Medicare’s Wild Ride

Most of us breathe a sigh of relief when we reach Medicare age because we think we will have coverage until we die. And we will. But we may not get all the options we want. Medicare Open Enrollment period officially opens Saturday October 15th, but the insurance companies that administer the Medicare program announced their 2012 plans and rates this past weekend. There was good news and bad news.

Whether you are 16 or 66, getting dumped is a humiliating and frustrating experience. Last week, some residents of my county received a letter from their insurance company saying that their Medicare managed care plan will no longer be offered here next year. Yep. Dumped by Anthem Blue Cross.

In some places around the country, there will be no real choice of managed care options in 2012. In my county only one managed care plan will be offered and it will cost $192 a month. Other counties that Anthem dumped will be left without any managed care plans at all. It’s not just California, though. Medicare beneficiaries in Virginia saw Optima drop out of the market for 2012, citing $20 million losses for that managed care business, and 500,000 enrollees in states offering Coventry or WellCare will also see their managed care options reduced.

Will more insurance companies drop their managed care business when they realize they cannot continue to make the same profits they have been making? Perhaps. Even though the number of plans dropping out of the market is small this year, is it a national trend? Actually, so far it is nothing like a national trend.

In fact, earlier this month, federal officials said they expected a 10 percent increase in enrollment in Medicare Advantage plans, and they said premiums will be 4 percent lower on average in 2012 with benefits remaining consistent with 2011 plans. Which is all well and good if you live in a place where there is still a lot of competition for you as a Medicare beneficiary. But if you do not?

You still have basically three choices when you are eligible for Medicare. You can go “bare” and take what the “original” Medicare offers in terms of insurance and pay whatever extra is charged; you can buy what is called a “supplement’ or gap plan that fills in the holes of what Medicare doesn’t pay for but costs anywhere from $50 to $300 a month depending on your age, where you live, type of plan, etc. Or you can enroll in a “Medicare Advantage” plan (MA), which is the name of the managed care option Medicare offers, with monthly premiums that range from zero to $300 or more, again depending on where you live and your age.

The Bush Administration pushed the concept of managed care in 2003 when the Medicare+Choice plan (implemented in 1997) became Medicare Advantage and the government sweetened the pot for insurance companies by paying them more than Medicare paid for its original program.

A Medicare Advantage benefit costs the government 14 percent more than exactly the same benefit offered through regular Medicare. In some parts of the country, the difference is as high as 20 percent. That extra money is being eaten up in marketing and administrative costs, and in profits to the insurance companies. According to the U.S. Department of Health and Human Services, all Medicare beneficiaries, including those enrolled in regular Medicare, are paying for these overpayments through higher premiums. HHS says that this year these subsidies are adding about $3.60 per month to premiums.

As a part of health reform, Medicare decided to require these insurance companies to compete for the business, instead of simply accepting whatever they bid. And it is true that health reform set in motion a process by which that 14% overpayment would be reduced over a period of years to the level of what the government pays for original Medicare .

It’s a reasonable question to ask — why should where you live, or where you have to live, be a punishment for the beneficiary if the plan you have is suddenly dropped? Who can you blame in this type of situation? Unfortunately, there are no real evildoers to blame. Every one of the players acts pretty rationally, given the rules. The problem is — we need to change the rules to make it more fair for everyone.

  • The Centers for Medicare and Medicaid Services (CMS) requires these plans to compete for business. That makes sense. They don’t allow insurers to take excessive price increases or boost their profits unreasonably. That also makes sense. CMS also sets the rates that are paid to plans and hospitals. CMS is the payer here, and they are paying with our money. We should want them to get the best deal they can. The problem is that the rates they set vary hugely by region in the US and if you happen to be an area with low costs, the rates can punish you for that efficiency. This is something CMS is undoubtedly working on.
  • Health insurance plans that offer Medicare Advantage get a fixed amount per month for every Medicare beneficiary whom they enroll. If that person isn’t sick, they keep the change. If that person goes in the hospital they have a loss. Their incentive is right — to keep you healthy. But unfortunately the amount the plans get paid varies by county in somewhat bizarre ways — counties who have historically efficient systems of care get paid less. Areas like Miami/Dade, get paid more. If you live in a community where the hospital is the most expensive in the country like I do, there’s not a whole lot you can do about it. Health plans eventually don’t make as much as they think they should and they drop the plans in that community.
  • Hospitals are the largest part of the health care dollar and they of course don’t have any incentive to lower their rates, particularly if there is little competition in their market. So they keep getting more and more reimbursement based a lot on what they pay their workers. The better the wages, the higher their reimbursement and the more costly they become. We all want our nurses and hospital staff to get a good living wage, but the wage trends vary rather dramatically around the country, and there is a lot of gaming going on by hospitals to assure that they associate themselves with the right wage index.
  • Doctors can’t get paid more unless they get out of the Medicare program entirely, and since that program influences private rates and so many of their patients may be on Medicare, it doesn’t always make sense to just bail out, although some do so anyway.

