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Medicare Overpays Private Health Insurance Companies
STLtoday
December 2, 2008
Private health insurance plans were supposed to control costs and improve the quality of care delivered to millions of elderly Americans under Medicare.
But that's not the way things have worked out. Three new studies, published last week in the respected journal Health Affairs, show that private plans have hiked costs while offering scant evidence of improved quality. And if history is any guide, the price tag is about to grow even steeper.
This is open enrollment season for the 45 million Americans covered by Medicare, a once-a-year period during which they can sign up for a so-called Medicare Advantage plan run by a private health insurance company.
Enrollment in these private plans has been growing quickly over the past two years, a trend that may continue this year. More than 10.3 million people — nearly one of every four Medicare enrollees — now are covered by a privately administered Medicare plan.
On average, Medicare Advantage plans cost about 13 percent more per person than traditional Medicare. And the fastest-growing Medicare Advantage plans, called private fee-for-service plans, cost even more: 18 percent more per enrollee than traditional Medicare. Just 26,000 people were enrolled in such plans in December of 2003; about 2.3 million are today.
The private fee-for-service plans operate essentially the same as traditional Medicare, which means that taxpayers and Medicare enrollees are paying substantially more for the same services that are available through Medicare.
That makes no financial sense for taxpayers.
The extra costs are covered by subsidies that were built into the 2003 law that created the Medicare prescription drug benefit. The subsidies for private plans were designed to foster competition that supposedly would hold down costs, increase efficiency, encourage innovation and offer expanded benefits to Medicare enrollees.
The same justifications were used 25 years ago, when the first private Medicare plans were created by Congress. What happened then, however, was that the private plans charged more than traditional Medicare and enrolled elderly people who were healthier than the average Medicare patient.
There's no evidence that Medicare Advantage plans are engaged in "cherry picking" — enrolling only the healthiest Medicare enrollees. But in one of the three new studies, researcher Marsha Gold writes that Medicare Advantage has "added to Medicare's complexity and costs . . . without apparent improvements in quality."
Complications make life harder for the 45 million elderly Americans enrolled in Medicare. And no improvements in quality means that money is spent inefficiently on care that is delivered haphazardly.
President-elect Barack Obama and congressional Democrats should take aim at these subsidies for private insurance companies. At a time when Medicare's finances are starting to feel the strain of covering the first of the retiring baby boomers, there is no excuse for subsidizing less-efficient private health insurance companies to provide the same care traditional Medicare does more cheaply.
That's not to say there should be no role for private health insurance companies in Medicare. But if they want to compete for Medicare business, they should do so on an equal financial footing.
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