The Medicare Modernization Act of 2003 includes numerous provisions encouraging the continued privatization of the Medicare program. Among these are billions of dollars in subsidies to private health plans intended to encourage their participation in Medicare. Overpaying private companies to provide services that could readily be provided by traditional Medicare at less cost undermines the Medicare program and increases Part B premiums for all beneficiaries as well as increasing costs to the federal government. The National Committee to Preserve Social Security and Medicare believes these subsidies should be eliminated, and the savings dedicated to the preservation and expansion of traditional Medicare.
Private health plans, now called Medicare Advantage plans, were first allowed to participate in Medicare because some policymakers believed they could provide better services at a lower cost than traditional Medicare. In fact, because it was anticipated private plans would be so efficient, the government initially paid them five percent less for each beneficiary they enrolled than it would have cost to cover that same beneficiary in traditional Medicare.
In 25 years time, the powerful health insurance industry lobby has been extremely successful in turning this rationalization on its head. Instead of paying private plans less to reflect the efficiencies they argued would save the government money, Medicare now pays them significantly more than it would cost to cover the same beneficiaries through traditional fee-for-service Medicare. In fact, today the government pays an average of 14 percent more to cover a beneficiary in a private Medicare Advantage plan than it would cost to cover that same beneficiary in traditional Medicare. And some types of private plans can receive much larger payments. For example, Private Fee-For-Service plans are paid about 17 percent more than traditional Medicare and plans in some localities are paid 50 percent more than traditional Medicare. In simple dollar terms, Medicare pays about $1,000 more a year to cover a beneficiary in a private plan than it would cost to provide care to that same beneficiary under traditional Medicare. These additional costs are absorbed by the Medicare program at a time when health care costs are growing exponentially, both for the federal government and for beneficiaries, and when some are insisting that the federal government cannot afford to continue supporting entitlement programs such as Medicare over the long-term.
The National Committee believes continuing to overpay private insurance companies to provide services that could be more affordably and efficiently provided by the traditional Medicare program is unconscionable. The privatization of Medicare will ultimately unravel the universal protection Medicare currently provides. Achieving that privatization by subsidizing private industry participation in Medicare is doubly harmful to the program, and ultimately to the beneficiaries who depend on Medicare for their health insurance coverage.
Overpayments to private plans increase Part B premiums for all Medicare beneficiaries. The Medicare program finances overpayments to private plans with money collected by general revenues and beneficiary premiums. Every Medicare beneficiary pays nearly $36 a year in higher Part B premiums just to fund excess payments to private plans. In other words, the majority of Medicare beneficiaries - the 80 percent of beneficiaries choosing to remain in traditional Medicare - are paying to subsidize the private plans that provide benefits to the remaining 20 percent of beneficiaries. Because subsidies are projected to continue rising, all Medicare beneficiaries can expect to pay dramatically higher premiums in the future, and can expect increasing portions of those premiums to be diverted to private plan subsidies.
Eliminating overpayments would save billions of dollars and improve Medicare's financial outlook. Under provisions of the Medicare Modernization Act, private Medicare Advantage plans are receiving subsidies totaling over $15 billion a year. Federal spending on Medicare Advantage plans will continue to grow as more beneficiaries are lured out of traditional Medicare as a result of the excessive payments made to private plans. According to the Medicare Payment Advisory Commission (MedPAC), paying private plans at the same rate as traditional Medicare would save $62 billion over the next five years and $169 billion over the next ten years. Not only would eliminating these large overpayments save billions of dollars, it would also add 18 months of solvency to Medicare's hospital insurance trust fund.
Overpayments are used to improve insurance industry profits and are not completely passed along to beneficiaries. When Congress approved the system which overpays private plans, policymakers intended that the excess payments be returned to beneficiaries in the form of additional benefits or reduced cost-sharing. It is not at all clear to what extent this is occurring. Private plans are subject to few public reporting requirements, so it has been extremely difficult to determine what percentage of the overpayments has padded the profit margins of the private insurance companies offering the plans, or has been used for marketing, rather than being returned to beneficiaries. In the case of Private Fee-For-Service plans, MedPAC found that only about half of the excess payment is used to deliver extra benefits for enrollees. The remainder of the payment is used to finance the administrative costs, marketing, and profits of private plans.