It’s small comfort to be at the mercy of these plans, even with reassurances from the Federal government that these plans are here to stay and the fact that most Medicare Advantage plans are still offering affordable programs. The lonely Medicare beneficiary who can’t move to a “better” reimbursed county is stuck with the options the market offers them. And the market does not work perfectly for health care. The rules of the market are to maximize your profit. Even with our very own single payer, government-run, “socialist” program Medicare, we are still at the mercy of the market and will be as long as we have a private sector delivery and insurance system. It’s important not to forget that the Republicans would put us all at the total mercy of the market with their voucher proposals for Medicare.

I don’t mean to sound whiny about this. I feel incredibly fortunate to have Medicare, and if it weren’t for the heroics of my local congressman Sam Farr (D- Monterey) and the vigilance and work of the Medicare staff, I would not have a set of supplemental plans to choose from and plans would be charging even more than they do. But it does kind of make you wish you lived in Vermont, doesn’t it? Taking the profit out of health care. Now that’s a concept.

Linda Bergthold, PhD, is an independent health policy consultant and researcher and Senior Advisor at the Center for Medical Technology Policy. She currently serves as on various boards and committees to evaluate new technologies and review research from the consumer perspective. Follow her on Twitter: @lab08

This post first appeared at The Huffington Post.

38 replies »

  1. And yet another example from someone else’s point of view:


    Why do I harp on this comment? You all in favor of PPACA need to realize that setting up a program for the general population that is a sizeable percentage embracing cheap and lazy agendas will only facilitate a health care access that focuses on cheap services and interventions, and reinforce the minimal effort to pursue them.

    Is that the credo of health care professionals you want treating you!?

  2. Quite right. The Administration misuses the term “overpaid”. “Overpaid” should surely mean versus the risk-adjusted required rate of return on capital (RAROC) for the line of business. So, if the pre-tax RAROC is 8%, the “overpayment” would be 6%. But if we are seeing MA plans quit already, I think the “overpayment” is not much. (The single-payer advocates do not accept the validity of any return to capital in health care, so would not accept my argument.)

  3. By the way, I forgot both where I said the following, “the average American is cheap and lazy”, and who first attacked it as an incredulous statement, but I forward two more examples of why I think the statement has merit:

    the average person on Medicare, and, if the Occupy Wall Street movement has any vaildity for speaking for the masses, their message is basically “give us the money because we don’t want to work for it”.

    Both come across as pretty damn cheap and lazy. I would ask where has the work ethic, as much as pride and ownership for what people offer at their jobs and in their communities, but, if our leaders are our representatives, I give you the top two examples of this: Barack Obama and George W Bush. Two men who had opportunity dropped on their laps, took it and ran all the way to the head of the strongest nation on earth, and then took the proverbial biggest dump on the American people, basically giving away trillions of dollars to other people who already had the money either through government welfare or sleight of hand via war.

    George Carlin said it best, “garbage in, garbage out”. Sums up the American electorial process for me.

    Again, as of October 17, 2011, the average American is cheap and lazy. Prove me wrong by taking action and implementing change for the better. Hear that loud whooshing sound above you? That’s me NOT holding my breath!!!

  4. John, wouldn’t they drop out when the net profit falls below what they can make in other lines of business? That would take a much smaller drop in payments.

  5. Yeah, how’s this: a good number of people who have Medicare coverage are being screwed by providers who will not see them at all, and while I understand being underpaid and overworked sucks and doesn’t motivate one to challenge the system, when will us doctors wake up and realize that saying F–K You to government and striking as a sizeable group will create the public outcry that will affect politicians?

    I don’t see Medicare patients “robbing” the bank as you allude to. Now, expecting the full court press for the inevitable outcome, that I do have issue with.

    You’d think after Gabriel Giffords was shot by a deranged but disgruntled citizen, it would have provoked some responsible dialogue in DC. But, narcissism and antisocial behaviors have no fear or sense of societal outrage. I have my campaign slogans for 2012:

    the public sucks, screw hope; and, the only change you’ll get voting back incumbents is the precious few coins at the end of your work week.

    help clarify the earlier post?

