Health and Human Services Secretary Kathleen Sebelius has emerged as the person to watch as the Obama administration scrambles to implement health reform. The health care czarina’s words and silences offer clues about the way health reform will play out for millions of Americans. The rules, the regulations, and the compromises with health care stakeholders will determine the ultimate value of the reforms. What Sebelius said during the long reform debate usually signaled what was likely to happen; when she equivocated early on about the public plan, we knew Obama was prepared to junk that option. Campaign Desk will be watching what the secretary says, with an eye toward encouraging the press to do the same. The entire series is archived here.
Seniors can be forgiven if they are super confused about what’s happening with their Medicare benefits. The administration and the press have not exactly been clear in explaining reality to a group of people who never really understood how Medicare worked in the first place. The full story of what happened to Medicare Advantage (MA) has yet to sink in.
Recall that the health reform law whacked $132 billion from the Medicare Advantage program over the next ten years to help fund subsidies for the uninsured—a proposal strongly backed by the president during the campaign and in last year’s reform debate. The government has been overpaying insurers for these plans relative to what it pays for traditional Medicare benefits, and the extra money has allowed MA plans to offer seniors all kinds of goodies in addition to the basic Medicare benefits—gym memberships, eyeglasses, dental services, and reduced cost sharing, for example. Seniors have flocked to these plans and are not eager to give them up. Nor do they want to give up the cheaper monthly premiums many of them offer. Some MA plans charge no premiums at all.
More than fourteen million seniors have signed up for MA plans, and it’s a good bet that these people will be upset about the cuts—even though some MA plans come with hidden copayments and other charges that result in very high out-of-pocket costs if their users are unlucky enough to get sick. Many have been willing to take that gamble.
But with the gravy train coming to a halt, Medicare’s chief actuary, Rick Foster, predicts that the number of seniors in MA plans will drop to about 7.4 million over the next few years as sellers begin to cut back benefits and raise premiums in response to shrinking government payments. The new law, says Foster, “will generally reduce Medicare Advantage rebates to plans and result in less generous benefit packages.”
Does the administration want seniors to join these plans, or not? On the one hand, the administration wants to knock the stuffing out of Medicare Advantage; on the other, it is encouraging people to stay in MA plans by being less than honest about what will happen to the extra benefits. It’s like officials fear a popular revolt if seniors really understand the ins and outs of what’s happening.
A few weeks ago, Madame Secretary sent every Medicare beneficiary a four-page brochure which told seniors that “Your guaranteed Medicare benefits won’t change—whether you get them through Original Medicare or a Medicare Advantage plan.” And this week, in his sales pitch for the new health law, the president himself drove home the point that seniors won’t lose their Medicare benefits. “What you need to know is that the guaranteed Medicare benefits that you’ve earned will not change, regardless of whether you receive them through Medicare or Medicare Advantage,” Obama told seniors who had come to hear him speak at a town hall meeting in Maryland.
Note the emphasis on “guaranteed Medicare benefits.” The administration’s talking points don’t reveal that the extra benefits are on the chopping block. Perhaps it’s banking on the fact that seniors rarely distinguish between what’s a guaranteed benefit, like hospital and physician services, and goodies that are not, like Silver Sneaker memberships. To most, a benefit is a benefit, and many can’t tell the difference between an MA plan and getting traditional benefits from the government along with a Medigap policy.
Last Friday, a very informative story in The Wall Street Journal reported that Sebelius sent a letter to four MA sellers—but not to United Healthcare or Humana, the companies that sell the most MA plans—warning them not to increase premiums and co-payments for seniors. “Focus on price and quality rather than asking seniors who need health care the most to pay more for it,” she said in her letter. What the heck does she mean by that, when it’s common knowledge that premiums are going up and benefits are going down? To many seniors, the extras MA plans provide are quality, so how is the administration going to square the circle on that one?
I called some consulting actuaries, and one who wouldn’t speak for attribution told me the timing of Sebelius’s letter was curious. “Obnoxious political grandstanding,” he called it. MA sellers were required to file their rate calculations Monday. So if the plans wanted to heed her advice, it was really too late; the plans, especially the big ones, he explained, can’t make changes that quickly. Is that why United and Humana didn’t get Sebelius’s warning letter?
The press needs to have its BS meter ticking as the health care sales job rolls on. A few outlets, like The Hill picked up on what it called “the carefully worded brochure,” but most didn’t explicitly connect the dots. And a segment on the NewsHour the other night left the impression that the public won’t know for several years whether the extra benefits will vanish. This is not the time for media pussy-footing. Seniors need to know that some benefits they’ve come to expect from Medicare Advantage plans will begin to disappear this fall, and they need to think about other options.
The government has frozen what’s known as the benchmark payment rate, the starting point that companies use in their rate calculations. A frozen benchmark leaves little room to accommodate medical costs are increasing about six percent a year. “Some companies will cut some profit, but there is not enough profit to pay for all the extra benefits,” the actuary said. “Seniors will see premiums go up and or benefits go down. This is a financial fact. This is reality.”