Who’s Cutting What in Medicare?

A missing campaign issue suddenly surfaces

All of a sudden last week Medicare zoomed atop the list of acceptable campaign talk. It started with an early October Wall Street Journal story, reporting that John McCain would pay for his health plan with major reductions to Medicare and Medicaid, possibly cutting more than $1 trillion over ten years to both programs. Alarming stuff to people who care about the poor and the elderly. Adviser Douglas Holtz-Eakin said that the campaign had always planned to partially fund McCain’s plan, primarily the much ballyhooed tax credits, with cuts in Medicare and Medicaid. He didn’t give specifics on where in those programs the money might actually come from.

To jog your memory: Congress operates on a pay-as-you-go system. If it wants a new program, an old one has to go. So if the uninsured are to get federal help paying for health insurance, money must come from somewhere else in the budget—a kind of robbing Peter to pay Paul scheme.

During last week’s debate, Barack Obama dipped his toe into the waters of pay-as-you-go when he called himself a strong proponent of matching the cost of new programs with equivalent budget cuts. He tossed out an obvious example—the billions of dollars in government overpayments to Medicare Advantage plans, a certain kind of Medicare insurance policy authorized in 2003 as a way to further the privatization of Medicare. These plans offer the prescription drug benefit as well as hospital and physician coverage. That way, someone on Medicare can avoid having to get his or her benefits from the government.

To make it attractive for insurance companies to sell these plans, Medicare overpays them, spending more money to insure a person under these plans than it does to provide coverage directly to someone under traditional Medicare. This year, according to New York-based research and philanthropic group The Commonwealth Fund, Medicare will, on average, pay about 12 percent more, or almost $9 billion. From 2004 to 2008, the overpayments totaled some $33 billion. During the debate, Obama hardly made it clear what he was talking about:

Every dollar that I’ve proposed, I’ve proposed an additional cut so that it matches. And some of the cuts, just to give you an example, we spend $15 billion on subsidies to insurance companies. It doesn’t—under the Medicare plan—it doesn’t help seniors get any better. It’s not improving our health care system. It’s just a giveaway.

A few days after the debate, though, an Obama ad distilled the issue Madison Avenue style, citing The Wall Street Journal and declaring that McCain would tax health benefits and cut Medicare. The McCain camp cried foul with a Friday press release accusing Obama of “Medicare Malpractice And Lies.” But the press release was about as cryptic as Obama’s debate remarks.

In a section called “THE TRUTH,” it said: “Just Two Days Ago, Barack Obama Highlighted His Own “Cut” to Medicare Spending,” without explaining that Obama meant cutting overpayments to Medicare Advantage plans, which many Medicare experts say are indefensible. The release also noted, in a section labeled “THE MALPRACTICE”, that “Barack Obama implied That The Wall Street Journal Reported John McCain Plans To ‘Cut Medicare By $882 Billion,’” and said Obama was citing his own campaign because the report had come from the liberal-leaning Center for American Progress, which, the release said, supports Obama.

Neither the press release nor the ad is very useful in helping people understand what’s at stake with Medicare, so we hope the press won’t take McCain’s press release or Obama’s ad very seriously. But we do urge the media to take Medicare seriously, and move beyond the gloom and doom stories peddled by conservative interests—like the one that recently came out of McClatchy’s Washington Bureau. Now is the perfect time to revisit the issue of Medicare overpayments and the likelihood that wealthier seniors may have to pay more for their benefits, which some experts say will further hasten privatization. Down the road, wealthier people may find they can do better in the marketplace and leave Medicare, destroying its value as a social insurance program where everyone gets the same benefits. (Last summer, Congress did cut some of the overpayments, but the cuts don’t take effect until 2010.)

It’s also the right time to revisit Medicare Advantage plans. Open enrollment is starting, and, in the next month or so, seniors get the chance to choose a new plan for their drug benefits. Open enrollment is open season for insurance agents who have lured seniors to the new plans, often with misleading or deceptive sales pitches. There’s a good story to be told in what, exactly, Medicare consumers are getting in return for the government’s generosity to the health insurers.

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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.