Medicare Advantage and the ‘Theft’ of $156 Billion

[ProSense]

Medicare Advantage and the ‘Theft’ of $156 Billion

By UWE E. REINHARDT

In a Dec. 27 lead editorial, “Government Advantage,” the editorial writers of The Wall Street Journal wrote:

Amid the larger ObamaCare meltdown, seniors are discovering their choices are fewer, costs higher and coverage poorer too. Liberals fear the increasing popularity of Medicare Advantage, and they’re starting to gut this market alternative to their original health care entitlement before the sand runs out on President Obama’s second term. About 14 million people or 28 percent of Medicare beneficiaries choose Advantage over the government option, which is why the Affordable Care Act steals about $156 billion from the program – even as enrollment has surged 30 percent since 2010.

A theft of $156 billion should catch one’s attention, especially if government is the thief. It warrants a closer look...what is the time frame of this $156 billion “theft”? Greater clarity on this point would have been helpful, lest readers think that this is an annual figure. In fact, it is the sum of projected future annual cuts off projected future total payments to Medicare Advantage plans over the decade 2013-2022 (see line 8 of Table 2, page 5 in this Congressional Budget Office projection).

That point aside, what the Affordable Care Act has done to the Medicare Advantage plans lies, like beauty, in the eyes of the beholder.

The story begins with the Medicare Prescription Drug Improvement and Modernization Act of 2003, which revamped the manner in which Medicare paid private health plans for Medicare beneficiaries who chose them in lieu of traditional Medicare. The program, called Medicare Risk when it was established in 1982 and rechristened Medicare+Choice in 1997, was reborn as Medicare Advantage.

I described and discussed the complicated administrative payment algorithm prescribed for Medicare Advantage by that law in a previous post. Those interested in the modus operandi of the payment system for Medicare Advantage before the Affordable Care Act of 2010 can read an official description by the Medicare Payment Advisory Commission of Congress (known as Medpac), dated October 2008. A description of the current payment system is also available...on average, the payment method prescribed by the 2003 law, which took effect in 2006, has cost taxpayers substantially more per Medicare beneficiary who enrolled in a Medicare Advantage plan than these beneficiaries would have cost taxpayers in traditional Medicare. That is because Medicare has paid private plans more per beneficiary than these beneficiaries would have cost in traditional Medicare.

- more -

http://economix.blogs.nytimes.com/2014/01/03/medicare-advantage-and-the-theft-of-156-billion

Typical Republican scam: Undermine Medicare by diverting a substantial amount of Medicare funds to private insurance.

While the WSJ is attempting to push this bogus claim, the health care law also strengthened Medicare.

<...>

MEDICARE’S FINANCIAL CONDITION

Medicare’s financial condition is measured in several ways, including the solvency of the Part A Trust Fund, the annual growth in spending, and growth in spending on a per capita basis. Average annual growth in total Medicare spending is projected to be 6.6% between 2010 and 2019, but 3.5% on a per capita basis (assuming no reduction in physician fees).

The Part A Trust Fund is projected to be depleted in 2024— eight years longer than in the absence of the health reform law—at which point Medicare would not have sufficient funds to pay full benefits, even though revenue flows into the Trust Fund each year. Part A Trust Fund solvency is affected by growth in the economy, which directly affects revenue from payroll tax contributions, and by demographic trends: an increasing number of beneficiaries, especially between 2010 and 2030 when the baby boom generation reaches Medicare eligibility age, and a declining ratio of workers per beneficiary making payroll contributions (Figure 4).

<...>

http://www.kff.org/medicare/upload/7305-06.pdf

[ProSense]

1. Kick for

smacking down the birth of a RW talking point.

[meow2u3]

2. I've been quipping about Medicare Advantage for years

Medicare Advantage is a scam designed to take advantage of people on Medicare.

[ProSense]

4. It's too easy

"Medicare Advantage is a scam designed to take advantage of people on Medicare."

There isn't a big progressive push to fix the gaps in Medicare so Republicans step in and fill them with scams. It's like Medicare Part D creating the donut hole.

