December 6, 2007

Quacks Like a Duck: Subsidies to Private Medicare Plans

Apparently not all cost overruns are created equal. Case in point: the well-documented, $150 billion subsidies being paid to private Medicare plans – about 12% more than would be due for enrollees in the regular Medicare program. It appears that the Senate will not follow the lead of the House of Representatives to protect the integrity and stability of the Medicare program by cutting these subsidies. Worse, the Administration threatens to veto any bill that even trims them, under the guise of being against legislation that reduces choice and access for Medicare beneficiaries.

It appears the subsidies will go untouched this year, notwithstanding repeated studies and little debate about their wastefulness. (See, "Two Insurers Increase Bet on Medicare," Milt Freudenheim, NY Times, 12/5/2007.) Private Medicare plans will collect $150 billion in subsidies, despite the fact that doctors who care for Medicare patients face a 10% cut in their payments.  Further, regardless of the subsidies, many private Medicare plans will be reducing coverage and adding to patient cost-sharing. Meanwhile, all beneficiaries and taxpayers bear the financial burden of maintaining the extravagant payments.

The overpayments affect Medicare beneficiaries by requiring them to pay more for their Part B premiums and encouraging marketing abuses by plans that want to take advantage of excess Medicare payments.  The overpayments affect all Americans by weakening the financial stability of the Medicare program and by increasing federal expenditures.  Even a recent study issued by a for-profit insurance industry group shows that, at best, private Medicare plans spend 300-400% more on administration than traditional Medicare.[i]  All this unnecessary expense continues, and is even encouraged, at the same time that we are repeatedly warned, in solemn tones, that "we just can’t afford Medicare" for our ever-increasing aging population.

At a time when Congress is looking to reduce fraud, waste and abuse throughout the federal government, it is inconceivable that members of the Senate are unwilling to take the steps taken by the House of Representatives to reduce the overpayments to the private insurance companies that participate in Medicare, and that the President would veto a bill even if it merely reduces subsidies.  As a result, taxpayers, most people with Medicare, and doctors are losers.  Private corporations win – big time.

Some claim that the 20% of Medicare beneficiaries enrolled in private plans will lose benefits if payments to Medicare Advantage plans are cut.  But we are seeing private plans cut benefits and pass along additional costs to Medicare beneficiaries in 2008 anyway – even though they will continue to be paid more than traditional Medicare.  These private plans do not provide the stability of the traditional Medicare program, which covers 80% of all beneficiaries, and they should not be paid more than traditional Medicare. 

The overpayments to private Medicare plans look, smell, and act like a boondoggle.  As Chico Marx said in Duck Soup, "Who you gonna believe, me or your own eyes?"

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