News Release
Congressman Pete Stark
September 21, 2001
Rep. Pete Stark Statement on Medicare HMOs’ Abandonment of America’s Senior Citizens and Persons with Disabilities”
Congressman Pete Stark:
“Independent analyses have long shown that we over-pay private plans under Medicare, relative to what their costs are. Just last year, we enacted legislation that gives Medicare HMOs an additional $32.5 billion over the next 10 years. We are told that it would go into extra benefits, but it has not. Instead, it is lining shareholder and CEO pockets, while Medicare beneficiaries are again left in the lurch. It is unconscionable to spend more of our scarce resources on this part of the program when millions of Medicare beneficiaries lack coverage for prescription drugs. We need to be working to improve Medicare for all beneficiaries.”
Comment: Increased funding of Medicare HMOs is an issue that has survived the reshuffling of legislative priorities. House Ways and Means Chairman Bill Thomas, on September 21, released a statement that indicates that they intend to move forward with legislation that would increase funding for Medicare HMOs. This is with the concurrence and support of Thomas Scully, Administrator of the Centers for Medicare and Medicaid Services (CMS, formerly the HCFA).
The Ways and Means Committee release is available at:
In spite of misleading rhetoric, the facts are not in dispute. Initially, Medicare HMOs were successful in directing marketing to a relatively healthy subset of Medicare beneficiaries, thereby escaping much of the economic burden of higher cost, less healthy patients. Since they were awash in unspent taxpayer dollars, they were required to either return the excess funds, or spend them on patients or on their own industry. Thus those that joined HMOs experienced greater benefits, especially the inclusion of pharmaceuticals, and lower out-of-pocket expenses. And there were still plenty of funds left to enrich the shareholders and administrators of these plans. But studies did confirm that the taxpayers were not receiving value for this investment because of diversion of funds away from patient care and into inefficient, private health plan bureaucracies.
In response, Congress slowed the rate of increases in payments to HMOs. In the meantime, their HMO patients were growing older and more expensive, squeezing the profit margins for the HMOs. Congress then granted additional funding, but not enough to allow the HMOs to continue with their extravagant bureaucratic wastes. Thus HMOs continue to withdraw from unprofitable markets. As a result, those Medicare beneficiaries that joined HMOs are losing the extra benefits of pharmaceutical coverage and lower out-of-pocket costs.
The response of Rep. Thomas and others is to support legislation that will provide funding for these benefits, and provide adequate profit margins for the HMOs. There are two very important issues here. One is that they are perpetuating an inefficient system that is wasting taxpayer funds by diverting them away from patients and into the HMO industry. This violates a fundamental duty of Congress to reduce waste of taxpayer dollars.
The other issue relates to the fact that Medicare beneficiaries should have pharmaceutical coverage and lower out-of-pocket costs. But that should apply to all Medicare beneficiaries, not just to HMO plan members. Thomas and his colleagues want to limit those benefits to individuals that will join the organizations owned by his friends in the industry. What better marketing leverage could you have than to provide a gift of taxpayer funds to managed care companies for extra enticements for patients, while prohibiting the entitled patients that remain in the more efficient, traditional Medicare system from receiving those same benefits?
Medicare was established as an equitable system. It is a blatant abuse of the legislative process to end equity by granting tax payer funded enticements to be used for unfair marketing advantage of an abusive managed care industry.
Congress has a moral obligation to correct both of these wrongs. They need to end the waste of taxpayer dollars diverted to inefficient private bureaucracies. And they need to assure equitable access to care for all Medicare beneficiaries by preventing financial barriers to care. They can do this best by adding a pharmaceutical benefit and by reducing out-of-pocket expenses. If they did this, the superfluous HMO bureaucracies would go away. Then maybe we’ll be ready to seriously consider Medicare for All.
