It has been sickening in the health care debate to watch so many Democrats parrot the claim that the Congressional Budget Office has found that the health reform legislation will reduce the cost of healthcare. Everybody knows that the CBO numbers are based on the provisions of the bill submitted, which contain numerous devices designed to produce the CBO result, even though they are unrealistic projections. A recent article in the New York Times has spelled this out. See http://www.nytimes.com/2010/03/21/opinion/21holtz-eakin.html?scp=3&sq=Real%20cost%20%20%20%20%20Health%20care&st=cse. The article, entitled "The Real Arithmetic of Health Care Reform", by Douglas Holtz-Eakin, spells out the gimmicks and regulatory games used to produce the CBO scores. Primary among these was the inclusion of ten years of revenue and only six years of costs in the CBO estimate, but there are numerous others, including games with corporate tax payments. Douglas-Eakins doesn't even mentiont the"Doc-fix". This is the more than $200 billion required to eliminate the scheduled cut in Medicare payments to doctors that would result from a formula created in legislation in 1997. This is an essential element of the health reform bill that was in the original House bill, but because it was moved into a separate piece of legislation, Democrats claim that it doesn't have to be counted in the cost of the health reform package. It's amazing how they can say this with a straight face. We are in for higher costs, higher taxes, and reduced service for Medicare patients.
The reconciliation bill is particularly harsh on Medicare Advantage programs, cutting $202 billion from the program used by 25% of all seniors. http://insurancenewsnet.com/article.aspx?id=174426 Medicare Advantage payments will be frozen in 2011, but will feel the full brunt of the decrease in 2012, after the 2012 election. This will obviously make Medicare Advantage plans much less attractive, since it will eliminate any financial advantage that they now have over traditional Medicare. The Democrats will achieve their goal of eliminating private insurance company competition with the traditional Medicare program.
March 24, 2010
March 9, 2010
Obama Health Plan Cuts Benefits for Quarter of All Seniors (Medicare Advantage III)
My previous two posts discussed the details of the Medicare Advantage plans and the Administration's plans to cut them substantially in order to provide additional funding for its health-care proposal. As Rep. Paul Ryan charged at the Health Care Summit, this is double counting in the sense that the administration has claimed that we need to reduce Medicare expenses substantially simply for Medicare to become solvent. However, this particular reduction will have no effect on Medicare savings, because it is intended to he used to offset other costs of the health bill. In any event, the savings are only $14 billion (see my Medicare Advantage I post). Nevertheless, the Administration points to this as one of the major areas of savings that will offset the costs of providing health insurance to an additional 30 million people.
The administration never admits that these particular cost savings affect a quarter of all Medicare users. As noted in my previous post, 24% of all Medicare recipients use Medicare Advantage plans. I suspect that, if they were fully aware of this, seniors would be even more upset about the Obama proposals than they are now Moreover, these proposed cuts are not merely intended to save cost. I believe that they are based on a philosophical difference with the entire concept of private plans in Medicare. This plan was adopted in 2003 by a Republican administration and CongressI encourage the maximum use of marketplace incentives and government programs. The plan has worked very well -- there are now millions of consumers Medicare Advantage plans who have received the benefits of competition. Such competition will even affect the basic Medicare program which will have to respond to the loss of so many consumers. These proposed cuts, therefore, are, in reality, an attack upon the entire concept of the marketplace.
The administration never admits that these particular cost savings affect a quarter of all Medicare users. As noted in my previous post, 24% of all Medicare recipients use Medicare Advantage plans. I suspect that, if they were fully aware of this, seniors would be even more upset about the Obama proposals than they are now Moreover, these proposed cuts are not merely intended to save cost. I believe that they are based on a philosophical difference with the entire concept of private plans in Medicare. This plan was adopted in 2003 by a Republican administration and CongressI encourage the maximum use of marketplace incentives and government programs. The plan has worked very well -- there are now millions of consumers Medicare Advantage plans who have received the benefits of competition. Such competition will even affect the basic Medicare program which will have to respond to the loss of so many consumers. These proposed cuts, therefore, are, in reality, an attack upon the entire concept of the marketplace.
