Medicare Advantage Organizations: Actual Expenses and Profits Compared to Projections for 2005

GAO
June 24, 2008

On average, MA organizations’ self-reported actual medical expenditures as a percentage of revenue were lower in 2005 than they had projected. MA organizations, on average, reported spending 85.7 percent of total revenue on medical expenses in 2005, but had projected medical expenditures of 90.2 percent of total revenue. Because organizations spent less revenue on medical expenses than projected, they earned higher average profits than projected. On average, MA organizations’ self-reported actual profit margin was 5.1 percent of total revenue, which is approximately $1.14 billion more in profits in 2005 than MA organizations projected.

http://www.gao.gov/new.items/d08827r.pdf

And…

Medicare Cloture Narrowly Fails

By Drew Armstrong
CQ Politics
June 26, 2008

It now looks certain that doctors will take a deep cut to their Medicare payment rates next week, after the Senate failed to move forward on a take-it-or-leave-it Medicare bill offered up by Democrats.

The White House reiterated its veto threat against the bill on Thursday, likely making moot the narrow victory that seemed possible for Democrats. The administration opposes a provision that would partially offset the cost of the bill by cutting some bonus payments to private Medicare Advantage plans in areas with teaching hospitals. It also disagreed with a provision to limit a subset of the plans known as “private fee for service,” saying the bill would “reduce access, benefits, and choices for many of the approximately 2.25 million beneficiaries who have chosen to enroll in” those plans.

The Medicare Advantage plans are paid at a higher rate than traditional Medicare, and Democrats have long argued that the private plans’ rates should be cut.

The Bush administration and many Republicans argue that the plans inject private competition into the market and will eventually lower costs.

The House passed the measure two days ago, 355-59, in a vote comfortably more than the two-thirds majority that would be needed to override a presidential veto.

http://www.cqpolitics.com/wmspage.cfm?docID=news-000002907388&parm1=1&cpage=1

The political defeat of the measure to prevent Medicare pay cuts for physicians was not partisan. Enough Republicans joined Democrats in the House to form a veto-proof majority in support of the legislation. Though many Republicans also joined the Democrats in the Senate, they came up one vote short on cloture. Sens. Obama and Clinton interrupted campaign activities to vote, but Sen. McCain was a no-show.

This was a victory for conservative/libertarian ideologues who wish to destroy the traditional Medicare program and replace it with private health plans. Their first step was to use taxpayer funds to overpay private Medicare Advantage plans so that patients would be attracted by the greater benefits that could be offered (benefits that in all fairness should be offered as well to those remaining in the traditional program). The next step is to reduce compensation in the traditional Medicare program so that physicians will bail out. Fee reductions of about 40 percent are scheduled over the next couple of years, which should accelerate the physician exodus. That would convert Medicare into an underfunded Medicaid-type welfare program, with patients fleeing to the private options.

The eventual surprise that Medicare Advantage beneficiaries are not anticipating is that it will be converted into a defined contribution program with the costs of health care inflation being shifted to the patients’ portion of the Medicare Advantage premium and to other out-of-pocket cost sharing.

Fortunately, many Republicans do support the social solidarity represented by Medicare. They are offended by the efforts to waste taxpayer funds on the excesses of private insurers in a nefarious plot to destroy the best health care financing program we have (though it needs further improvement). Joining with the Democrats, these Republicans will surely do the right thing when they return from their recess. Sen. McCain will also have another opportunity to dispel the claim that he offers us only four more years of Bush policies.