Update on Medicare Advantage Plans

The administration’s unfinished business

At the tail end of the presidential campaign, Barack Obama said he wanted to reduce the federal government’s overpayments to insurance companies that provided drug and other benefits for seniors through Medicare Advantage plans—and, particularly, a special kind of Medicare Advantage plan called the private-fee-for-service option. According to Bloomberg News, a White House spokeswoman says that President Obama still considers the payments “excessive.” So the question is: When will Congress reconsider the amount they’re paying insurers to provide the same benefits that Medicare itself can provide for much less?

Journalists should keep an eye on the budget that will be released later this week, in order to see if the administration tips its hand on overpayments. If Congress tries to derail the gravy train for health insurers, the future of Medicare Advantage plans will be a good story for weeks to come. Some 11 million seniors have such plans. Will payments be flat-out cut immediately? Will cuts be phased in over a few years, to give carriers some time to adjust? Or will there be no cuts at all?

Avram Goldstein’s piece for Bloomberg is worth reading for journalists who want to report on the continuing Medicare Advantage saga. The Medicare Advantage option lets seniors get all of their Medicare benefits, including prescription drugs, in the private market from HMOs, PPOs, and private-fee-for-service plans. The government pays these plans to provide the benefits. As Goldstein points out, these companies will be paid an average of 14 percent more this year, just to provide the same benefits that Medicare pays for seniors who get them directly from the Medicare program. The industry argues that the overpayments allow them to offer goodies, such as gym memberships, that people can’t get in the regular program, and that these plans are popular because premiums have also been low. (Seniors pay two kinds of premiums—one to the plan and one to Medicare.)

Tom Scully, the former Medicare administrator who helped create the program, predicted there would not be a “mass exodus from Medicare Advantage.” Those in favor of reducing the government payments maintain that the money could be better spent on care, and that the reduction postpones the date when Medicare will run out of funds. Arnold Relman, former editor of the New England Journal of Medicine, told Goldstein that “Medicare Advantage is a rip-off. I cannot see that they do anything better than public insurance does, and they do a lot of things worse.”

Working with the consulting firm Avalere Health, Bloomberg found that some of the advantages of Medicare Advantage have vanished. Low premiums that once lured consumers have suddenly zoomed up. (On average, premiums increased by 13 percent for 2009.) Humana, which entered the Medicare Advantage market a few years ago with super low premiums, has now “more than doubled average premiums for its Advantage clients, to $30 from $14,” Bloomberg says. Its study found that Universal American boosted its premiums by 44 percent to $39. The company’s chief executive officer said that Medicare Advantage is a great value to consumers. Another carrier, Universal Health Care Corp., had so much spare government cash that, for awhile, it was able to sell plans with no monthly premiums and also pay policyholders’ monthly Medicare premiums—this year, $96.40.

Goldstein reported that these changes are beginning to affect those seniors who flocked to the plans a few years ago, hoping to save a little money. Insurers can use different marketing practices and pricing arrangements in different counties. In other words, there are local stories to be found everywhere, and rich fodder for reporters to chew on as the soon-to-be political story surfaces. Goldstein has shown how to bring the political story home.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.