Luring Customers From Medicare
By Milt Freudenheim
The New York Times
September 22, 2006
For years, private insurers have offered alternatives to the federal Medicare program that are meant to give patients lower-cost options than the government coverage provides.
But suddenly a type of private insurance plan is gaining ground that looks very similar to the basic coverage long available to anyone with a federally issued Medicare card.
And the government is paying the private insurance industry a subsidy of 11 percent per patient, on average, to provide it.
The fee-for-service plans, the focus of the current controversy, are in many ways similar to the government’s own Medicare. Under the industry version, patients have the right to choose their own doctors and hospitals – as they have long been able to do with their federally issued Medicare cards.
And as with the federal program, enrollees in the private fee-for-service plans typically pay a monthly $88.50 premium to the government.
Under the industry plans, moreover, the hospitals and doctors receive the same rates as when they are paid through the basic federal Medicare program.
Experts say that because the administrative costs of providing the private policies are minimal, they represent easy income for the insurance companies, with profit margins of 4 percent or so.
But many see the private fee-for-service Medicare plans as mainly a feeder program in which insurance companies hope to gradually convert members into even more complex, more profitable private Medicare offerings that the government also subsidizes.
The more lucrative plans, like Medicare health maintenance organizations or doctor-network managed care programs, which have been available longer, can yield profits in the 10 percent range, analysts say.
While insurers do run a risk of losing money on a patient if he or she has unexpectedly large health costs, the companies can consult county-by-county Medicare cost data and decide where to offer coverage and which high-cost areas to avoid.
Under Medicare’s complicated rules, though, the amount actually paid to a company for a patient can vary. Around the nation, depending on local medical costs and the health profile of Medicare-eligible residents, the monthly federal subsidy to the insurance company can range from $400 to $2,500, said Dr. Scott Latimer, a Humana executive based in Tampa, Fla.
Marilyn Moon, a longtime Medicare researcher who served as a public trustee of the program… said she was “unconvinced by the logic that says, ‘If we are overpaying the health plans now, they will save us money later.'”
It is a “back-door way of trying to privatize Medicare,” said Dr. Jack Lewin, the chief executive of the California Medical Association.
Comment:
By Don McCanne, MD
Why would Congress do this? They are paying more money to private insurers for the same fees as traditional Medicare and for the same providers (all willing physicians). They also allow them to market exclusively in more lucrative markets. In addition, patients currently in treatment programs will be less likely to change coverage, whereas less expensive, healthy patients may be attracted by potential incentives such as a single package which adds a Part D drug benefit.
Clearly Congress did not intend that the private plans would continue to receive higher rates and continue to indirectly avoid adverse risk. Their intent was to establish painless private Medicare insurance options even though it requires a subsidy. The next step is ominous. Congress will slash the funding of the “unsustainable” traditional program requiring a reduction in provider funding with a massive exit of providers from the program.
Once the traditional program can no longer float (except as an under-funded welfare program), the private insurers will be granted more leeway to keep their products affordable, but not with more government money. What does that mean? The insurance industry has defined affordability to mean higher deductibles and coinsurance, greater premiums, and innovative benefit programs that reduce services covered.
The intent of Congress is not really to encourage more of the abusive practices of the private insurance industry. They passively accept that as being the markets at work (though they will want to see options for comprehensive products in the private market that take care of themselves and their wealthy supporters). Their intent is simply to destroy political support for the traditional program so they can shrink it “down to the size where we can drown it in the bathtub.”
Evil, evil, evil!