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POLICY: Medicare dis-Advantaged?

A couple of weeks back I suggested that the Medicare CCIP (disease management) demonstration projects were designed at least in part to get private health plans (and the DSM companies that contract with them) involved in the wider management of Medicare FFS patients. The Oliver Stones amongst us think that this is part of a logical attempt by the Administration and its Congressional allies (perhaps I should just start calling them "the Government") to fast-forward the privatization of Medicare. Now a somewhat renegade ex-CMS employee, Robert Berenson of the Urban Institute, has a paper in Health Affairs that accurately recounts the history and likely future of the other larger part of the privatizing Medicare equation.

Berenson shows that, essentially, private plans are being bribed back into Medicare Advantage (the new name for Medicare plus Choice, nee Medicare Risk) with payments that equate to roughly 108% of the equivalent per capita cost of a senior in traditional Medicare. In addition Medicare is introducing regional private PPOs even though:

The traditional Medicare program has enough market power to impose administrative prices on providers at rates that are generally lower than those of commercial PPOs. Medicare beneficiaries already enjoy broader freedom of choice, with limits on balance-billing, than in most PPOs. In other words, the main virtues of the PPO model in commercial markets are not applicable to Medicare, which itself functions in many ways like a PPO.

In addition to the private PPOs, and the improved terms for the private Medicare Advantage plans, the new Part D which will be run by a different set of private actors, the PBMs. And of course many of the most expensive and sickest Medicare patients will be in the CCIP programs which will be expanded if they prove successful, and have been set up to give at the least a very good chance of success. So when private sector Medicare has shown little skill at implementing cost control in the past, why is it being encouraged so much now? Part of this is the ideological preference of the Republicans to see the market work and the government fail. But there’s more than that going on.

Former CMS administrator Tom Scully argued that one main purpose for creating an extensive network of PPOs in Medicare would be to decrease the market power of the traditional program yet to replace it with nongovernmental insurers, which themselves might have sizable market power. In his view, private monopsony payers would be unencumbered by the political interests and regulatory requirements that arguably restrict the flexibility of the traditional Medicare program to act decisively to reduce spending and to respond to market-specific factors related to quality and access.

In other words, if Medicare is going to be reformed–and yes I agree it needs to be–the Administration believes that the government itself can’t do it. It’s just too political, and the interested parties will resist any significant reform or price cuts. Those interested parties are of course largely America’s providers who have indeed grown fat at the Medicare trough over the last 40 years. Instead the Administration’s hope is to hand it off to a gang of private enforcers who they hope will be as successful with reducing cost in Medicare as they were for their private employer clients in the mid-1990s.

There are of course several potential pitfalls with this approach. First, in order to increase the numbers in Medicare Advantage from the current 12% to a percentage where their weight of numbers might have some impact, the bribes paid to the private plans are (and need to be) rather substantial. In order for the program as a whole to be reformed by the private plans rather than directly by CMS, many, many more seniors have to be tempted into Medicare Advantage. However, although some good policies like real risk adjustment and competitive bidding have been included in the legislation and are due to be implemented in the next couple of years, the current way that they’ve been set up doesn’t really encourage plans to cut costs–rather it will likely result in them pricing to a benchmark that CMS sets. Of course that benchmark and indeed all payments from CMS are vulnerable themselves to yet more political interference. And if the amount of the bribes start going in a direction that the private plans don’t like, well we’ve seen this movie before in 1999-2002 when lots of plans took their ball back and went home.

Secondly, the biggest likely interference will arrive should the so-called conservatives in the Congress remember that being a conservative is supposed to be about reducing government spending. The argument which goes that "we have to increase Medicare spending now in order to put a structure of enough private plans in place so that they can cut spending at some unspecified future date", may not hold much water if Congress ever decides to look at the deficit seriously. Of course if you really want to cut Medicare spending and you can muster the political will to do it, doing it by reducing the amount you pay providers in the traditional program is the most effective way. After all it worked pretty well in 1998-2001. And if you grow the private plan side, instead of having a group of voracious cost cutters, you may just end up with a group of Mr Ten-Percents in the middle who also need to be taken care of politically and will have more power to ensure that they are. It can’t have escaped everyone’s notice that health insurers actually have done better financially in times of big cost increases rather than when they were slashing and burning provider rates.

Finally there are two other sleeper issues with Medicare that shouldn’t be forgotten. One is Teddy Kennedy’s overriding concern that increasing Medicare privatization combined with the (admittedly limited) means-testing for Part D introduced in the MMA will lead to a de-facto defined contribution mindset. He foresees Medicare eventually paying a flat rate voucher for seniors’ membership of plans, and as that amount is cut over time, you’ll see a distinction between the class of private plan for different Medicare recipients, based on whether they can afford bigger premiums out of pocket. Kennedy’s eventual fear is that the "contribution" eventually becomes regarded as a kind of welfare payment. And we all know how the public feels about cutting back on welfare. There are certainly influential Republicans (Grover Norquist is one who wants to "drown government in a bath tub") who regard that as a legitimate end-game.

The other issue is one that Ross at the sadly quiet again Public Health Press has raised many times. Hidden in the MMA legislation is a provision that if Medicare premiums for Part B no longer cover 50% of Part B costs (and that money has to come from the general taxation) benefits/payments will be cut until the premiums do cover 50%. In other words there’s a self-limiting mechanism built in which will likely mean that seniors will end up paying more to get less.

If I had to make a tenuous forecast, my suspicion is that the payments to Medicare private plans end up getting reduced sometime in the near enough future that they never obtain the critical mass that Scully and others want them to get to enable them to reform the system. I believe that the future of Medicare is a fairly straight fight between providers and taxpayers, with an increasingly aggressive CMS pushing P4P and attempting to reduce regional spending variation using the fee-schedule as its main weapon. But trying to privatize this process to stop it being political, well that just sounds un-American to me! Anytime the tax payer is forking over several hundred billion dollars, the process will indeed remain political.

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