Medicare Advantage Premiums Drop an Average of 7% and Enrollment up 10%—That Must Make Republicans Just Want to Cry

Medicare Advantage would appear to be a fantastic success—senior premiums are dropping and enrollment is increasing.

Listening to Health and Human Services Secretary Sebelius last week, you would think private Medicare plans were a Democratic idea and this is their success. Many industry observers, including me, have worried that Medicare Advantage benefits would shrink and premiums would rise because the new health care law reduced federal payments to the plans by $136 billion over the next decade.

“The Medicare Advantage program is stronger than ever,” said Secretary Sebelius. “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”

Of course, privatizing Medicare has always been a Republican idea and most Democrats would like nothing better than to kill it dead out of fear that Medicare Advantage plans will undermine the financial integrity of Medicare—private plans get paid more than Medicare gets for the same enrollees—and that the private plans risk turning the Medicare entitlement into a two-tiered program—one for the rich and one for the poor.

And, Democrats can’t wait to use the Paul Ryan Premium Support plan, which would rely exclusively on private Medicare plans, as an election issue charging that the Republicans want to kill Medicare as we know it.

But instead the Obama administration used last week’s announcement of lower Medicare Advantage premiums and solid enrollment growth as evidence of just how successful they’ve been at running the program and how overdone Republican charges were that the Medicare cuts in the Affordable Care Act would wreck private Medicare.

There is that old saying, “Sometimes it’s better to be lucky than good.”

First, the entire health insurance industry is experiencing an unexpected drop in health care trend rates—costs are escalating far less than expected. When that happens, health insurers generally see their bottom line improve in the form of windfall profits.

What Medicare pays Medicare Advantage plans is a function of the last year’s experience. With the expectation that care costs would be higher than they turned out to be, private plans were inadvertently paid more, as well as charged seniors more, than they needed. That typically goes on for as long as health care cost trend decelerates.

The good results in Medicare Advantage were also helped by the Obama administration, which declared a “Lake Wobegon” moment. They took $6.7 billion intended to be paid as bonuses to the highest quality plans under the new health law and instead declared just about all of them “above average” or better and infused those billions among almost all Medicare Advantage contractors, further improving their bottom lines.

Why did the Democrats who hate Medicare Advantage so much find an extra $6.7 billion for them? Because it’s an election year. Seniors vote and the Democrats very quickly concluded that having seniors lose their private plans, or have to pay more for them because of payment changes due to the new health law, wasn’t going to help their reelection chances in places like Florida.

So, ironically, the Democrats were so scared Medicare Advantage premiums were going to soar that they dumped billions into the program to offset the expected.

But the expected didn’t happen when cost trend came in lower than everyone predicted. The result was even better profit results for the industry, better than expected prices for seniors, and enrollment growth.

Now, Sebelius could have said, “Whoops, we just flooded the health insurance industry with billions they didn’t need.” But why do that when you can take credit for a popular program you really want to kill?

Does this mean Medicare Advantage is out of the woods? No, more like there is a cliff still coming.

First, no more $6.7 billion gifts to the insurance industry from the Obama administration are in the pipeline.

Second, trend can’t keep falling. At best, it will stabilize and erase the windfall profits. At worst, it will start climbing and we’ll have the opposite impact on profitability and pricing.

Third, the $136 billion in cuts to Medicare Advantage the Affordable Care Act makes to the program really doesn't begin for another two years—the new law just froze payments this year at unintentionally generous levels.

Medicare Advantage plans are now benefiting from a perfect storm of good things. In a couple of years, it could be a perfect storm of bad things— no more “Lake Wobegon” payments, rising trend rates resulting in inadequate payments to insurers, and the $136 billion in real cuts finally kicking in.

Until then, we can expect to see President Obama campaigning in front of seniors taking credit for all the good things his new health law has done for Medicare Advantage.

It must make Republicans just want to cry.

The Debate Over Medicare Advantage Funding--The NAACP Goes "Whoops!" and Stark Tries to Start a "Food Fight" Over Who Has to Come Up With the Money

The History--Skip it if you do this everyday.
The Democratic Congress needs billions to offset the 10% Medicare physician fee cuts that will happen on January 1st if action isn't taken and to reauthorize the bipartisan State Children's Health Insurance Program (S-CHIP).

S-CHIP will take at least $15 billion over five years--many Democrats (but not enough) want to expand it for a total cost of $50 billion over five years.

Offsetting the 10% Medicare physician fee cut in full will cost almost $8 billion just in 2008 and as much as $65 billion over five years to fix the problem.

The Congressional Medicare adviser--MedPAC--and the Congressional Budget Office (CBO) are saying private Medicare Advantage plans are significantly overpaid compared to the traditional Medicare program. The CBO says by $54 over five years and MedPAC says by 12%--19% for the private fee-for-service plans.

In recent weeks the health insurance industry has countered these arguments pointing out that private Medicare Advantage plan payments are being gradually reduced anyway because of changes in the payment formula and ongoing payment increases that are less than the cost of medical inflation. They also enlisted the NAACP and a Latino organization to argue that the private plans are great for low income people because of all the extra benefits these additional payments make possible.

As I have said before, many of the longstanding Democratic chairmen, particularly in the House, hate Medicare Advantage because they see it as a conservative attempt to destabilize the original Medicare program through privatization and because they see the extra private payments as just a special interest payoff.

