Who says so? Well it’s the BCBSA CEO. Lucky that’s not self -serving or anything. Perhaps he’d like to explain how his members and the other health plans valiantly stayed in the Medicare market last time, took huge losses but stuck it out all the way to 2004 when rates were put back up. But this time they’ll quit instead. (BTW here’s the WSJ original to those of you with access)
After all, if we’re going to have revisionist history….
UPDATE: I was rushing to an interview (which you’ll hear tomorrow) so I didn’t get a chance to add one thing Mr Serota appears to have missed out in mentioning regarding the subject. Just like much of the American health care system Medicare Advantage is a good deal for its members, a great deal for its vendors (including but certainly not limited to the Blues) but not such a good deal (according to the CBO et al) for the poor saps who have to pay for it. And who would they be? Yup, it’s that taxpayer fellow again, and of course—due to the accounting and financing techniques of the con-artists who wrote the 2003 MMA, took us into Iraq et al—it’s also going to be paid for in the years to come by their children and grandchildren. But who cares about them when the Blues and other insurers are richer than they’ve ever been?
According to the Center for Budget and Policy Priorities:
Leading Medicare expert Dr. Robert Berenson of the Urban Institute, who previously oversaw Medicare payment policy at the Health Care Financing Administration (since renamed the Centers for Medicare and Medicaid Services), recently wrote that changes contained in the 2003 prescription drug law have significantly increased the excessive Medicare payments being made to private plans. In essence, Berenson observed, the law is “throwing money at the private insurers.” So instead of saving money (private plans were originally designed to be paid 5 percent less than the cost of fee-for-service in order to reward their expected efficiency), “taxpayers are now paying 12 percent more per beneficiary to the private plans. That means the government is paying private insurers about $1,000 more per enrollee than it would cost to keep the beneficiary in the traditional plan — all in order to help the private plans entice healthy seniors away from traditional Medicare” (emphasis added).
The end result, Berenson warns, may be to undermine Medicare over time and lead to large-scale privatization of the program. Berenson cites a Goldman Sachs report that concludes “…[Medicare Advantage] may represent the end game for Medicare and unprecedented multiyear growth opportunity for managed care.” Berenson counsels that the overpayments to the private plans should be regarded as part of an ongoing “campaign to privatize Medicare without anyone noticing, without ever having to put the issue to a politically dangerous up or down vote, by using taxpayer money to advantage private plans and government regulation, paradoxically, to disadvantage” traditional Medicare fee-for-service.*
“If the private plans are any good at what they do, they should be able to provide extra goodies for the Medicare recipients in their plans AND do it for less than the average taxpayer-funded per capita amount for the FFS system, because their job is to drive out waste from the system” and “If we want to further subsidize seniors–who are already the only group who’s health care costs are uniformly subsidized by the taxpayer–we should be explicit about that. ”
Sure, and if the Medicare FFS system does cost taxpayers less than private plans, then researchers and policy analysts who play up that finding ought to be explicit about the sources of its cost advantage: how much comes from real gains in efficiency (e.g., elimination of administrative “waste”) and how much is the result of shifting costs to beneficiaries or the Medicaid program?
Skeptic. To be honest I haven’t gone into the guts of the analysis lately to see whether if you look at the “total” costs of Medicare recipients it changes the analysis (although I think that the “total” number is the number that the CBO looks at), but in the end I don’t really care.
The taxpayer pays a set number for the 90% of recipients in the main FFS program and pays a higher per capita number for the other 10% in the private plan. If the private plans are any good at what they do, they should be able to provide extra goodies for the Medicare recipients in their plans AND do it for less than the average taxpayer-funded per capita amount for the FFS system, because their job is to drive out waste from the system.
They are clearly not doing that. If we want to further subsidize seniors–who are already the only group who’s health care costs are uniformly subsidized by the taxpayer–we should be explicit about that. We shouldn’t be defending private plans because they are doing that in a hidden way, at the same time as they’re doing a lousy job of what they are supposedly being paid to do–which is managing Medicare costs.
There are two main concerns about Medicare payments to private health plans. The first concern is how do payments to private plans compare to the payments that the Federal government would otherwise incur if private plan enrollees stayed in the FFS program. The second concern is efficiency: does the Medicare FFS program generate total costs (including beneficiary out-of-pocket costs) which are lower or higher than the total costs generated by private plans?
Both of these concerns are legitimate, but you miss my point: even if Medicare payments to private plans are higher than what the FFS program would pay, that does not necessarily mean that the FFS program is more “efficient” than private plans. If (for example) the FFS program shifts a significant share of costs to beneficiaries and/or the Medicaid program, that must be factored into any cost comparison which seeks to make claims about relative efficiency. In other words, I have a problem with studies which compare the relative burden of Medicare FFS vs. private plans on taxpayers and then make inferences about efficiency which are not supported by the data.