March 8, 2010
Medicare Advantage II -- History and Costs
Congress created the current Medicare Advantage program as part of the Medicare Modernization Act of 2003, the same statute that also created the Medicare drug program (Part D.) Medicare Advantage is also referred to as Part C. Medicare has included service by private providers since 1972, when Congress allowed health maintenance organizations (HMOs) to provide coverage for Medicare beneficiaries. In 1997, Congress and the Clinton Administration created the Medicare Plus Choice program, in a desire to expand the availability of health plan options. This program was not successful. The new statute enable Congress to impose caps on HMO revenue and authorized Medicare to adopt new regulations on private plans. This resulted in 900 pages of regulations. As a result, the number of private health plans in Medicare dropped by more than half -- from 346 and 1998 to 151 by 2003. Therefore, many areas of the country had no access to private health plans.
The 2003 legislation reversed much of this policy. It reversed the price caps and approved additional funding to encourage private plans to return to Medicare. The result has been an enormous increase in private plans, so that in 2009, 24% of all Medicare recipients were participants in Medicare Advantage programs. Medicare Advantage plans provide substantially greater benefits than Medicare at approximately the same price to the consumer. Its pricing structure enables them to provide additional services, or to reduce costs that are charged under Medicare, such as for the Part D program.
(Much of the above history is drawn from The Success of Medicare Advantage Plans: What Seniors Should Know, by Robert E. Moffitt, published by the Heritage Foundation on June 13, 2008. The very recent Report to Congress: Medicare Payment Policy, issued by the Medicare Payment Advisory Commission (MEDPAC) in March 2010 is also very useful. See particular, pp. 261 et sec.)
Since no great achievement goes unpunished in Washington, the Medicare Advantage program has drawn criticism from Democrats, primarily that its cost is more than the cost of the regular Medicare program. Thus, theMEDPAC report states:
By some measures, the Medicare Advantage (MA)
program appears to be successful, but excessive payment
rates preclude the program from achieving desired
efficiencies. MA enrollment continues to increase, MA
plans are widely available to beneficiaries, and plans
provide enhanced benefits for their members. However,
taxpayers and beneficiaries in traditional FFS Medicare
subsidize these benefits, often at a high cost.
Medicare Advantage costs are, in fact about 12% higher than normal Medicare costs. But the above statement contains numerous errors. First of all, this is not a straight apples-to-apples comparison. Medicare Advantage provides substantial additional benefits, which, presumably, increase its costs. Nor does the cost comparison say anything about efficiency, since we are not comparing the same services. Based on my experience, Medicare Advantage seems much more efficient, since it does not inundate consumers with a blizzard of paperwork. Moreover, there is no basis for claims of cross subsidization. Congress adopted a particular policy of supplemental payments to Medicare Advantage plans in order to encourage their development. There is no evidence that it deprived traditional Medicare patients of services they would otherwise have received. Indeed, in 2009, 23% of beneficiaries were enrolled in Medicare and its plans, and the payments for Medicare Advantage amounted to 23% of total Medicare spending (in 2008, according to a paper on the Medicare Advantage payment system, issued byMEDPAC in October 2009).
The Medicare pricing structure is as follows:
1. Medicare establishes a benchmark figure for each county, representing the average cost of fee-for-service payments per person. This benchmark is a bidding target.
2. Plans then bid to offer Medicare (Parts A and B) coverage to Medicare beneficiaries. The data is presented as the price to cover an average or standard beneficiary, and includes administrative costs and profit.
3. If the bid is below the benchmark, the plan receives a base rate equal to its bid. Importantly it also receives an additional payment from Medicare in the form of a rebate, which equals 75% of the difference between its bid and the benchmark. The plan then must return the rebate to its enrollees in the form of supplemental benefits or lower premiums.
4. If the bid is above the benchmark, the plan receives a base rate equal to the benchmark, and the enrollees have to pay an additional premium and equals the difference between the bid and the benchmark.
The overwhelming majority of bids are below the benchmark. In 2006, 95% of Medicare Advantage plans bid below the benchmark level (Heritage paper, above, page 6).
Medicare Advantage plans have, obviously, been a great success, providing superior services at less then or the same cost as traditional Medicare. It has achieved results intended by Congress in 2003. But, a Democratic Congress wants to reduce these benefits, and use the "savings", not to fix Medicare finances, but to develop a new program for younger people -- the Obama health plan. The Democrats present this in terms of cutting waste, but as explained above, there is nothing wasteful in Medicare Advantage -- the additional cost covers additional services, which are greatly beneficial to Medicare consumers.
The 2003 legislation reversed much of this policy. It reversed the price caps and approved additional funding to encourage private plans to return to Medicare. The result has been an enormous increase in private plans, so that in 2009, 24% of all Medicare recipients were participants in Medicare Advantage programs. Medicare Advantage plans provide substantially greater benefits than Medicare at approximately the same price to the consumer. Its pricing structure enables them to provide additional services, or to reduce costs that are charged under Medicare, such as for the Part D program.