  6. It really is a shame that the users of Medicare, ie the elderly and those who are permanently disabled, who are just trying to access a health care insurance play they allegedly met criteria to use, are being ostracized when it is the administrators of the program who are the problem.

    But, these are times when to lay down and just passively give in to tyrannical demands and expectations is NOT what being a doctor is about.

    Sometimes, saying NO and no capitulating to others who in the end are not interested in any negotiation or compromise is the right thing to do.

    Why I am surrounded by so many whores and cowards in my field is beyond my comprehension. But, now I know how animals feel when lead to slaughter.

  7. Your point of view, MDasH, per this overeliance on internet and other technology that is broad based and not first and foremost for clinical care interventions?

    I have no issues with technology that improves the quality and purpose of healthy, functional life. This agenda of “build it and they will come” that has no real oversight nor allowance for provider input is just lame, to say nicely, but intrusive, disruptive, and until proven otherwise, to enslave is my interpretation of EHRs under one roof of control!

  8. Yesterday at our urgent care clinic I had at leas 20 Medicare beneficiaries knock over a bank. They came in whimsically, nothing better to do, and just removed from the US treasury (the bank) money borrowed to fund their healthcare.

    Their cost was zero, except their vote for whomever does not come to their senses first.

    “Senior” does not equal “poor”. Several were there because their children were worried. It did not cost them anything either to assuage their concern. Lucky for you nice people I did not need any expensive radiologic scans or a hospital to return them home happy.

    I love making a difference.

  9. This is what’s known as “pimping.” Buy ad space on this site if you’re touting a business venture, ok?

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  11. There is a big shift coming for everyone. It won’t just be where there are a few people so that there is no competition.

  12. Doc, check this out:


    Technology. See also the new Atlantic Monthly article “The Quiet Heath Care Revolution.” I’d link it as well, but I’d then get caught up in “moderation.”

    Oh, and I apologize for having ruffled your feathers yet again.

  13. “And maybe it is time to hit the emergency brakes to end technology outpacing regulation. Unless, it is impacting your wallet?”

    So, sir, let’s see: MY views are dismissably biased by my wallet, but yours are not?

    And, I think the momentum of technology is unlikely to slow down one whit, and that accelerating paced will neither be lubricated nor impeded in the least by my preferences.


  14. Please don’t over-react, OK? No, no.

    “I don’t like one size fits all”


    if you take any time at all to review things honestly, you’ll see a lot of federal calls for private sector innovation with respect to HIT.


  15. Two questions per that inquiry into my gripe:

    1. Is medicare completely uninvolved with secondary insurers? Doesn’t Medicare set some policy to what secondary insurers are allowed to offer?
    2. Don’t patients often look for the cheapest policy to access, and if there are policies out there that that allude to same care coverage with more expensive plans and then do this brash and intruding micromanagement, isn’t that at least a little bit fraudulant?

    The fact that one insurer does this crap and gets away with it, thus opening the door to others doing it, doesn’t absolve one from disruptive actions into care.

    How many negative outcomes into patient care by actions like demanding authorizations before professionals in medicine finally get outraged and demand change? Obviously it has been too many already.

    Hmmm, I guess we all missed the boat on Rand’s comment of bewaring the doctor who cares who is outraged, or even moreso the one who is NOT!

  16. Here we go again, I make a statement about the system and you take it personally. Where did I type your name in that statement?

    Well, I guess your reaction means that you ascribe to that cause. If that agenda works for you, well, you certainly will hope it works out well, but in the end, is it just about you, or you AND the society you reside in? Historically and instinctively, monopoly type of systems really do not do the society very well, do they? Just those who benefit from them, financially, politically, and often in the end fraudulantly and with an air of antisocial agenda. That is not addressed to you, but the history of what is seen in monopoly settings.

    So, if 80% of the time one person or group wants to dominate a purpose and it doesn’t go well, I have to react and focus like it is going to be the 20% alternative? Good luck with that attitude and hope.

    And maybe it is time to hit the emergency brakes to end technology outpacing regulation. Unless, it is impacting your wallet?

    I guess that truce is over. I don’t like one size fits all. Does that belief come through per what I have been writing here, especially about what I see PPACA doing to health care!?

  17. “there are those who in the end see no real harm by putting the entire health care system under one computer management system.”

    Well, Dr, don’t paint ME with that brush, and, if you take any time at all to review things honestly, you’ll see a lot of federal calls for private sector innovation with respect to HIT. There a lot of intelligent policy people fully aware of the fact that technology is outpacing regulation. There is no end to the difficulty.



