Wall Street Relieved Democrats Unable to Cut Private Medicare Advantage Payments This Week--Why?

Congressional Democrats tried to take a big bite out of private Medicare this past week in an attempt to pay for an 18 month fix to the upcoming July 1st 10.6% reduction in Medicare physician payments.

The effort, led by Senate Finance Chair Max Baucus (D-MT) got only 54 of the 60 votes he needed to end debate and move the issue to a floor vote. While getting that floor vote would almost have certainly meant passage of the bill in the full Congress, President Bush would have vetoed any attempt to cut the payments to private Medicare plans and the Dems would not have had the votes in either chamber to override.

Now, Baucus and Senate Finance Ranking member Chuck Grassley (R-IA) will have to find a more modest way of fixing the doc problem––likely for just six months. The docs are not going to suffer a Medicare payment cut this summer.

All of this was expected and is what I have been saying for months would happen.

A temporary fix to the Medicare physician payment problem--the docs will be facing a 15% cut on January 1, 2009--will just shunt the problem off to next January. After January 20th, George Bush will be gone. Barack Obama will have no problem signing a bill with big Medicare Advantage cuts in it. John McCain was one of only a handful of Republican Senators who voted against the Medicare Modernization Act, that created this version of private Medicare, in the first place.

This time, Baucus only tried to nail the private-fee-for-service (PFFS) version by making the relatively reasonable proposal that PFFS plans develop provider networks by 2011 in all but the most rural markets. Since PFFS was only supposed to be a transitional product to real network plans when it was first created in 2003, that's hardly an unreasonable idea. But Bush would have vetoed even that.

Next time around, with a more willing President sitting down the street, the Democrats aren't going to be so generous. The health insurance industry would have been smart to take this deal. But even so incremental a deal as this would have badly hurt the PFFS guys who have been gaming the system with their inch deep and a thousand miles wide strategies for penetrating the private Medicare market.

Sooner or later the mainstream Medicare Advantage insurers are going to cut the PFFS guys loose, who have been gaming this system, in order to save what the program was supposed to be in the first place.

It's not clear to me what Wall Street is so relieved about.