In what is one of the few items of good news for health care reform advocates, HHS Secretary Kathleen Sebelius announced this morning that “despite projections of gloom and doom,” virtually all of the 11 million seniors enrolled in the Medicare Advantage will retain access to the program. On average, seniors will pay 1% or $0.45 cents less in premiums, than they did in 2010, Sebelius said on a conference call with health reporters that the Wonk Room attended:

SEBELIUS: For 2011, Medicare beneficiaries will be able to participate in a more robust Medicare Advantage and prescription drug program. As a result of the Affordable Care Act, they’ll benefit from stronger oversight and management by out Centers for Medicare and Medicaid Services. Despite last year’s projections of gloom and doom… virtually all Medicare beneficiaries will be able to chose among Medicare Advantage plans…Average premiums are expected to be lower in 2011 than in 2010, 1% lower. [...]

Under the new authority provided by the Affordable Care Act, CMS negotiated with plans to improve benefits and to make sure seniors costs were low. For example, all Medicare Advantage plans will offer an annual out of pocket limit on cost sharing….The health plans participating in Medicare expect enrollment to actually grow in 2011… Medicare Advantage enrollment is expected to grow by about 5%.

Indeed, throughout the reform process, Republicans repeatedly warned seniors that health reform’s cuts to the Medicare Advantage program would chase plans out of the market, leaving seniors without a choice of private coverage. The GOP introduced numerous amendments and motions instructing Congress to remove the $136 billion in cuts to the Medicare Advantage program and Sen. John McCain (R-AZ) famously urged senior citizens to rip up their AARP cards in protest of the organization’s support for the the legislation.

But CMS projects that 99.7% of seniors will continue to have access to a Medicare Advantage plan and that only a small number of fee-for-service plans will leave the market. CMS Administrator Don Berwick attributed their departure to a 2008 bipartisan bill that required issuers to establish provider networks. Their departure will leave some 2,3000 beneficiaries in Colorado and Utah without a Medicare Advantage option.

The government also estimates that as a result of CMS negotiation, “plans improved their benefits by $13 per member per month (5 percent) on average,” resulting in savings of “about $155 per member per year for the 966,000 beneficiaries enrolled in these plans.”

Last month, CMS announced that most seniors will pay about the same for prescription premiums in 2011, while those with the highest costs will pay less — further defying GOP predictions.

During the health care reform debate, conservatives defended the overpayments to private insurers participating in the Medicare Advantage program by arguing that any effort to reduce the subsidy or place the private insurers on an equal footing with traditional Medicare would endanger the Medicare coverage for the 11 million seniors enrolled in the program. MA benefits vary and often include coverage for services not available in traditional Medicare, like eye and dental care, but not all Medicare Advantage is created equal. In fact, over the years, a steady stream of government reports has found that while some plans may present a model of efficiency, others rip off both taxpayers and seniors.

A number of government reports and independent estimates have found that the extra federal dollars don’t improve health outcomes, pad insurers’ bottom lines, raise costs for beneficiaries in the traditional Medicare program, and expose beneficiaries to serious financial risks.

Now, a new report from the Government Accountability Office (GAO) concludes that some MA plans used lower premiums to attract healthier enrollees, but then hit them “with high and unexpected out-of-pocket costs“:

- The average plan in the good health group charged about $100 more in cost sharing for a typical inpatient hospital stay (6 days) and about $150 more for a typical inpatient mental health stay (21 days) than the average plan in the poor health group.

- The average plan in the good health group charged about $500 more in cost sharing for a typical SNF stay (35 days) than the average plan in the poor health group.

- The average plan in the good health group charged over $300 more in cost sharing for a year of renal dialysis (156 sessions)32 than the average plan in the poor health group.

The monthly Part C Medicare Advantage premium was $24 for the plans in the good-health group, $37 for the plans in the average-health group, and $31 for plans in the poor-health group, while out of pocket spending for kidney dialysis, for instance, ran from $1,802 for those enrolled poor-health plans and $2,118 for enrollees in the good-health plan.