(Much of the above history is drawn from The Success of Medicare Advantage Plans: What Seniors Should Know, by Robert E. Moffitt, published by the Heritage Foundation on June 13, 2008. The very recent Report to Congress: Medicare Payment Policy, issued by the Medicare Payment Advisory Commission (MEDPAC) in March 2010 is also very useful. See particular, pp. 261 et sec.)
Since no great achievement goes unpunished in Washington, the Medicare Advantage program has drawn criticism from Democrats, primarily that its cost is more than the cost of the regular Medicare program. Thus, theMEDPAC report states:
By some measures, the Medicare Advantage (MA)
program appears to be successful, but excessive payment
rates preclude the program from achieving desired
efficiencies. MA enrollment continues to increase, MA
plans are widely available to beneficiaries, and plans
provide enhanced benefits for their members. However,
taxpayers and beneficiaries in traditional FFS Medicare
subsidize these benefits, often at a high cost.
Medicare Advantage costs are, in fact about 12% higher than normal Medicare costs. But the above statement contains numerous errors. First of all, this is not a straight apples-to-apples comparison. Medicare Advantage provides substantial additional benefits, which, presumably, increase its costs. Nor does the cost comparison say anything about efficiency, since we are not comparing the same services. Based on my experience, Medicare Advantage seems much more efficient, since it does not inundate consumers with a blizzard of paperwork. Moreover, there is no basis for claims of cross subsidization. Congress adopted a particular policy of supplemental payments to Medicare Advantage plans in order to encourage their development. There is no evidence that it deprived traditional Medicare patients of services they would otherwise have received. Indeed, in 2009, 23% of beneficiaries were enrolled in Medicare and its plans, and the payments for Medicare Advantage amounted to 23% of total Medicare spending (in 2008, according to a paper on the Medicare Advantage payment system, issued byMEDPAC in October 2009).
The Medicare pricing structure is as follows:
1. Medicare establishes a benchmark figure for each county, representing the average cost of fee-for-service payments per person. This benchmark is a bidding target.
2. Plans then bid to offer Medicare (Parts A and B) coverage to Medicare beneficiaries. The data is presented as the price to cover an average or standard beneficiary, and includes administrative costs and profit.
3. If the bid is below the benchmark, the plan receives a base rate equal to its bid. Importantly it also receives an additional payment from Medicare in the form of a rebate, which equals 75% of the difference between its bid and the benchmark. The plan then must return the rebate to its enrollees in the form of supplemental benefits or lower premiums.
4. If the bid is above the benchmark, the plan receives a base rate equal to the benchmark, and the enrollees have to pay an additional premium and equals the difference between the bid and the benchmark.
The overwhelming majority of bids are below the benchmark. In 2006, 95% of Medicare Advantage plans bid below the benchmark level (Heritage paper, above, page 6).
Medicare Advantage plans have, obviously, been a great success, providing superior services at less then or the same cost as traditional Medicare. It has achieved results intended by Congress in 2003. But, a Democratic Congress wants to reduce these benefits, and use the "savings", not to fix Medicare finances, but to develop a new program for younger people -- the Obama health plan. The Democrats present this in terms of cutting waste, but as explained above, there is nothing wasteful in Medicare Advantage -- the additional cost covers additional services, which are greatly beneficial to Medicare consumers.
March 7, 2010
Medicare Advantage I
I have been hearing so much in the current health care debate about how expensive Medical Advantage plans are, and how the Democrats expect to save enormous amounts of money by cutting them back to the level of fee-for-service payments that I decided to do some of my own research. My conclusion is that they may cost slightly more than ordinary Medicare, but they provide substantially more benefits. In addition, the savings that would be achieved by eliminating Medicare Advantage would amount to $14 billion at most, a very small proportion of the suppose of $500 billion in costs that the administration is proposing to squeeze out of Medicare. ( According the to Medicare Payment Advisory Commission Final Report, March 2010, p. 260, "In 2009, Medicare spent roughly $14 billion dollars more for the beneficiaries enrolled in MA plans than it would have spent if they had stayed in FFS Medicare.")
I have a personal interest in this. I am a member of a Medicare Advantage HMO plan that provides excellent service, at lower costs to me than my previous plans under vanilla Medicare. It receives the basic Subpart B premium that I pay, but also covers all my premiums under the Subpart D drug plan. This saves my wife and me about $900 per year. In addition, the Medicare Advantage plan is also more generous in covering costs of hospitalization, charging a maximum of $125 a day in the first five or six days, with all the additional costs absorbed by the insurance. Medicare has an exemption of approximately $1100, that the patient pays for each impatient hospital visit, no matter how long.