Krugman, 2005:

<...>

The new Medicare law subsidizes private health plans, which have repeatedly failed to deliver promised cost savings. It creates an unnecessary layer of middlemen by requiring that the drug benefit be administered by private insurers. The biggest giveaway is to Big Pharma: the law specifically prohibits Medicare from using its purchasing power to negotiate lower drug prices.

Outside the United States, almost every government bargains over drug prices. And it works: the Congressional Budget Office says that foreign drug prices are 35 to 55 percent below U.S. levels. Even within the United States, Veterans Affairs is able to negotiate discounts of 50 percent or more, far larger than those the Medicare actuary expects the elderly to receive under the new plan.

<...>

http://www.nytimes.com/2005/05/06/opinion/06krugman.html

These programs become popular despite being inefficient compared to Medicare or programs like Medicaid.

Medicare could benefit from a drug program similar to Medicaid's

Medicaid Drug Rebate Program

<...>

The Medicaid Drug Rebate Program is a partnership between CMS, State Medicaid Agencies, and participating drug manufacturers that helps to offset the Federal and State costs of most outpatient prescription drugs dispensed to Medicaid patients. Approximately 600 drug manufacturers currently participate in this program. All fifty States and the District of Columbia cover prescription drugs under the Medicaid Drug Rebate Program, which is authorized by Section 1927 of the Social Security Act.

The program requires a drug manufacturer to enter into, and have in effect, a national rebate agreement with the Secretary of the Department of Health and Human Services (HHS) in exchange for State Medicaid coverage of most of the manufacturer’s drugs. When a manufacturers markets a new drug and electronically lists it with the FDA, they must also submit the drug to the Drug Data Reporting (DDR) system. This ensures that states are aware of the newly marketed drug. In addition, Section II(g) of the Rebate Agreement explains that labelers are responsible for notifying states of a new drug’s coverage. Labelers are required to report all covered outpatient drugs under their labeler code to the Medicaid Drug Rebate Program. They may not be selective in reporting their NDC's to the program. Manufacturers are then responsible for paying a rebate on those drugs each time that they are dispensed to Medicaid patients. These rebates are paid by drug manufacturers on a quarterly basis and are shared between the States and the Federal government to offset the overall cost of prescription drugs under the Medicaid Program.

http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/Medicaid-Drug-Rebate-Program.html

The ACA increased the Medicaid rebate percentage.
http://www.medicaid.gov/AffordableCareAct/Timeline/Timeline.html

Issue Brief - Medicare Drug Negotiation and Rebates

<...>

Medicare Part D is a voluntary prescription drug benefit for Medicare beneficiaries, established in 2003 under the Medicare Modernization Act (MMA). Prior to this law, Medicare did not offer a prescription drug benefit. In 2012, almost 65 percent (over 30 million) of Medicare beneficiaries were enrolled in a Part D plan (MedPAC, 2013).

Medicare Part D went into effect in 2006, providing prescription drugs through private stand-alone prescription drug plans (PDPs) and Medicare Advantage (MA) plans. Part D drug prices are determined through a negotiation between the private drug plan that administers the benefit and the drug manufacturer. By law, the federal government cannot negotiate for Medicare drug prices...Prior to the implementation of Part D, Medicaid paid the drug costs for individuals who were dually eligible for Medicare and Medicaid. Dually eligible individuals are generally low-income, sicker and expensive to treat. The costliest 20 percent of dual eligible individuals account for 66 percent of Medicare spending (MedPAC, 2012). When Part D went into effect, dually eligible beneficiaries’ drug coverage switched from Medicaid to Medicare and the manufacturer discounts were discontinued.

<...>

Savings. One argument is that billions of dollars of savings would be produced if the federal government negotiated for Medicare drug prices. While there are no current Congressional Budget Office (CBO) cost estimates for federal drug negotiation, a report from the Center for Economic and Policy Research (CEPR) estimates that savings to the U.S. government would range from $230 billion to $541 billion over 10 years (Baker, 2013). CEPR noted that the U.S. pays twice as much as other wealthy countries for prescription drugs because their governments are able to negotiate for lower prices.