The report notes that the administration “had already begun to overhaul the Medicare Advantage program even before health reform became law… by holding Medicare Advantage plans accountable for meeting minimum cost-sharing requirements” and Democrats are pointing out that the new law would limit “the ability of plans to charge higher cost-sharing for services most likely to be used by sick enrollees — such as nursing home care, dialysis and chemotherapy.”

Democrats are using the report to rally support for reform among seniors, who have generally remained weary of the new law, but it’s unclear that yet another report about insurer abuses will change many hearts and minds. That will depend on how Medicare Advantage carriers will react to the cuts in the law and whether regulators can actually keep insurers from gaming the system.

One of the most common Republican narratives about the new health care reform law argued that eliminating the subsidy to private insurers participating in Medicare Advantage would force insurers to stop offering coverage, causing 10 million seniors to lose their Medicare benefits. Throughout the debate, Republicans introduced numerous amendments and motions instructing Congress to remove the $136 billion in cuts to the Medicare Advantage program. Sen. John McCain (R-AZ) was so sure that the cuts would leave seniors dry, he urged them to rip up their AARP cards to protest the organization’s support for the bill.

Immediately after reform became law, however, some industry observers saw indications that the fears were overblown. Earlier this month, BNet’s Ken Terry wrote that “If these companies were really concerned about the impending cuts, they’d be heading for the exits right now.” “The insurers’ decision to stick with Medicare Advantage undermines Republicans’ assertion during the reform debate that the Medicare cuts would hurt seniors.” Indeed, now even insurers are admitting that they may very well survive the cuts. From Business Week:

Stephen J. Hemsley, chief executive officer of UnitedHealth Group Inc., told analysts on an earnings call this week that reduced payments won’t keep the company’s products from competing with Medicare insurance offered directly from the government. Kathleen Sebelius, the Health and Human Services secretary, told a House Appropriations subcommittee that she expects “a robust array of choices for Medicare recipients.” [...]

“Sebelius is right” about Medicare Advantage, said Elizabeth A. McGlynn, associate director of Rand Health at the Rand Corp., a research institute in Santa Monica, California. “We’re going to see a variety of responses from plans. We may see plans that choose to go out of the business, and I think we’ll see plans that get very creative in how they choose to position themselves.”

The expectation is that the competitive bidding requirements eliminating the subsidy will force inefficient Medicare Advantage plans to follow the model of the efficient ones. Insurers may respond to the cuts by pressuring providers to lower their prices and take advantage of the law’s bonus payments but few will simply pull out and leave the market. Under reform, Medicare Advantage plans that provide quality benefits efficiently, would receive a 5 percent bonus on top of their competitive bid to pay for extra benefits.

Even with the loss of the subsidy, insurers aren’t exactly going bankrupt. As Terry observed, “The $13 billion a year reduction isn’t so much if you compare it to the insurers’ total revenues or consider all of the new business they’ll get as baby boomers start signing up for Medicare. The shortfall will also be covered by increased business from people under 65 who will have to buy insurance under the reform legislation. That windfall will start in 2014, right around the time that the decrease in Medicare Advantage payments starts to bite.”

Mitt Romney appeared on Morning Joe this morning to promote his new book “No Apology,” in which he argues that America must stop making excuses for its mistakes and begin solving its national problems. “We’ve got to stop apologizing to ourselves for lousy schools, for not having dealt with our entitlement problems, for spending too much money,” Romney said, suggesting that the government will have to cut Medicare spending.

But when asked about national health care reform, Romney criticized Democrats for tackling the entitlement problem. “There were big differences between what we did [in Massachusetts] and what’s going on in Washington,” Romney said. “We said we’re not going to raise taxes. We have to do this within our current budget and finally, we’re not going to cut Medicare as a means to do it.” Joe Scarborough pressed Romney on the contradiction:

SCARBOROUGH: Let me ask you, though. You say you’re not going to cut Medicare, and Republicans have been critical of the proposed cuts in Medicare. But you said off the top, we have to face our entitlement crisis. There is no greater crisis than the threat to Medicare. Will you admit right now to America that if Medicare is going to exist after 2019, we’re going to have to cut Medicare?

