Health Affairs

Democrats prioritized price negotiations on prescription drugs, but in principle, payments to private plans are an equally salient target on the new majority’s Medicare agenda. The Republicans’ Medicare Modernization Act pays Medicare Advantage (MA) plans from about 10 to nearly 20 percent more per beneficiary than the traditional fee-for-service program spends on them. The overpayments are designed to speed enrollment in private plans, because they allow the MA plans to offer extra benefits. It’s a loss leader, and it’s working. Seventeen percent of beneficiaries have now migrated out of FFS, a great leap forward for the Republican strategy of privatizing Medicare.

Are private plans inherently more efficient than government? There is more than a little room for doubt. In a brilliant new book by Rick Mayes of the University of Richmond and the Urban Institute’s Bob Berenson, the success of Medicare’s prospective payment system in holding down cost growth is demonstrated convincingly – findings echoed in a recent Congressional Budget Office monograph.

But setting aside the fiction of cost savings and ideological reasons for privatization, are there other plausible justifications for these multi-billion dollar private insurance subsidies?

John Gorman – who as a single-payer enthusiast and former staff director for Rep. John Conyers (D-MI) holds impeccable liberal credentials – says that MA capitation rates should be considered “investments in infrastructure,” rather than overpayments. Like Berenson, Gorman doubts that MA private fee-for-service plans or high-deductible HSA/MSA plans will add value for beneficiaries. But full implementation of risk adjustment in the MA program damps down the incentives for risk selection that subverted its predecessor, Medicare+Choice, Gorman said yesterday at a forum at the Urban Institute. And new special needs plans in MA, along with HMOs and other coordinated care plans, are the best hope that Medicare has of achieving care coordination for beneficiaries with multiple chronic conditions, who represent the greatest challenge to the program’s future solvency.

So apart from a veto, what’s to keep the Democrats from cutting off the largesse to the PFFS and high-deductible plans that don’t add value, but giving HMOs and “SNPs” a little rope and a chance to prove themselves?  Part of the answer can be found in former administrator Bruce Vladeck’s treatise on interest group politics in Medicare. But since these plans can use some of the surplus payment to provide extra benefits to enrollees, they also have constituent lobbies that can be mobilized with great effect, especially since many who benefit are from low-income and minority communities. Once given, the richer benefits can be very hard to take away. “I think in a sense we’ve created a monster,” Urban president Bob Reischauer said.

This entry was posted on Wednesday, January 24th, 2007 at 11:11 am and is filed under All Categories, Cost, Insurance, Medicare, Payment, Pharma, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.