<...>

Best Price. A third argument is that it makes sense for Medicare to receive the best price available for prescription drugs, just like Medicaid and the VA. In Medicaid, the drug manufacturer provides the federal government discounts for drugs, which are shared with the states. The discount is either the minimum drug amount or an amount based on the best price paid by private drug purchasers, whichever is less. Current law requires drug companies to charge Medicaid 23 percent less than the average price they receive for the sale of a drug to retail pharmacies. Drug companies also must provide another discount if a drug’s price rises faster than the rate of inflation (Thomas and Pear, 2013)...Medicaid rebates, if applied to Part D, would save the federal government money. According to a 2011 study conducted by the Office of the Inspector General (OIG) for the U.S. Department of Health and Human Services, Medicaid rebates were three times greater than the discounts negotiated by Part D for 100 brand name drugs. In 68 of these drugs, Medicaid rebates were twice as high as rebates granted by the drug companies for Medicare drugs (OIG HHS, 2011; Hulsey, 2013). Similarly, a 2008 study of drug pricing information by the U.S. House Committee on Oversight and Government Reform found that Part D paid, on average, 30 percent more for drugs than Medicaid (Hulsey, 2013).

- more -

http://www.ncpssm.org/PublicPolicy/Medicare/Documents/ArticleID/1138/Issue-Brief-Medicare-Drug-Negotiation-and-Rebates

The President has proposed the same rate for Medicare (http://www.democraticunderground.com/10022670043 ), which would save even more than the Senate proposal (http://www.democraticunderground.com/10022725266), $164 billion to $141 billion, respectively.

[Freddie]

5. It's not a great deal for the patient either

A friend's dad has a Medicare HMO plan. It was fine when he was healthy but in the past few years he's had major health problems and is now in a nursing home. The family had trouble finding a nursing home that would take his plan when he needed a rehab stay; of course all nursing homes take traditional Medicare but only one (not the best one around here either) took his plan. Many doctors don't take it either.

[Agony]

3. chalk another one up for ObamaCare

from the NYT opinion piece...
"
Now, one can easily understand why The Wall Street Journal editorial writers, given their ideological predilections and the point they sought to make, would not mention the extra payments hitherto made to Medicare Advantage plans and simply portray the payment change under the Affordable Care Act as theft.

On the other hand, one can also easily see why designers of the Affordable Care Act saw in their new payment formula not a theft from the Medicare Advantage plans nor their destruction through “fiscal starvation,” as The Wall Street Journal portrays it, but, like the commissioners on Medpac, a leveling of the playing field in that competitive market.
"
looking at it another way...
"Medicare’s current policies pay private MA plans in most areas more than what Medicare would expect to pay for the same beneficiaries in the traditional Medicare program. In 2009, payments to MA plans exceeded projected spending for the same enrollees in traditional Medicare by an average of 14.2 percent, or $1,236 per enrollee, for a total of $12.7 billion in excess payments nationwide." http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2012/Oct/1637_Biles_impact_hlt_reform_Medicare_Advantage_rb.pdf

There is $12.7 billion "stolen" from traditional Medicare in one year alone...

[ProSense]

6. Yup. n/t

[ProSense]

7. Kick! n/t

[Shandris]

8. Hrmm....now this is interesting.

I'm on a MA plan, but I always thought they were supposed to be good things. Even reading articles about how its 'a scam' doesn't really clear anything up (something about 14%?). Does anyone have some clear, easy-to-follow articles about this? I'd drop mine if I found out it was worth it with some actual, verifiable evidence. But of all the things in the world I hate to read about, its insurance. Every single time I've dealt with insurance, I find out how much worse off I and mine are (yes, even under ACA thanks to no-Medicaid, screwed-out-of-subsidy, screwed-out-of-vision-dental, etc).

So some help would be greatly appreciated.

[Wounded Bear]

9. I can't advise dropping your plan off-hand...

The thing is that Medicare is a gov't operated insurance system with an overhead in the 3-5% range.

MA introduces for-profit insurance with overhead costs anywhere from 3-5 times higher. It would have been cheaper to just expand Medicare as is than to bring the private sector in.