ROMNEY: Look, there is no question about that. The way the president’s health care plan works, he says we’ll take $500 billion out of Medicare Advantage. Wait a second. Let’s talk about a better approach than just slashing a portion of the program.

Watch it:

In truth, the Senate health care plan only cuts about $120 billion from Medicare Advantage over 10 years; the rest of the money is coming from payment updates and other efficiencies in the Medicare system. The bills reduce payments to Medicare Advantage (which receive payments that are on average 19% higher than traditional Medicare) because, on the whole, the overpayments are actually shortening the life of the Medicare trust fund without improving health outcomes. According to the Congressional Budget Office, the Senate bill’s Medicare cuts would extend the life of the Medicare program and lower spending per Medicare beneficiary from 8% growth rate to 6% growth rate.

Romney, unfortunately, wants to have it both ways. He sternly warns Congress that “unless we deal with the entitlement burden which is $60 trillion, unfunded liability, America’s future could be very bleak for our grandkids,” but then criticizes Democrats for proposing policies that reduce the government’s entitlement spending.

At yesterday’s health care summit and again this morning on Good Morning America, Sen. John McCain (R-AZ) proved that he was yesterday’s man as he rehashed old grievances and complained that Obama’s health care bill was full of special interest deals and carve outs. McCain signaled out an amendment offered by Sen. Bill Nelson (D-FL) during the Senate Finance Committee’s mark-up process, characterizing the provision as “unsavory”:

MCCAIN: The American people don’t like these unsavory deals. The issue came up twice about Florida and the 800,000 people. Because where they live in Florida they will not be subject to Medicare Advantage cuts. Now, you know, Medicare Advantage is a very popular program with seniors. Now, you can argue — I don’t agree with the argument that it might have to be cut. Although, I don’t agree with that. But to say carve out 1 group of 800,000. And there’s 300,000, 30,000, in my state, who have Medicare Advantage that are going to be cut with this plan. That’s unsavory. That’s unsavory.

Watch it:

In effort to reduce waste and lower spending, the Senate and House health care bills eliminate the government’s overpayments to plans that participate in the Medicare Advantage program. The legislation establishes a competitive bidding program under which private insurers in each geographical area would bid to provide coverage to Medicare beneficiaries in a particular geographic area.

Nelson’s proposal (on pg. 129) rewards any plan that provide services at rates that are below “the average per capita fee-for-service expenditure” with a bonus on top of their competitive bid. These extra bonuses are meant to encourage insurers to stay in a particular geographic area and continue providing benefits. So while it’s certainly not a coincidence that Florida (and other high cost states like New York and California) benefits from Nelson’s amendment, the provision is not exclusive to Florida and one could argue that encouraging efficient insurers to stay in certain markets is good policy. (Although, judging from Obama’s response at the Summit, it’s not clear that the administration agrees).

McCain claims that he’s now against cutting overpayments, but during the presidential campaign, he endorsed competitive bidding for Medicare Advantage. “We see no reason why the Medicare Advantage plans should continue to get a $15-billion-a-year subsidy,” McCain campaign adviser Douglas Holtz-Eakin said, “we’ll put them on a level playing field and save some money there.”

Sen. John McCain (R-AZ) has responded to the AARP’s endorsement of the Senate health care bill and its $436 billion of cuts to Medicare and Medicaid by encouraging senior citizens to rip-up their AARP cards and send them back to the AARP.

Today, McCain argued that if the government limited the over-payments to private insurers participating in Medicare Advantage programs, more seniors would be forced to buy Medi-gap policies, which the AARP endorses. AARP would “generate $414 billion” under the provisions of the Senate health care bill, McCaing argued, and asked for unanimous consent to restrict the amount AARP leaders could deduct from their compensation packages.

