Conservatives And Insurance Industry Team Up To Oppose Obama’s Cuts To Medicare Advantage

Most interest groups embraced Obama’s decision to lay the groundwork for comprehensive health care reform by allocating $634 billion over 10 years towards a special health care fund. The insurance industry and its conservative Congressional allies, however, objected to Obama’s proposal to seed the fund (at least in part) by cutting over payments to Medicare Advantage (via Kaiser Daily Health Report):

Health, Education, Labor and Pensions Committee ranking member Mike Enzi (R-WY): “The president said repeatedly during his campaign that Americans who like the health insurance they have would keep their existing plans in his administration,” adding, “His budget proposal undercuts that promise.”

America’s Health Insurance Plans President Karen Ignagni: “Unfortunately, this proposal would force seniors enrolled in Medicare Advantage to fund a disproportionate share of the costs to reform the health care system,” adding, “A cut of this scale would jeopardize the health security of more than 10 million seniors enrolled in Medicare Advantage and would turn back the clock on innovative payment incentives to improve the quality of care that patients receive.”

Obama’s campaigned to re-establish parity between traditional Medicare fee-for-service and Medicare Advantage plans, and for good reason. When lawmakers approved the Medicare Modernization Act, they offered an extra subsidy to Medicare Advantage plans (MA). The deal was this: Medicare would pay about 13 to 17 percent more for beneficiaries enrolled in MA Plans, and the plans would, in turn, use the increased payments to offer more benefits, reduce beneficiary cost sharing, and “expand into geographic areas where previously plan options had been very limited.”

It was supposed to be a win-win, or so proponents of MA argued. But in recent months, a trickle of government reports and independent estimates have dampened the rationale for subsidizing MA plans. The extra federal dollars don’t improve health outcomes. They pad insurers’ bottom lines, raise costs for beneficiaries in the traditional Medicare program, squeeze both Medicare and the federal budget, and drain resources from more productive uses.

Three studies published in Health Affairs, concluded that private plans “have increased the cost and complexity of the program without any evidence of improving care” and a Government Accountability Office (GAO) report found that Medicare Advantage Private-Fee-For-Service Plans (PFFS) — which are responsible for nearly half of the recent growth in MA enrollment — have exposed beneficiaries to serious financial risks. At least two different GAO reports released just in June and December also concluded private plans participating in Medicare Advantage earned greater profits and spent less on benefits.

So for the insurance groups, this is really a problem of diminishing profits. Obama wants to open up the process to competitive bidding that rewards efficiency and truly focuses on quality care. The insurance companies want to hold on to the government subsidy without really investing in preventive care, care-coordination or better care for patients.

In other words, if these plans really could provide care that is based on quality and not quantity then a competitive bidding process should compliment business models that help seniors navigate a complicated system, rather than drive them to fear monger about reforms.