Last year, the Government Accountability Office (GAO) released a report revealing 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. If beneficiaries in PFFS plans did not contact their plans before obtaining services to ensure that the service was covered, they may have had to “pay for the entire cost of the service if the coverage was later denied” and PFFS plans charged exorbitant cost-sharing to beneficiaries who did not “prenotify” a plan before obtaining services.

On Monday, the Center for Medicare and Medicaid Services (CMS) released new rules that would limit some of these predatory practices. Insurers participating in the Medicare Advantage must:

- Cap out-of-pocket charges

- Have more than 10 beneficiaries or they will be eliminated

- Scale back their charges if they do not cap beneficiaries’ annual out-of-pocket costs at $3,400 or less, or if they charge beneficiaries more than traditional Medicare for services such as dialysis and home health care.

- Not charge sick, low-income beneficiaries more than what they would contribute under traditional Medicare

The administration has proposed eliminating the government’s 13-17 percent overpayments to private insurers participating in Medicare Advantage, noting that the companies are funneling the extra money into profits, and failing to improve care quality. This might encourage bloated private plans that can’t compete with Medicare to pull-out. But then, why should the federal government continue over-paying private insurers, if that same level of care could be provided at a cheaper rate?

Opening up the process to competitive bidding might require some seniors to switch policies, but only if their plan chooses not to bid or cannot provide services at the the market-driven rate. Even then, beneficiaries wouldn’t lose their Medicare benefits (they will continue to receive Medicare, albeit with some disruption as they move back to fee-for-service or find another MA plan), just the extra benefits that some Medicare Advantage plans provide.

The Republican approach to reforming the health care system is based on the idea that skyrocketing health care costs are the result of government intervention in the insurance market:

But many reformers have misdiagnosed the root cause of these problems. It is not a failure of the market, but the ways the market has been distorted largely due to government policies and programs. They have undermined the doctor-patient relationship and removed the individual patient from the decision-making process.

It’s unclear how Medicare and Medicaid are undermining the “doctor-patient” relationship — patients can chose any physician who accepts Medicare or Medicaid and doctors have full discretion over treatment decisions — or that these programs are solely responsible for escalating costs.

In fact, blaming “government” for the fiscal crisis ignores the fact that private health care spending grows at the same rate as public spending:

The GOP budget argues that “government spending tends to be less efficient than spending in the market,” but that too doesn’t square with the facts. A range of studies demonstrate that Medicare’s lower administrative costs, ability to bargain for lower prices, and lack of profit margin allow it to “provide a given level of benefits for less than they would cost through private insurance.”

The public Medicare plan’s administrative overhead costs are “in the range of 3 percent.” The overhead costs of large companies that self-insure is 5 to 10 percent of premiums), companies in the small group market spend 25 to 27 percent of premiums, and individual insurance spends 40 percent of premiums on administration. According to the Congressional Budget Office (CBO), “administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage.” In fact, a recent General Accounting Office report found that “in 2006 Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to non-medical expenses and 6.6 percent to profits—a 16.7 percent administrative share.”

Medicare and Medicaid spending cannot be addressed without restructuring the entire health care system — reforming payment mechanisms, getting everyone into the system, coordinating care etc. Republicans, however, are simply kicking the can down the road. While their Medicare proposal would privatize the Medicare system, their plan to reform Medicaid could leave the poorest and neediest Americans without coverage.

The Republican budget would ‘modernize’ the Medicaid benefit by “converting the Federal share of the Medicaid payment for acute care services into an allotment tailored for each state’s low-income population, indexed for inflation and population growth.” “The reform enhances State flexibility and States’ sensitivity to spending growth,” the budget claims.

In other words, if the GOP has its way, the government would select a base year for spending on acute expenditures, grow that portion by indexing it to inflation and population growth, and promise to match state spending up to that amount. (Under the current system, the federal government reimburses the states without limit). But several problems arise:

1. Will the government index to general population growth or the growth in low income Americans? During an economic down-turn, as more Americans become eligible for Medicaid, won’t states would be forced to limit eligibility or cut benefits?

2. What happens to beneficiaries if the state uses up all of the allotted federal dollars?

3. The budget only deals with acute spending and ignores the much more expensive long-term care. In other words, the Republicans are simply kicking the can down the road.

4. How exactly will this enhance “state flexibility?” The Federal government requires states to cover certain services and people, but states have a good amount of discretion in deciding how much to spend on the program. Given that some states are particularly stingy when it comes to Medicaid benefits, what does “more options” mean? Can states kick people with disabilities off of the Medicaid rolls?

Republicans have released a budget that would privatize Medicare, one of the most efficient and popular health care programs for American seniors. From Rep. Paul Ryan’s (R-WI) op-ed in the Wall Street Journal:

We preserve the existing Medicare program for all those 55 or older; and then, to make the program sustainable and dependable, those 54 and younger will enter a Medicare program reformed to work like the health plan members of Congress and federal employees now enjoy. Starting in 2021, seniors would receive a premium support payment equal to 100% of the Medicare benefit on average. This would be income related, so low-income seniors receive extra support, and high-income seniors receive support relative to their incomes — along the same lines as the president’s Medicare Part D proposal.

Watch Ryan describe the Medicare provisions:

Republicans are taking Americans under 54 out of Medicare and leaving them in the hands of private insurers. Americans under 54 would chose a new private insurance plan that provides a standard Medicare benefits package or some other managed care option. But how would this exchange control costs? “The health plan members of Congress and federal employees now enjoy” — the FEHB — does not do a very good job in managing prices. In fact, “the growth rate for FEHBP is virtually identical to that for private health insurance.”

Legislators had proposed ‘premium payment’ support back in the 90s — that is, subsiding the purchase of private coverage — and analysts have concluded that the only way to control costs is to provide a ‘premium payment’ that depreciates every successive year.

In other words, it may start at “100% of the Medicare benefits on average” in 2009, but it will diminish as health care costs increase. According an analysis by the National Academy of Social Insurance of the Breaux/Thomas premium support proposal, federal subsidies would not keep up with growing insurance premiums and could relegate “lower-income beneficiaries to lower-cost and possibly lower-quality plans“:

Moreover, if the costs of premiums were to rise more rapidly than beneficiaries’ incomes, people with limited resources might, over time, find themselves unable to afford higher-cost options (including FFS). Many of the Bipartisan Commission on the Future of Medicare members who opposed the Breaux/Thomas Proposal expressed concerns that this approach would undermine the basic protections offered by Medicare as a social insurance program, by relegating lower-income beneficiaries to lower-cost, and possibly lower-quality, plans.

So who benefits? Well, insurance companies do. Republicans are expanding the role of private insurers and by transferring Americans under 54 into a private plan, they’re killing off the Medicare system.