A couple weeks ago, the Obama administration handed sellers of Medicare Advantage (MA) plans an increase in government payments for the next year. This federal support allows them to continue offering extra benefits like gym memberships and dental care, which are not covered for seniors in the traditional Medicare program. Last year they got an increase too.
While this may seem like a good thing for the 16 million beneficiaries who have MA plans, it may not be good for Medicare as a whole. Over the last decade, insurers selling MA plans, private alternatives to Medicare's standard benefit package, have received extra funding from the government. At one point, the government was overpaying the MA plans to the tune of 14 percent. Now it's paying about six percent more.
Yet Medicare's hospital trust fund, which pays beneficiaries' hospital bills, is chronically underfunded. People who supported cutting federal support for MA plans argued that the money saved might help shore up the hospital fund. Meanwhile, hospitals are crying out about cuts, furthering senior’s anxiety about U.S. health care and whether they'll get the treatment they need.
The president came into office vowing to cut MA subsidies, which totaled some $33 billion between 2004 and 2008. Those subsidies, Obama said while campaigning, "don't help seniors get any better. It's not improving our health care system. It's just a giveaway." Notably, the Affordable Care Act called for a reduction of some $156 billion in MA payments over ten years.
For the first few years, MA health plans got bonus payments based on some measures of quality to protect them from payment reductions. Last year, a planned cut of 2.3 percent turned into a 3.3 percent increase. This year, MA sellers were supposed to see a cut of 1.9 percent but instead received a 0.4 percent increase – a government gift prompted by the insurers' strong lobbying campaign.
As they did last year, MA insurers swung into action with their faux consumer group, the Coalition for Medicare Choices, which is housed at the offices of America's Health Insurance plans, the industry's trade group. Its "members" made 50,000 calls to members of Congress, sharing stories about their satisfaction with MA plans and urging them to junk the scheduled cuts. The industry also sponsored TV commercials. Its "Seniors Are Watching" campaign, some insiders say, is the insurers' most ambitious campaign for MA plans yet.
Members of Congress, including many Democrats, caved. There was lots of press speculating that the administration scrapped Obama's campaign promise for political reasons. As that narrative goes, Republicans would seize on Medicare cuts and scare seniors into believing that their benefits had been reduced, as they successfully did in the 2010 midterm elections.
This tale about MA plans shows how hard it is to rein in the power of insurers, or providers for that matter, when it comes to controlling Medicare's costs. What's been missing from the discussion is how much the insurance industry stands to gain, which explains its jump into overdrive to preserve the lucrative deal the government gives them. There are millions of dollars at stake.
During last year's fight, the now-defunct Medicare NewsGroup clued in the public. Reporter John Wasik wrote, "What's really at stake is the financial impact of reduced subsidies to insurers' bottom lines," which he estimated at $11 billion for 2014. Next year's impact must be in the same ballpark.
The continuing fiscal fight over MA plans is a reminder that American health care is all about money. The government's generosity to private insurance companies continues down a path to further Medicare privatization hidden under the guise of consumer choice. That was the goal of Medicare Advantage in the first place.