans will be paid about 11% more per enrollee, or
about $828, than Medicare would pay if the enrollee remained in the
traditional program. These payments will total about $5.7 billion in
2007 and nearly $30 billion over the five years from 2007 -2011.[1]
The dire consequences that privatization has had,
and will have, on beneficiaries and taxpayers alike, are documented in
recent reports, two of which are highlighted below.
These reports also discuss the Administration’s
blind devotion to turning Medicare over to private industry – even when
privatization is less efficient, more costly, and may bring about the
end of Medicare as the successful social insurance program it has been
since 1965.
● Families USA Report: Privatization Hurts
Beneficiaries and Tax Payers
In Medicare Privatization: Windfall for the
Special Interests, Families USA documents the excessive payments
which Medicare makes to private Medicare Advantage companies offering
Part D plans (MA-PDs), and to regional preferred provider organizations
(PPOs), in order to artificially keep them in the market and to help
move more beneficiaries into private plans.
According to the report, Medicare Advantage drug
plans received an extra $4.6 billion over what regular Prescription Drug
Plans (PDPs) received in 2006. If this continues over five years, they
would be paid as much as $23.5 billion more than PDPs - traditional
Medicare models - to take care of the same beneficiaries.
Congress, in passing the MMA, also set aside $10
billion through 2013 to ensure access to regional PPOs through higher
payments, this on top of the payment available to all MA plans. That is
an extra $10 billion to ensure access to something that 88% of
beneficiaries already have access to in 2006. It doesn’t appear that
additional payments are needed to keep regional PPOs in the market.
The Families’ Report indicates that the
government’s rationale for these overpayments is that the managed care
system saves Medicare money, despite higher upfront costs, by limiting
the network of providers and coordinating care.
In actuality, according the Report, MA plans
usually enroll healthier beneficiaries who do not mind a limited network
of providers, and cost the system less overall, resulting in
overpayments when compared to traditional Medicare.
Managed care enrollment grew through the 1990s but
declined after 1999, resulting in plans withdrawing from the market.
When market forces on their own actually pushed private managed care
plans out, though, Medicare offered further overpayments to keep plans
in the market in an effort to lure more beneficiaries into private
managed care.
Despite government efforts to push beneficiaries
into private plans, almost 90% have chosen to remain in traditional
Medicare. But this preference is at an ever-increasing cost for
beneficiaries and taxpayers.
As healthier beneficiaries move to private plans,
beneficiaries enrolled in traditional Medicare are needier and premiums
in the traditional program increase because the mix of beneficiaries is
sicker and older.
The increased costs for traditional Medicare also
effect taxpayers, since general revenues cover most of the costs of
Medicare. Meanwhile beneficiaries and taxpayers are also paying the
subsidies for private plans and for the unnecessarily high prices for
drugs under D resulting from the law’s prohibition on Medicare
negotiating prices with the pharmaceutical industry.
● Congressman Waxman Study: The Unrelenting
Push for Privatization
A second report, released by Congressman Henry
Waxman in a letter to Michael Leavitt, Secretary of the US Department of
Health and Human Services (HHS), demonstrates that Medicare
beneficiaries have not benefited from the Part D privatized prescription
drug system. The letter was in response to statements made to the
contrary by the Centers for Medicare & Medicaid Services (CMS), the HHS
agency responsible for Medicare.
Specifically, CMS claimed that 83% of beneficiaries
would have access to Part D plans with lower premiums in 2007 than they
paid in 2006.
According to the Waxman study, the CMS analysis
erroneously accounts for premiums in MA-PD plans, as well as stand alone
PDP plans. Since MA-PDP plans charge a single premium for a package of
services, covered by Medicare Parts A, B and D in the traditional
program, one can only surmise what part of the MA premium is actually
for Part D.
Only one quarter of beneficiaries enrolled in Part
D in 2006 elected an MA-PD. The other 75% are in a stand alone PDP and
traditional Medicare. The Waxman study found that for these people, the
vast majority of Medicare beneficiaries, Part D premiums would actually
increase for beneficiaries as follows:
● Across all drug plans (PDPs), premiums will
increase an average of 13.2% in 2007
● For PDPs with the same deductible and same
donut hole coverage in 2006 and 2007, premiums will increase 11.1% in
2007,
● For the lowest priced PDPs, premiums will
increase by 44% for 2007
Including MA-PD premiums in the estimate for the
average national premium artificially lowers the premium amount, and
misleads Medicare beneficiaries about the true cost of their drug
options.
Because, as described above, MA-PDs are heavily
subsidized by the government, they sometimes offer lower premiums,
(although they may also offer more limited providers and coverage). The
lower premiums are steering more beneficiaries into private health
plans, rather than keeping them in traditional Medicare.
Long-term Consequences
This unnecessary spending to keep private plans
options in Medicare is costly to beneficiaries and taxpayers and has
even more serious implications for the future. Overpayments and higher
premiums in private plans are raising the overall cost of the Medicare
program.
Meanwhile, a little known provision of the 2003 MMA
law established a rule that if two consecutive Medicare Trustees’
Reports estimate that more than 45% of Medicare’s budget within the next
six years will come from general revenues, the President must propose
legislation to lower the cost to less than 45%.
The most recent Trustees’ report estimated that the
45% mark would be reached in 2012, and it is likely that the next report
will include a similar estimate. If this happens, Medicare will be
subject to draconian cuts and more privatization. This is ironic, since
privatization is substantially responsible for the increasing cost of
Medicare.
While the country has, so far, successfully
resisted privatizing Social Security, Medicare has already been
transformed into an array of private plans, with barely any comment from
the media or policy makers.
We are already hearing that we can't afford this
old Medicare program and must, cynically, look more, not less, to
limited-coverage from private plans. Meanwhile people with Medicare -
soon to include millions of Baby Boomers - will have to go without. And
insurance, managed care, and pharmaceutical companies will benefit.
It is time to stop egregious overpayments to
private industry and start promoting and developing the affordable,
comprehensive traditional Medicare program. We need to flag down the
private Medicare train that’s speeding down the track before it’s too
late.
Notes:
[1]
Brian Biles, MD, Payments to Medicare Advantage Plans Exceed
Fee-For-Service Costs: Options for Medicare Savings from 2007 – 2011,
(George Washington University, 9/15/2006).
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