But McCain wasn’t always so hostile to the AARP. During the 2008 Presidential campaign, McCain appeared at AARP’s Live @ 50 event (the organization’s birthday party) to highlight his close relationship with the president of AARP and the organization:

MCCAIN IN 2008: I say God bless the AARP for everything they’re doing. Not only for the present generation of Americans but for future generations. That’s your duty. That’s your strength. And that’s why I love to see you at every town hall meeting, and I always try to let you talk.

MCCAIN IN 2009: I say shame on the AARP. I say to my friends, especially those who are under the Medicare Advantage program, the 300,030 in my state who admittedly they are going to cut their Medicare Advantage benefits. Take your AARP card, cut it in half. And send it back. They’ve betrayed you.

Watch a compilation:

During the campaign, McCain announced that he would pay for his health plan “with major reductions to Medicare and Medicaid…in a move that independent analysts estimate could result in cuts of $1.3 trillion over 10 years to the government programs.” In fact, the campaign specifically endorsed competitive bidding for Medicare Advantage. “We see no reason why the Medicare Advantage plans should continue to get a $15-billion-a-year subsidy,” McCain campaign adviser Douglas Holtz-Eakin said, “we’ll put them on a level playing field and save some money there.”

At the AARP appearance McCain endorsed Medicare payment reforms and improving reimbursements to “doctors, hospitals, and others.” “I’ll fight the Medicare fraud that’s estimated to take $60 billion each year.”"And AARP has led as usual in this effort,” he said.

Today, Sen. Ron Wyden (D-OR) took to the Senate floor to discuss something other than his now-infamous Choices Amendment. During a debate on Sen. Orrin Hatch’s (R-UT) motion to instruct the Senate Finance Committee to remove cuts to the Medicare Advantage program from the Senate health bill, Wyden explained that cuts wouldn’t eliminate the Medicare Advantage program; it would force insurers — many of which funnel the 13-19% over payment into profit instead of benefits — to compete on a level playing field to provide advantage benefits.

Throughout the first week of debate, Republicans have argued that the $118 billion in Medicare Advantage cuts would endanger the Medicare coverage for the 10-11 million seniors enrolled in the program. Wyden stressed that “Not all Medicare Advantage is created equal.” “Some Medicare Advantage is a model of efficiency and some of it is pretty much a rip off of both taxpayers and seniors.” The Democratic bill would force inefficient Medicare advantage plans “to follow the model of the efficient ones”:

Mr. President, my state has the highest percentage of older people in Medicare Advantage in the country…. it’s been possible to show that you can find savings in the Medicare program without harming older people, without reducing their guaranteed benefits, their essential benefits as we have learned with Medicare Advantage. The way Chairman Baucus goes about doing that is by forcing the inefficient Medicare Advantage plans to follow the model of the efficient ones.

Watch a compilation of Wyden’s remarks:

Indeed, under the legislation’s competitive bidding program — a process under which private insurers in each geographical area would bid to provide coverage to Medicare beneficiaries in a particular geographic area — Medicare Advantage plans that provide quality benefits efficiently, would receive a 5 percent bonus on top of their competitive bid to pay for extra benefits. Some Americans in low-cost states would actually gain benefits. By 2019, the Congressional Budget Office estimates that 200,000 more Americans would be enrolled in Medicare Advantage coverage.

As Senate Finance Committee staffer Shawn Bishop explained during that Committee’s mark up, “in low cost states, low fee-for-service states, today, the amount of extra benefits is very small. It’s minimal. Competitive bidding will allow good plans that coordinate care, that achieve quality rankings to earn up to 5 percent of the national average and that’s going to bring more extra benefits to low-cost states,” Bishop explained. “So it’s not accurate Senator to say all 10 million beneficiaries are going to have less extra benefits than they do today. That’s not the case there’s going to be some with more, some with less,” she concluded.