Moreover, Medicare Advantage is a lot more efficient and easy to use than basic Medicare. Under standard Medicare, I would receive a separate bill for each activity. I would ignore the initial bill because it would be no way of knowing how much I actually owned. The doctor would submit his bills to Medicare at a list price that was unrelated to any amount that Medicare would allow. Medicare would then adjust the price to its standard cost for my procedure, and I could not be charged for more than this price. It would then reimburse the doctor for 80% of the cost, and I would ultimately get a bill from the doctor's billing office. These would be for negligible amounts, for example, six dollars or $10, for which I would then have to write a check and deposit in the mail at the cost of a stamp. The amount of paperwork is enormous, and must impose substantial administrative costs on every doctor's office.
In contrast, under my Medicare Advantage plan, I make a co-pay of $10 for every visit to my primary care doctor, and $30 for each visit to a specialist, and that's it. No further bills. I don't know how complex the billing system is between doctors and insurance companies, but I suspect it is simpler, because the companies can deal on the basis of capitation, and not just fee-for-service.
Of course, there are trade-offs for me. I am not free to choose any doctor, but most go to doctors on insurance company's list. However, when I investigated this issue before signing up, I found that my primary care doctor and four of my five specialists were in the plan. It is also a local plan covering the Dallas-Fort Worth area, which means that I cannot go outside this area for routine treatment. If I have an emergency out of town, I am covered, but not otherwise. From a consumer's point of view, my Medicare Advantage plan is far superior to standard Medicare, and I am very unhappy that the Democrats propose to destroy this benefit. Their rationale has nothing to do with superior service, or efficiency, but simply with the fact that the average cost to the government per Medicare Advantage patient is 10% greater than per Medicare patient. Subsequent posts on this subject will consider the history of Medicare Advantage, and the reimbursement structure for insurance companies, and whatever else may come to mind.
I have a personal interest in this. I am a member of a Medicare Advantage HMO plan that provides excellent service, at lower costs to me than my previous plans under vanilla Medicare. It receives the basic Subpart B premium that I pay, but also covers all my premiums under the Subpart D drug plan. This saves my wife and me about $900 per year. In addition, the Medicare Advantage plan is also more generous in covering costs of hospitalization, charging a maximum of $125 a day in the first five or six days, with all the additional costs absorbed by the insurance. Medicare has an exemption of approximately $1100, that the patient pays for each impatient hospital visit, no matter how long.
Moreover, Medicare Advantage is a lot more efficient and easy to use than basic Medicare. Under standard Medicare, I would receive a separate bill for each activity. I would ignore the initial bill because it would be no way of knowing how much I actually owned. The doctor would submit his bills to Medicare at a list price that was unrelated to any amount that Medicare would allow. Medicare would then adjust the price to its standard cost for my procedure, and I could not be charged for more than this price. It would then reimburse the doctor for 80% of the cost, and I would ultimately get a bill from the doctor's billing office. These would be for negligible amounts, for example, six dollars or $10, for which I would then have to write a check and deposit in the mail at the cost of a stamp. The amount of paperwork is enormous, and must impose substantial administrative costs on every doctor's office.
In contrast, under my Medicare Advantage plan, I make a co-pay of $10 for every visit to my primary care doctor, and $30 for each visit to a specialist, and that's it. No further bills. I don't know how complex the billing system is between doctors and insurance companies, but I suspect it is simpler, because the companies can deal on the basis of capitation, and not just fee-for-service.
Of course, there are trade-offs for me. I am not free to choose any doctor, but most go to doctors on insurance company's list. However, when I investigated this issue before signing up, I found that my primary care doctor and four of my five specialists were in the plan. It is also a local plan covering the Dallas-Fort Worth area, which means that I cannot go outside this area for routine treatment. If I have an emergency out of town, I am covered, but not otherwise. From a consumer's point of view, my Medicare Advantage plan is far superior to standard Medicare, and I am very unhappy that the Democrats propose to destroy this benefit. Their rationale has nothing to do with superior service, or efficiency, but simply with the fact that the average cost to the government per Medicare Advantage patient is 10% greater than per Medicare patient. Subsequent posts on this subject will consider the history of Medicare Advantage, and the reimbursement structure for insurance companies, and whatever else may come to mind.
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