Medicare Disadvantage

The level of misinformation concerning the Affordable Care Act and the Medicare program is approaching Shark Jumping Territory, and therefore it is probably high time for some serious, fact based, commentary.

The total cost of the Medicare Program, Part A, Part B, Part C, and Part D was $549 billion in FY 2011.  [Trustees Report 2012 pdf]  The specific numbers are as follows:

Medicare Part A pays for hospitalization, skilled nursing facility care, hospice care, and some home health care services.

Medicare Part B pays for physician’s services, outpatient care, medical supplies, and preventative services.

Medicare Part D pays for prescription drug plans.

Medicare Part C is not part of the original Medicare program, and covers Medicare Advantage Health Insurance, described by the DHHS as follows:

“A Medicare Advantage Plan is a type of Medicare health plan offered by a private company that contracts with Medicare to provide you with all your Part A and Part B benefits. Medicare Advantage Plans include Health Maintenance Organizations, Preferred Provider Organizations, Private Fee-for-Service Plans, Special Needs Plans, and Medicare Medical Savings Account Plans. If you’re enrolled in a Medicare Advantage Plan, Medicare services are covered through the plan and aren’t paid for under Original Medicare. Most Medicare Advantage Plans offer prescription drug coverage.”  [Medicare.Gov]

If we take the spreadsheet out one more column and show the percentage of the expenditures for Medicare for each part the numbers look like this:

The Cuts are Coming! The Cuts are Coming!

My nomination for the most confusing and obfuscating charge made by the Romney-Ryan Campaign is that “cuts in Medicare go to pay for Obamacare.” This first relies on a visceral reaction disassociated from reality that Medicare is Good and Obamacare is Bad.  In fact, what the Affordable Care Act DID was to cut over-payments to private health insurance corporations in Part C in order to cover the expenses (notably the infamous do-nut hole in Part D coverage).

In short, the Affordable Care Act (Obamacare) cut funding for over-payments to private health insurance corporations in order to apply those funds to …. Medicare.   A more complete explanation is provided by Medicare Advocacy:

“The greatest amount of savings in Medicare, about $130 billion over 10 years, [iv] will be achieved by reducing overpayments to private Medicare Advantage (MA) plans. These are the insurance plans that contract with the Centers for Medicare & Medicaid Services (CMS) under Medicare Part C to provide benefits to those who voluntarily enroll. MA plans must provide all of the guaranteed benefits under Part A and Part B; they may provide additional benefits with moneys they receive in excess of the cost of providing the guaranteed benefits.

For all intents and purposes, the Medicare Advantage programs were an experiment by the private health insurance companies to say, “The Private Sector can offer the same benefits as Medicare — only better, and the Market will prove it.”  Except that it didn’t.

One advocacy group for seniors enrolled in Medicare Advantage health insurance plans summarized the problems:

“The idea behind the plans is to provide better services and lower out-of-pocket costs. However, it doesn’t always work that way, according to the Medicare Rights Center. While the plans must provide a benefit “package” that is at least as good as original Medicare’s and cover everything Medicare covers, the plans do not have to cover every benefit in the same way. For example, plans may pay less for some benefits, like skilled nursing facility care, and offset this by offering lower copayments for doctor visits.”

The results? Problems such as —  (1) Care can cost more than it would under original Medicare.  (2)  Private plans are not stable and may suddenly cease coverage.  (3)  Members may experience difficulty getting emergency or urgent care.  (4) Because plans only cover certain doctors, the continuity of care is often broken when the plan drops a provider.  (5)  Members have to follow plan rules to get covered care. (6)  Members are restricted in their choices of doctors, hospitals, and other providers.  (7)  It can be difficult to get care away from home.  (8) The extra benefits offered often turn out to be less than promised.  (9) People with both Medicare and Medicaid can encounter higher costs. [ElderLaw]

Despite the obvious problems listed above, and the disparity between administrative costs between the original Medicare and the Medicare Advantage private plans, Congress barreled along offering incentives and allowing accounting advantages to encourage enrollment in the privatized “Medicare” experiment. [HealthBeat]  However, the practical problems aside, the major fiscal problem with the Medicare Advantage experiment came with over-payments associated with MA plans.

Under the funding mechanism in effect before enactment of the Affordable Care Act, MA plans were paid, on average, 9 – 13% more than the traditional Medicare program to provide the same coverage. These extra payments resulted in Medicare Part B premiums being $3.35 higher per month for all beneficiaries in 2009, and resulted in the federal government (and taxpayers) spending $14 billion more than it would have had Medicare Advantage plan enrollees remained in the traditional Medicare program.”  [Medicare Advocacy] (emphasis in original)

No one should be arguing that paying 9-13% more for the Same Thing is sound financial thinking.   Nor should taxpayers be footing the bill for an experiment that costs $14 billion more than it would have if people had remained in the traditional Medicare program.  So, how does Obamacare (ACA) fix this problem?

