Tuesday, May 1, 2007

The Health Insurance Industry Employs Minority Groups to Protect Medicare Advantage Payments--Could They Have Sunk Any Lower?

The Democratic led Congress is looking hard at cutting payments to insurers participating in the Medicare Advantage business.

With both the Medicare Payment Advisory Commission (MedPAC) and the Congressional Budget Office (CBO) saying the private plans are overpaid by billions of dollars (the CBO says by $54 billion over five years) these HMO payments are a tempting target for Democrats looking to reverse the scheduled 2008 10% Medicare physician fee cut and find money to reauthorize the State Children's Health Insurance Program (S-CHIP).

With literally billions of dollars of health insurer profits at stake over these cuts, the health insurance industry trade association has pulled out all the stops to undermine Democratic attempts to go after these payments. The latest is the enlisting of the NAACP and the League of Latin American Citizens (LULAC) to support the higher Medicare HMO payments because they afford poor people who sign up for the private plans more comprehensive coverage.

Sarah Lueck had a terrific story on this topic on the front page of Monday's Wall Street Journal that is worth a read.

Let's first get a couple of things out of the way.

Everyone in the health insurance industry knows two things:
  1. There are extra Medicare Advantage payments. The extra money isn't necessarily a bad policy. After the big Medicare HMO cuts in 1997, the industry had all but given up on the private Medicare market and money was needed to "prime the pump" and get HMOs back in the business to prove the private market had a place in Medicare. After the industry withdrew its plans in so many markets, seniors also had to be enticed back to the alternative programs. These extra payments might not be defensible for the long term, but there is a logic to the "prime the pump" strategy.
  2. If there are cuts, the for-profit HMOs, who dominate this business, are going to cut the extra benefits to seniors before they forgo profits and disappoint Wall Street.
I don't have a moral issue with the number 1. We can argue about whether the market can do a better job than the private sector all day long. A reasonable, if debatable, point can be made to support the "priming the pump" strategy to entice the market to enter the business and prove whether or not the private sector can better manage health care then the traditional Medicare program.

My problem is that it is clear the health insurance industry trade association hasn't made the second point clear to the minority community it is so aggressively recruiting to defend it.

Will Medicare Advantage payments be cut? Highly likely. The only real question is when and by how much? Pete Stark would like a 10% to 12% cut now--the amount generally regarded as the "extra" payment.

But with Republicans, and moderate Democrats like Senate Finance Chair Max Baucus wanting to proceed more carefully, Stark won't get all he wants. He will have to compromise.

In the end, House and Senate budget negotiators will cut some amount from the Medicare HMOs. The Congress just needs a lot of money for the Medicare physician fee fix and S-CHIP and they can find it in the Medicare Advantage payments. It is unlikely the cuts will be the full 12% and it is just as unlikely there will be no cuts. In Washington, the safest bet is that the cuts will come somewhere in the middle.

That's the third thing everyone is expecting--there will be a compromise on the size of the cuts Medicare HMOs get.

Even a 5% or 6% "splitting the difference" cut will cause the industry to have to make a choice:
  1. The Medicare HMOs could cut senior benefits in order to maintain profits--and please Wall Street.
  2. The Medicare HMOs could cut profits and maintain the extra benefits for seniors--and please the NAACP and the LULAC.
Guess which one the for-profit HMOs are going to choose?

You see, everyone in the health insurance industry already knows these things.

That is why the health insurance industry trade association's "minority strategy" is so disgusting--and disingenuous.

It's one thing to play hardball politics in defending your constituency. It's one thing to make "strange bedfellows" in advancing your political agenda.

But, this is just about as low as it gets.

Maybe the NAACP and the LULAC ought to ask their new friends in the health insurance industry trade association what they are going to do if it comes down to a choice between the minority community and Wall Street.
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