JD & Skeptic. Of course I’m not saying that HMO profits are a big slice of overall health care costs. They are however not nothing & in Medicare they in whole exceed what the same Medicare recipients would cost the taxpayer. (i.e. the margins are entirely part of the “extra” payment that CBO complains about)
What I am saying is that if private Medicare plans cannot be profitable if being paid the same as FFS Medicare per recipient–including giving all the added bells and whistles for enrollees–by making savings over the main FFS program (by for instance reducing excessive care of the nearly dead, reducing practice variation, getting rid of fraud), then what the hell is their value to the taxpayer?
And none of this means that Medicare itself isn’t set up appallingly badly and needs to be changed. I’ve always said that, and wouldn’t have a problem with private plans of some type competing on a level playing field within some type of managed care model. So long as the goal was to actually reduce cost and not just hand over more money from the taxpayer than they would have paid had everyone senior stayed in FFS.
So this is a small point in the grand scheme of things, but a key indicator of how badly our government health care system is run and manipulated by private interests to the detriment of the taxpayer.
And of course Serota NEVER mentioned the extra costs to the taxpayer in his piece.
Nothing in Matt Holt’s response refutes my basic point: a large chunk of the “extra” payments to private plans cover the costs of lower beneficiary co-pays and deductibles. If we are going to conduct an apples vs. apples comparison of Medicare FFS and private plan costs, along with adjustments for risk selection and quality of care we need to have adjustments for beneficiary out-of-pocket costs. For example, if Medicare FFS enrollees are incurring costs for supplemental policies, or if impoverished Medicare eligibles have to rely on Medicaid to incur certain costs associated with the provision of acute care services (a form of FFS “cost shifting” which is rarely discussed or even acknowledged by critics of private plans such as Paul Krugman—a world class demagogue on this issue), those costs have to be accounted for in the comparisons. These are inconvenient facts, but they are important.
As for Matt’s observation that Medicare payments to private HMO plans created windfall profits for Pacificare etc., that was certainly true prior to the enactment of the Balanced Budget Act (BBA) in the late 1990s. But that insane public policy was partly an artifact of Medicare FFS policy. In other words, the HMO payment formula was linked to FFS payment rates.
Not that anyone is paying attention, but I feel the need to make clear how my first and second posts in this thread are consistent on the matter of managing care. Managed care companies do offer services that are better than nothing, and in limited cases are quite good. But with a few exceptions, such as cardio-related programs, they do not save money. And we still find ourselves in a system where patients are not given care according to best practice guidelines 50% of the time, and that’s when there even is a best practice guideline.
Tonality aside, we seem to agree on the biggest problem with managed care companies: they don’t do a good job at managing care. Part of the problem is that they never learned to do it well at all, and part of it is that the law and the market (in terms of resistance to utilization controls, limited networks, etc.) has taken away many of the tools that would be effective.
But all of this is different and independent of going after managed care companies for being greedy. It’s all well and good to think McGuire and a few dozen other top executives got paid way too much (and they did), but if you add it all up it comes to, what, 10 billion dollars over 20 years? This is compared to health care spending that now approaches 2 trillion dollars a year. As bloated as the incomes were, they were the proverbial drop in the bucket. That said, if there were a law that health insurers had to be not-for-profit I wouldn’t be unhappy. Minnesota does it, and they get arguably the best health care of any state in the nation.
As for your example of Pacificare, I don’t see how it undermines what I wrote earlier. As you point out, they were in trouble after the BBA brought reductions in MA reimbursement. If they had fat margins to start, this is less likely to have happened. Also, you can’t infer that because a stock improves dramatically a company must be making a mint. A publicly traded company whose business model produces a 1% margin will roughly double its stock price when it can reliably produce a 2% margin (ignoring market trends and assuming that the P/E ratio stays the same). Something like this actually happened to the entire managed care industry in the first few years of the 21st century. Managed care outperformed the S&P 500 from 2000-2005, but only because it had performed so terribly in the 5 years before that, and was starting from extremely thin margins.
In NY, every year now we get a story about how HMOs are making record profits. But when they say what those profits actually are it’s less impressive. For example, HMOs increased profits by 93% from 2001 to 2005. But they started from a 4.6% margin and ended at a 7.4% margin (6.3% if you exclude profit that went to cover mandated increases in statutory reserves). In 2005 the profit for HMOs in NY was $1.3 billion, of which $200 million was used to meet increased requirements for statutory reserves. That compares with about $17.4 billion in HMO premiums collected and $126 billion total health care expenditures in 2005, excluding all insurance admin and profit. Obviously, a great deal of health care spending in NY was not funneled through HMOs.
Finally, it is looking more and more like 2005 was the peak of the latest underwriting cycle. Premiums are now increasing at the medical cost trend for 2007 (or even below trend in areas with strong non-profit Blues plans).
The concept that Medicare Advantage (or more accurately Medicare payments to private insurers over time) doesn’t help private insurers is tosh. The best example of this is Pacificare which was 50%+ a Medicare HMO plan.