“The Affordable Care Act phases in changes to the MA overpayments, starting with a freeze in payments to MA plans for 2011. Payments will be based on national county benchmarks, with plans being paid a fixed percentage of traditional Medicare costs. As a result of this payment formula, plans in some lower-paid counties, generally rural and suburban areas, will continue to receive payments that exceed the traditional Medicare amount, while plans in higher paid counties, many of them large cities, may see substantial reductions.[vi] Rebates (an amount plans receive if they bid less than the county benchmark) will also be reduced. The new payment structure also provides for an increase in payments by up to 5% for plans that receive four or more stars on the CMS star rating system. [Medicare Advocacy] (emphasis added)

In other words, IF a Medicare Advantage insurance plan measures up to what would be available to seniors under the traditional Medicare program, and IF it avoids the nine issues listed above — the corporation would be subsidized for offering the plan — if not, then there’s no reason for taxpayers to be subsidizing plans that fail to meet the criteria.  Further, the ACA (Obamacare) requires that Medicare Advantage insurance policies sold must use premiums paid in to provide health care services:

“It also requires Medicare Advantage plans to pay at least 85 percent of the premium dollars they collect for medical claims. However, it also makes it possible for Medicare Advantage plans to receive higher payments if they demonstrate that they are providing high-quality care to enrollees.” [HealthAffairs.Org]

Thus, when a health care insurance corporation sells a Medicare Advantage policy, 85% of the premiums paid in must pay for — health care.  Not executive compensation, not advertising, not corporate sponsored retreats, not executive entertainment, not administrative expenses, not towels for the executive washroom, or fuel for the corporate jet — health care.  If the traditional Medicare program can function on a rate of 1.42% administrative costs for expenses, then it seems reasonable that a private corporation could administer its MA programs for 15%.


Get a grip.  Obamacare (ACA) will not send doctors leaving their practices in droves.  Nor will it leave Granny to the mercies of an imaginary Death Panel.  Why, for example, would hospitals agree to savings from cuts to their reimbursement under the Obamacare (ACA) provisions?  Jon Healey explains in the Los Angeles Times:

“The Affordable Care Act also tries to slow the growth of Medicare by prodding healthcare providers to deliver higher-quality care. Two examples: It reduces payments to hospitals that readmitted Medicare patients shortly after they’d been discharged, and that had an excessive rate of hospital-acquired maladies. And it cuts the extra Medicare payments to hospitals that treat a lot of patients who can’t pay their bills, on the reasonable assumption that the act will extend insurance coverage to millions of uninsured Americans.”

More people covered (so fewer very expensive visits to the Emergency Room) and more quality control so that patients aren’t re-admitted for the treatment of bed sores they incurred during the initial admittance, and everybody wins.   More patients get better care, and the hospital isn’t out the expenses of people who land in emergency rooms sans insurance and run up bills the hospital has to swallow.

For the umpteenth time — the Affordable Care Act (Obamacare) saves some $700 billion over the next decade or so, and uses that money to SUSTAIN MEDICARE PROGRAMS FOR BENEFICIARIES.   The cuts, the savings, whatever we will to call them are on the “providers” side — like not paying insurance corporations to sell MA policies which may or may not be as good as traditional Medicare enrollment, or not paying hospitals for sloppy care which results in Granny going in again.

Jon Healey’s final assessment is on target:

“In other words, the Affordable Care Act reduces the amount that Medicare takes from the Treasury for the sake of subsidizing a different group: the non-elderly working poor and lower middle class. Ryan can argue that we shouldn’t help those people afford insurance, but he can’t honestly say the law steals anything from the Medicare trust funds.

In fact, the law brings more money into the Medicare Hospital Insurance trust fund — an estimated $318 billion over 10 years — by hitting upper-income households with a 0.9% payroll-tax surcharge and a 3.8% tax on investment income. As someone with an intimate knowledge of the federal budget and the way money flows in and out of the Treasury, Ryan knows this. But he’s hardly the first pol to let the facts get in the way of a good applause line.”

Amen.  A little Fact-Checking provides immediate refutation:

  “The idea, however, that the Affordable Care Act struck a dangerous blow to Medicare that will change the program in fundamental ways is untrue. Under the new law, Medicare will remain a wildly popular, public single-payer health insurance system that provides comprehensive coverage to millions of Americans.”  [Time]

So, hold your applause for the Romney-Ryan Line.

References and Related Reading:  The 2012 Annual Report of the Trustees of the Federal Hospital Insurance Federal Supplemental Medical Insurance Trust Funds, (pdf) Annual Report, April 23, 2012.  “The Trouble With Medicare Advantage,” Health Beat, July 9, 2008.  Medicare Rights Center, “Medicare Advantage – Some Plans Too Good To Be True,” Elder Law Answers, summary.  “Health Care Reform Does Not Cut Medicare Benefits,” Medicare Advocacy, October 28, 2010.   “What Is Medicare,” Department of Health and Human Services, summary information.  Jon Healey, “Obamacare ‘raids’ Medicare, not exactly,” Los Angeles Times, August 21, 2012.  Ezra Klein (Sarah Kliff post) , “Obamacare won’t cut benefits,” Washington Post, August 15, 2012. David Pinar, “MediScare,” Tucson Citizen, August 15, 2012.

Fact Checking the Romney-Ryan attack on Medicare:  Kate Pickert, “Fact checking Obama’s Medicare cuts,” Time Magazine, August 16, 2012.  Adwatch, “Obama defends Medicare policy,” Boston Globe, August 17, 2012.

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