Policy makers are reducing the over payments to Medicare Advantage because they’re not resulting in better quality care. A number 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. Private fee-for-service Medicare Advantage plans, moreover, have exposed beneficiaries to serious financial risks.

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Throughout the mark-up process, Republicans on the Senate Finance Committee have continuously argued that replacing the over-payments to private plans participating in Medicare Advantage with a competitive bidding process, would cause the 10 million Americans who are enrolled in the program to lose the extra benefits some Advantage programs provide.

This morning, during a heated exchange with Sen. Orrin Hatch (R-UT), committee staffer Shawn Bishop explained that under the Committee’s bill, 10 million seniors “would not be losing the extra benefits they have today.” To the contrary, some Americans in low-cost states would actually gain benefits. By 2019, the Congressional Budget Office estimates that 200,000 more Americans would be enrolled in Medicare Advantage coverage. But Hatch did not read that report:

HATCH: Here is the bottom line, will the 10 million people see a loss in their extra benefits? The answer to that of course is ‘yes.’ [...]

STAFFER: Categorically 10 million beneficiaries would not be losing the extra benefits they have today. Some would be gaining.[...]

HATCH: The fact of the matter is, the bottom line, is that these are 10 million people that are going to lose benefits. And that’s what it boils down to.

Hatch repeatedly dismissed the staffer’s explanations and insisted that all 10 million would lose their benefits. Watch it:

Bishop explained that under the legislation’s competitive bidding program — a process under which private insurers in each geographical area would bid to provide coverage to Medicare beneficiaries in a particular geographic area — Medicare Advantage plans that provide quality benefits efficiently, would receive a 5 percent bonus on top of their competitive bid to pay for extra benefits. Consequently, states with low costs, would be gaining benefits.

“So in low cost states, low fee-for-service states, today, the amount of extra benefits is very small. It’s minimal. Competitive bidding will allow good plans that coordinate care, that achieve quality rankings to earn up to 5 percent of the national average and that’s going to bring more extra benefits to low-cost states,” Bishop explained.

“So it’s not accurate Senator to say all 10 million beneficiaries are going to have less extra benefits than they do today. That’s not the case there’s going to be some with more, some with less,” she concluded.

Throughout the mark-up process, Hatch has filibustered amendments by peppering the staff with detailed queries and dismissing answers that departed from his ideology. On Tuesday, insisting that the individual mandate provision was unconstitutional, despite committee assurances to the contrary.

All eyes turned to Medicare Advantage today as Republicans on the Senate Finance Committee tried to preserve the 14% overpayments the government pays private insurers that participating in the program. Reacting to the Center for Medicare and Medicaid Services’ recent investigation into Humana’s efforts to rally its beneficiaries against health reforms that would eliminate the overpayments, Sen. Jon Kyl (R-AZ) “offered an amendment seeking to protect the First Amendment rights of private insurers who might want to criticize the proposed health care legislation.”

Sen. Pat Roberts (R-KS) — who earlier today argued that senators needed more time to consult with health insurance lobbyists — strongly defended the health industry’s right to lobby Congress and the public against policies that jeopardized its profits. “Think of what your CEO is going to do,” Roberts said, speaking directly to the health insurers:

Think of what your CEO is gonna to do. Sitting around with the board of directors and he takes a look or she takes a look at this bill and says, ‘we think that this is not legitimate, we think that this is a bad situation that will really harm our patients, and our customers, not to mention our company….We don’t feel free to contact Sen. Roberts or Sen. Kyl or for that matter Sen. Schumer…I mean this is clearly a chilling affect on the entire health care industry…This is, quite frankly, it smells like tough, hardball Chicago politics abridging the First Amendment.

Watch it:

As government contractors, however, private insurers participating in the Medicare Advantage program are explicitly forbidden from directly contacting Medicare beneficiaries. In fact, before joining Medicare Advantage, Humana signed a data use agreement that prohibited the company from distributing communications that were not approved by the Center for Medicare and Medicaid Services. The intent of the law is to protect seniors from receiving misleading information from companies that have a financial stake in the final outcome of the legislation.