"Scam" is a harsh term, and I'm sure that the 1% doesn't like it, or the insurance industry. But the fact is that it wasn't necessary nor cost effective to do it that way. Just expanding benefits of basic Medicare would have sufficed.

[Shandris]

10. Ah okay, I think I see what you're saying here.

It's not so much that I'm either actively being harmed, or harming another, but that the existence of the 'plan category' -- MA's in general -- (for lack of a better term) prevented a much more efficient expansion of Medicare proper. Please do correct me if that's not right, though!

Thank you for taking the time to clear that up -- I saw this thread and was all like...wth?! I hate it when things sneak up on me!

[Wounded Bear]

11. I think you have it right...

Unfortunately, you may not have any good alternatives, as Medicare is not all-inclusive in its coverage.

Much like Obamacare is really a Republican solution to the medical care crisis, MA was a Republican answer to the Medicare "problem."

[ProSense]

12. The fact is that

"Much like Obamacare is really a Republican solution to the medical care crisis, MA was a Republican answer to the Medicare 'problem.'"

...unlike Obamacare, Republican Medicare "solution(s)" are slowly chipping away at the program. They're filling the Medicare gaps with private insurance, taking a government run program and using it to subsidize insurance companies. These solutions are driving up the costs.

It's not just Medicare Advantage, it's also Medicare Part D: http://www.democraticunderground.com/10024270235#post4

On the other hand, Obamacare moved health care in the right direction, expanding Medicaid, opening a door to single payer and strengthening the social contract.

"US health reform's Gettysburg moment"

by ybruti

In January 1 2014: US health reform's Gettysburg moment, a veteran of decades-long battles over health care policy sees a parallel between the Union Army's victory at Gettysburg in 1863 and today, which he calls

the most transformational day in the history of United States health care policy, ever....the first day of fundamental reform of the business and regulation of health insurance in all 50 states.

In his article, John E. McDonough, a professor at the Harvard School of Public Health and the author of Inside National Health Reform, lists these accomplishments of The Patient Protection and Affordable Care Act (PPACA), which was signed into law by Barack Obama on March 23, 2010:

Banning the practice of "medical underwriting" by which insurance companies rate enrollees based on their health status and medical history,
Banning pre-existing condition exclusions from US health insurance everywhere,
Establishing "guaranteed issue" as the new operating paradigm for individual health insurance,
Completely eliminating lifetime limits on all health insurance, and
Establishing "minimum essential benefits" that must be included in nearly all licensed health insurance policies everywhere.

In addition, McDonough highlights Medicaid coverage beginning today for five million previously uninsured low-income people, "with many more millions to follow"; private health insurance coverage obtained through federal and state exchanges and starting today; and the principle of personal responsibility to obtain health insurance - the individual mandate. Although the July 1, 1966 beginning of Medicare was another historic date in health care policy, McDonough says "the scope and breadth of changes" beginning today are "far more consequential by comparison."

Regarding the Battle of Gettysburg analogy, McDonough compares the Republican 17-day shutdown of the federal government on October 1 to Picketts Charge on July 3, 1863, "the final and failed Confederate assault at Gettysburg." And just as the Civil War did not end for almost two years after Gettysburg, so the Republican war against the ACA will continue but "the ultimate outcome is no longer in doubt."

McDonough concludes:

The overriding importance of 1/1/2014 is the actualization of a new principle of health justice for all Americans, however flawed that principle is in form and in practice under the ACA. That principle now is here to stay.

- more -

http://www.dailykos.com/story/2014/01/01/1266424/--US-health-reform-s-Gettysburg-moment

[Wounded Bear]

13. I don't disagree, of course...

The major difference was who was in charge at the time. For Obamacare, at least, there were some real Dems involved which staved off some of the major RW policies in there.

MA pretty much didn't.

[tiredtoo]

14. This topic is beyond my ability to understand

I have Medicare Advantage. Did not want it but was told i needed supplemental insurance with Medicare. of the hundreds of plans available with all sorts of different coverages and so on i just let someone who is a medical billing agent for a local hospital select coverage for me.
Do not know if it is worth the expense but do not know if cancelling would be a good thing to do.
Arrrrrgghhhh!!!!