Pacificare’s stock rallied through the 1990s, but then fell into the tank in 2000 after the BBA cuts to Medicare Risk HMOs in 1998. It needed a severe corporate restructuring to stay alive through to 2003, when the MMA dropped a bunch of money into its pockets, created another huge stock rally and persuaded UNH to take it out. And of course the MMA also made gazillionaires of the Pacificare management. If that all happened because of modest margins on government business, then Wall Street and Bill McGuire must be complete idiots and victims of accounting fraud.
I’m not saying that private insurers should be forced to lose money on Medicare private plans–I’m just saying that if they’re so good at all the DM, care coordination, extra goodies for poorer recipients and other BS that JD describes, they ought to be able to do it for the same cost as the mainstream Medicare program.
I mean–there’s enough waste and fraud in the Medicare program that it should be falling off a log to do that.
However, CBO report after report shows that they both risk select (although that will theoretically be coming to an end) and get paid more for the same patients than the standard FFS program. So they can’t fall off the log?
Why not? My summation is that health plans are ineffectual at managing care, or corralling providers to provide the right type of care, or persuading patients to request the right amount of care, or whatever you want to call it. So if they can’t select risk (as they do in their individual business) or get paid extra (as they are in the MA business), then they can’t make money.
So what the current MA kerfuffle is doing is exposing how bloody awful health plans are at their supposedly core business of managing care. A bunch of interviews I’m currently doing with employers is confirming this to me day after day.
If health plans had to compete with each other over care management in a cost-constrained (or transparent) environment, then they might get better at the care management part of the process–which is where theoretically they add value. Right now they are pigs at the trough, and as one being forced to pay for the swill I’m not happy.
Skeptic is right. Medicare Advantage is just the latest scapegoat. And by Medicare Advantage, I mean traditional HMO-based MA, not Private Fee For Service (PFFS), which is a joke as far as I can tell.
I don’t see how you can look carefully at the HMO-based MA program and not come away with the following:
1. MA has slightly higher admin costs than traditional FFS Medicare, primarily due to additional marketing and DM expenses, on the order of a couple of percentage points of premium.
2. MA provides additional services that FFS Medicare does not provide, including disease management and care coordination. This care coordination actually does not lower total expenses by very much, since medical expenses are largely exchanged for DM/CC program costs. However, the care coordination and additional benefits do improve the quality of life of those who receive them.
3. Private plans make modest margins on MA: around 3%. These margins play essentially no explanatory role in the rise in healthcare costs. Take them away, and the medical cost trend remains the same. Conversely, all you have to do is keep premiums flat for one year and you will see an exodus from MA. When medical cost trend is 6% and your margin is 3%, you will be in the hole by 3% after one year if you can’t raise premiums or reduce benefits. As Matt did in the post above, people insinuate that plans left or will leave MA out of greed, but wanting to cover your costs isn’t greedy. Government doesn’t need to do it because it can run at a deficit year after year and force another generation to pay the bills. For better and for worse, private businesses can’t do that.
4. A primary factor in explaining medical cost trends is the failure of payers to exert control on providers and the conduct of medicine. In the case of private plans, they are relatively impotent to exert more control than they do in the present legal and competitive environment. In the case of government, it is a failure of nerve in the face of interest groups.
By the way, there is no barrier in theory to adding care coordination and benefits to traditional Medicare so that it matches what the private plans provide in MA. Getting rid of MA doesn’t mean getting rid of additional benefits and services for the poor. I’m surprised Stark and others hostile to MA don’t mention this. Or do they?
In the end, I think the strongest arguments for skepticism regarding MA have to do with the relatively poor position of private plans compared to government to effect change and invest sufficiently in improving the efficiency and quality of care. Private plans haven’t proven that they can solve the structural problems of their economic position to really reduce costs and improve quality. Since I work for an insurer, I’d like to believe that they can, but the track record is uninspiring.
Yes, Mr. Serota’s Wall Street Journal editorial is self-serving but his article makes at least one perfectly valid observation: a large chunk of the extra payments which Medicare pays to private plans cover the cost of lower co-pays and other enrollee benefits. In other words, contrary to the mythology spread by opponents of “privatization,” all of the extra payments that CMS gives to private health plans do NOT end up in the pockets of health plan CEOs or stockholders. Reasonable people can disagree about whether the additional payments to private health plans are justified (that is a complex question I won’t get into here), but one thing is clear: many of the additional CMS payments are quite helpful to enrollees in private plans, particularly low-income seniors and disabled enrolled in HMOs who would otherwise have to pay much higher co-pays and deductibles (and/or shell out thousands of dollars a year for a supplemental Medicare plan) if they were enrolled in the Medicare fee-for-service (FFS) program. It is utterly disingenuous for critics of Medicare Advantage (such as the Commonwealth Fund and the Medicare Payment Advisory Commission) to compare Medicare FFS costs with private plans without adjusting for the difference in beneficiary out-of-pocket costs.