The Humana debate was only part of a larger Republican effort to preserve the government’s overpayments to insurers. Under the current system, private insurers receive approximately 14% more to provide the same services as traditional Medicare, but there is little evidence that private insurers are reinvesting that subsidy into better benefits or higher quality coverage. In fact, a number of government reports and independent estimates have concluded that 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. Private fee-for-service Medicare Advantage plans have even exposed beneficiaries to serious financial risks.

The health reform bill before the Senate Finance Committee would open most Medicare Advantage plans to competitive bidding, requiring the private plans to compete on an equal playing field with Medicare. While certain Medicare Advantage plans would keep their subsidies (Sen. Bill Nelson (D-FL) amended the bill to preserves Medicare Advantage subsidies for seniors living in high cost areas where plans deliver benefits below the average cost of traditional Medicare), the committee would replace the current subsidy with a competitive bidding process. Insurers in each geographical area would bid to provide coverage, the government would average all of the bids, weigh that by the enrollment in the previous year, and pay out that amount.

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Last night, DePauw University hosted the “first-ever debate between Karl Rove and Howard Dean on a college campus.” The debate covered a wide range of issues from Bush administration policy to current events, and included a rather fiery exchange over health care reform.

At one point, Dean argued that Medicare delivers care more efficiently than private insurers. Rove claimed that Dean was comparing “apples and oranges.” “It’s like saying ‘you got to deliver the overnight package the same cost as delivering the mail in three or four days,” he said. “If you had an apples to apples comparison, there is no doubt in my mind that Medicare would be as expensive as private insurance is to administer and far less effective”:

ROVE: Private plans do cost about 7 percent in administrative overhead. However, Medicare does not do the following: Medicare does not have to comply with the varying state insurance regulations nor does it have to have underwrite like private insurance. It doesn’t have those functions. It doesn’t have those costs. It doesn’t engage in the kind of fraud analysis that private insurers do….There are a whole bunch of other things that we abrogate. We say, you don’t need to do if you’re a government plan. It’s apples and oranges. It’s like saying ‘you got to deliver the overnight package the same cost as delivering the mail in three or four days. If you had an apples to apples comparison, there is no doubt in my mind that Medicare would be as expensive as private insurance is to administer and far less effective.

Watch it:

While private insurers, which spend anywhere from 5 to 40 percent of premiums on administrative expenses, do carry extra expenses, a near perfect apples-to-apples comparison exists in the Medicare market. Traditional Medicare and private insurers in Medicare Advantage both operate under the same rules and enroll the same population. Yet according to the Congressional Budget Office, traditional Medicare spends less than 2 percent of expenditures on administrative costs, while private plans in Medicare Advantage spend approximately 11 percent .

In other words, listen to what Rove said, and reverse it. Medicare is actually less expensive to administer and is no less effective than private plans in Medicare Advantage — which receive a 13% subsidy from the federal government. In fact, according to a Government Accountability Office private plans in Medicare Advantage channel their extra subsidy payments into profit, not improved benefits or ‘fraud protection,‘ as Rove claims. (There is also no evidence that fraud is a problem only in public health insurance markets.)

The point is this: high administrative spending is responsible for skyrocketing health care costs and excess spending in the health care system. According to an analysis by the McKinsey Global Institute, excess spending on “health administration and insurance” accounted for as much as 21 percent of the estimated total excess spending ($477 billion in 2003)” and 85 percent of this excess overhead “can be attributed to the highly complex private health insurance system in the United States.”

But, one man’s ‘excess overhead’ is another man’s profit and the public industry’s ability to provide care more efficiently is precisely the reason why private insurers and Karl Rove — who actually criticized the President for vilifying private health insurers in his address — are afraid of competing with an efficient Medicare-like public option.

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