Overpayments are driving unscrupulous agents and private plans to use aggressive sales tactics and misrepresentations to sell their products to beneficiaries. A recent survey of state insurance departments found that 39 of 43 states had received complaints about misrepresentations and inappropriate marketing practices of Medicare Advantage plans. In most cases, these practices led to Medicare beneficiaries enrolling in a private plan without adequate understanding of the plan or their ability to stay in traditional Medicare. The inflated payments to private plans allow them to offer exceedingly large commissions to agents who enroll beneficiaries into Medicare Advantage plans, regardless of whether the plan meets their needs. To receive their commissions, some insurance agents have engaged in fraudulent activities including: forging signatures on enrollment documents; mass enrollments and door-to-door sales at senior centers, nursing homes, or assisted living facilities; and enrolling beneficiaries with dementia into inappropriate plans. Removing overpayments, increasing oversight and regulation, and limiting large commissions would help to prevent beneficiaries from falling victim to unethical and illegal sales tactics.
The Medicare Improvements for Patients and Providers Act (MIPPA), which became Public Law 110-275 on July 15, 2008, when Congress overrode President Bush's veto, prohibits and limits certain sales and marketing activities under Medicare Advantage and Part D prescription drug plans, effective for the marketing of 2009 plans, which began on October 1, 2008, and the 2008 Annual Enrollment Period from November 15-December 31, 2008. The MIPPA p rohibits certain sales activities of Medicare Advantage plans and Part D drug plans, including door-to-door sales, cold calling, free meals, and cross selling of non health-related products; and requires limitations on commissions and gifts.
Eliminating overpayments would not adversely affect low-income and minority beneficiaries. Contrary to insurance industry claims, private plans do not attract a disproportionate number of low-income and minority beneficiaries. An analysis by the Center on Budget and Policy Priorities found that these Medicare beneficiaries are far more likely to receive supplemental coverage through Medicaid than to be enrolled in Medicare Advantage. The Center found that nearly half (48 percent) of all Medicare beneficiaries with incomes under $10,000 receive Medicaid, compared to only 10 percent who are enrolled in private plans. Similarly, they found that most Asian American Medicare beneficiaries (58 percent), and a plurality of African American (30 percent) and Hispanic beneficiaries (34 percent) receive Medicaid, compared to the 14 percent of Asian Americans, 13 percent of African Americans, and 25 percent of Hispanics enrolled in private plans. If Congress believes higher payments are needed to improve the health of beneficiaries in these groups, it would be much simpler and less expensive to increase federal resources targeted to these groups directly by expanding low-income programs. Rather than giving private plans extra money and simply hoping some of the funds find their way to these vulnerable populations, Congress could improve the Medicare Savings Programs and the low-income prescription drug subsidy.
• The Medicare Improvements for Patients and Providers Act includes many provisions to help low-income beneficiaries. The law e xtends the Qualifying Individual (QI) program, which pays Part B premiums for beneficiaries with incomes between 120 and 135 percent of the Federal poverty line, through December 1, 2009 and authorizes funding levels necessary to cover beneficiaries currently helped by the program. It also raises allowed asset levels in the Medicare Savings Program, which low-income beneficiaries depend on for assistance with the cost-sharing requirements of Parts A and B. Under current law, beneficiaries cannot qualify for the program if they have total assets of more than $4,000 for individuals and $6,000 for couples. These limits had not been changed since 1989. The MIPPA, however, raises these asset levels to those used for the Low Income Subsidy (LIS) in Part D: $6,000 for individuals and $9,000 for couples in 2008. MIPPA also puts into law current guidance that suspends the late enrollment penalty for Part D beneficiaries who qualify for Low-Income Subsidy (LIS) assistance, and it excludes the value of life insurance policies and in-kind support from resource calculations for LIS.