  18. I agree with pcp’s assertion, as deeds not words are what define us, and in this case it is the propagation of words without responsible editorial reveiw that is the deed, even if it means a disclaimer when someone writes something that is way out of bounds (as I may have been guilty of in times past).

    And that is one reason why I comment here, IT be damned, that is a driving force behind implementing PPACA. And there are those who in the end see no real harm by putting the entire health care system under one computer management system.

    Review the premise of the Terminator movies, I bet government is wary to trust computers with full defense systems. Maybe the real evil will be deferring to running health care instead. You, the readers, think about it.

  19. “unthinkingly pro-IT”

    Y’know, that’s really an empirical matter. And, I think you lose on that assertion.

  20. This site, which has an editorial position of being unthinkingly pro-IT, does the worst job of spam and troll control of anyplace I visit on the web.

  21. Isn’t your gripe with the (probably for profit) secondary insurer, not Medicare?

  22. Sure this is one of the most important news ever and must be follow everyone. Hope everyone follow this kind of health news. Keep it up.

  23. Tell ya what, I’m on the referral tour this year. I gotta be a 99215. A ton of it out of my own pocket, too.

    I’ve been studying this stuff for close to 20 years, as a professional, academically, next-of-kin/caregiver, and now as a “complex patient.”


    The Golden Years. Yeah, Swell. Sux.

    AARP, a Wholly Owned Subsidiary of UnitedHealthGroup.

  24. Talk about Benedict Arnolds. AARP, now why would they support PPACA when anyone with half a brain paying attention can see that seniors would be targeted to be the first to be sacrificed in cost saving measures.

    What is it about real estate? Location, location, location.

    What is it about politics? Agenda, agenda, agenda.

    Oops, sorry America, you’re not included in that agenda?

    I would love to see seniors picketing the AARP headquarters when the full truth of PPACA comes to fruition. Don’t think we’ll see much free loving, dope smokin’, nor dancing in the streets.

    After being alive in this country for 65 or more years, this age group is more disciplined and focused. Plus, don’t see cops taking batons to elderly women saying “hell no, we won’t go”!

  25. LOL, doc,

    Ad nauseum AARP TV ad…

    “Medicare is one of the great things about turning 65…”

    Right. And, y’know, my timing is perfect. I turned 65 in Feb. Didn’t sign up (have employment coverage).

    Don’t know what do do any more.


  26. Just today I had a Medicare patient’s secondary insurer coverage for medication access hassle me for more than 15 minutes in trying to deny said patient medication that is FDA approved for the med and the dosage. Tier system? BS! A current way of micromanaging patient care options that will be logarithmically increased should PPACA stay in place, with this overt agenda of running it in the manner of Medicare now. And I have to read these faux objective writers and apologists/defenders telling us “Most of us breathe a sigh of relief when we reach Medicare age because we think we will have coverage until we die. And we will.”

    People will WHAT? Have coverage, or die. I think the two are more likely mutually exclusive by the next 10 years. Maybe the writer is only focused that she will either have access because she will reach the age to access it and benefit before the program dies, or, her reality is the only one that applies in a place that others’ reality is not so golden and wonderful.

    Anyone who believes that Medicare as it stands today will be without problems by the end of the next 10 or more years is probably expecting to die before that time period expires, or, is selling you the newest brand of snake oil to just benefit his/her own agenda that has serious secondary gain. Or maybe just sheer primary gain. Either way, the general public is not included in those benefits, pun intended.

    Who really is this woman anyway, Maggie Mahar’s disciple?

  27. Re- Medicare – It needs to deal forthrightly with the ethics and economics of dying in America.

    Hospitals should NOT be incentivized to profiteer off the dying.


    Medicare needs to confront this issue now despite the inevitable very painfull political ramifications.

    Besides the realities of harsh economics it is a sure path to our nation’s maturity.

  28. “The problem is that the rates they set vary hugely by region in the US and if you happen to be an area with low costs, the rates can punish you for that efficiency. This is something CMS is undoubtedly working on.”

    Yes, they have been working on this problem for decades yet politicians (mostly Democrats) keep spreading the notion that all Medicare Advantage carriers are obscenely overpaid, despite the inconvenient truth that in certain parts of the country they are not overpaid (if they weren’t, they would not freeze enrollment in those areas). Discussion around this topic all too often is lacking nuance. The fact is that yes, on average the Medicare Advantage FFS plans are overpaid but on average the Medicare Advantage prepaid (HMO) plans (such as Kaiser) generate costs per enrollee roughly in line with traditional Medicare and sometimes even a couple of percentage points lower.