Eliminating overpayments would not adversely affect beneficiaries living in rural areas or inner cities. Proponents of private plans have argued that beneficiaries living in areas that are difficult or expensive to serve need an expanded and overpaid Medicare Advantage program to continue receiving services. In fact, in many rural and low-income inner cities exactly the opposite is true: the expansion of bloated private plans accelerates the deterioration of traditional fee-for-service providers, and undermines the ability of hospitals and other providers to continue operating. Medicare payments to hospitals, doctors and other providers who care for beneficiaries in traditional Medicare today are partly based on geographic differences in the cost of providing health care. If Congress believes even higher payments are necessary to ensure beneficiaries in some parts of the country receive adequate services, it would be much more efficient to modify Medicare's geographic cost adjustment or provide additional payments to areas where Medicare providers are particularly scarce or have costlier expenses. This way plans in counties with greater need could receive higher payments without harming the traditional Medicare system in those areas or the beneficiaries who chose to remain in it.
Despite receiving inflated payments, Medicare Advantage plans can provide inferior health coverage compared to traditional Medicare. Private plans do not necessarily provide benefits that are fully equivalent to traditional Medicare. They are required to cover everything that Medicare covers, but they do not have to cover every benefit in the same way. For example, private plans may create financial barriers to care by imposing higher cost-sharing requirements for benefits such as home health services, hospitalization, skilled nursing facilities, inpatient mental health services, and durable medical equipment that protect the sickest and most vulnerable beneficiaries. In many cases, beneficiaries are lured into the private plans based on improved coverage of relatively inexpensive services such as expanded dental or vision care, only to discover after it is too late that their plans shift significantly more of the higher costs of major illnesses onto their shoulders. Preventing private plans from imposing greater cost-sharing requirements than traditional Medicare would better protect beneficiaries from high out-of-pocket costs.
Failure to rein in overpayments to private plans will lead to the privatization of Medicare. Continuing to dole out excessive and unwarranted payments to private plans will undermine traditional Medicare. Private plans use these overpayments to offer additional benefits like gym memberships that attract healthier enrollees. They can also discourage sicker beneficiaries from joining their plan by charging higher cost-sharing for hospitalization and home health benefits. Eventually, Medicare's risk pool will be shattered as those with greater health care needs remain in the traditional program, paying increased taxes and higher Part B premiums to subsidize overpayments to private plans. Eliminating overpayments would allow traditional Medicare to provide efficient and affordable health coverage to all beneficiaries for generations to come.
NATIONAL COMMITTEE POSITION
Medicare should equalize payments between the traditional program and private plans. The nonpartisan Medicare Payment Advisory Commission (MedPAC) has recommended that Medicare pay the same amount regardless of whether a beneficiary enrolls in traditional Medicare or Medicare Advantage. Instead of being paid up to 50 percent more than traditional Medicare, private plans should be paid at a rate equal to the costs of traditional Medicare in every part of country. Equalized payments would level the playing field and remove private plans' unfair advantage in attracting beneficiaries.
Savings from eliminating overpayments should be used to enhance traditional Medicare benefits and to help low-income Medicare beneficiaries. Enhanced benefits include providing vision, dental and hearing coverage; paying for care coordination for people with severe chronic conditions; and limiting out-of-pocket costs for beneficiaries. The most cost-effective and efficient way to help low-income and minority beneficiaries is to use a portion of the savings collected from eliminating Medicare Advantage overpayments to strengthen the Medicare Savings Programs and improve Medicare Part D's Low-Income Subsidy program.
Private plans should be prohibited from charging higher out-of-pocket costs for benefits than traditional Medicare. It is particularly egregious for private plans to receive excess payments while providing lesser coverage. To better protect Medicare Advantage beneficiaries from high out-of-pocket costs, policymakers should prevent private plans from imposing higher cost-sharing requirements than traditional Medicare.
Traditional Medicare is an option that must be preserved. The vast majority (80 percent) of Medicare beneficiaries choose to remain in the traditional program. The special treatment of Medicare Advantage plans allows them to receive higher payments than traditional Medicare and allows them to impose higher cost-sharing on beneficiaries. This treatment is particularly unwarranted because there is no available data to suggest that private health plans deliver any better health outcomes than traditional Medicare. If Medicare continues to fund large overpayments to private plans, the program will face growing fiscal pressure to cut benefits or increase beneficiary cost-sharing.
Government Relations and Policy, January 2009