Most people on Capitol Hill look at the Medicare Advantage plans and either see a laudable private market experiment in an attempt to use the market to improve both the cost and quality of Medicare or they see it as a right wing attempt to end the longstanding success they see Medicare has had in creating an efficient universal health insurance pool for all seniors.

The Democratic Congress now controls the budget process and many--but not all--of its leaders see their chance to turn back the conservative onslaught on a centerpiece of Democratic social legislation.

While many Democrats want to cut Medicare Advantage plans and take the money to reauthorize S-CHIP and fix the Medicare doctor payment problems, Medicare (CMS) is well into setting the 2008 Medicare Advantage payments. Most likely, the first time the Democrats are going to be able to get hold of any of the Medicare Advantage money will be for calendar year 2009.

That Takes Us to Where We Are Now.
Ethanol, Medicare Advantage, and Corporate Welfare
The health insurance industry's attempt to invoke the likes of the NAACP, in a bid to argue that we need to pay Medicare Advantage plans more than the traditional Medicare plan because it is good for poor people, has resonated inside the Beltway about as outrageously as it always appeared on the surface.

Ethanol comes to mind. Ethanol, just like private Medicare plans, began as a noble experiment by government to solve a national problem--this time energy independence. But where has the federal ethanol program evolved to? Corporate welfare. There is all kinds of evidence to indicate we aren't going to work our way out of our energy problems by growing more corn. But which presidential candidate warming up for the Iowa caucuses is going to say so?

Fast forward to Medicare Advantage--a noble experiment to determine just how effective the private market can be in bettering the government program by giving seniors better cost and quality. Four years after the Medicare Modernization Act, that rejuvenated the private Medicare Advantage program, where are we? Are the health plans putting lots of data on the table showing us just how much smarter and more effective the market is?

No. The health insurance industry trade association has the NAACP telling us insurance companies are the minority communities' best friend--we need to keep overpaying the private plans because that's the best way to give poor people more comprehensive benefits.

The health insurance industry trade association--instead of defending this experiment by showing us how much better the private market can deliver health care--is falling back on one of the more convoluted defenses of corporate welfare (a rationalization to continue the high profit private plans) we have seen in some time.

As I said in an earlier post, I hope the NAACP has asked the insurance industry what it will do if there are some cuts and the for-profit health plans have to make a choice between continuing to provide these extra benefits or keeping Wall Street happy by protecting profits (and cutting benefits).

Whatever the NAACP has or hasn't asked, they are back-peddling on their alliance with their new corporate health care allies. In a May 14 "clarification" letter, the NAACP told Congress the organization understood "hard choices" will have to be made under the Democratic "pay-as-you-go" rules. In a related interview, an NAACP spokesman said that Medicare Advantage has been a "good program" but that the "vast majority of African-Americans benefit from the traditional Medicare program."

Sounds like a big "Whoops!" coming out of the NAACP as they repair some fences with the likes of the letter's recipients--the key Democratic chairmen.

The Food Fight
The fight over where the money is going to come from to fix the Medicare physician fee cut and reauthorize S-CHIP got even more interesting this week.

House Ways and Means Health Subcommittee Chair, Pete Stark, effectively told the hospital industry he was going to cut their Medicare payments to come up with some money if the hospitals didn't join in on the effort to get the money out of the private Medicare Advantage plans.

The president of the American Hospital Association, in a written statement, told Stark, that private fee-for-service plans that do not provide care management services should receive payment "adjustments." However, in "those instances where plans are providing actual management services...payments above fee-for-service may be appropriate."

Stark responded by telling the hospitals that they have to be clear on their priorities--I translate that as do you (hospitals) want to be cut or do you want to help me cut the insurance plans?

That's not an entirely clear choice for the hospital industry since they often get more from a private Medicare plan than they do from the government-run Medicare plan.

Add to this all of the bad publicity over Medicare Advantage marketing abuses and the attendant Congressional hearings and the Democratic counteroffensive is in high gear.

The Democrats are now clearly playing hardball:

• Someone on the Democratic side has obviously explained some things to the NAACP.
• There is no doubt the hospital industry is being told they have a choice--you or them.
• The marketers of Medicare Advantage are now under a national press and Congressional oversight "microscope."
  

An industry friend heavy into this business warned me the other day I had better be careful with all my criticism of the way the industry is playing this because I was in the middle of a "very political minefield."

Damn right this is a big political minefield and my friend may now be undergoing a practical demonstration in how this all works. This was never going to be as easy as arguing that the big payments were always intended for the poor people.

It always helps to defend your policies on merit. Merit may not always carry the clout it should in Washington, but it never goes out of style--no matter who's in power.

Separately, there are unconfirmed reports that Stark is going to seek to cut $23 billion in Medicare Advantage payments over five years. That would be about half the "excess" payments the plans are supposedly getting.

Enough for the plans to have to choose between cutting benefits or cutting profits.

NAACP take note. This may be a good time to ask that question.

May also be a good time for a merit offensive on the part of the health insurance industry.

But then, I don't understand this big league political stuff too good.

If Medicare Advantage Rates Are Going to Be Cut, Why Have the Big Medicare HMO Stock Prices Been Up Since the Election?

That question came from Matt Holt today over at his blog: The Health Care Blog.

Good question.

As any regular reader of this blog knows, I have been arguing that the Democratic Congress is going to cut Medicare Advantage payments to HMOs as soon as they get their hands on the federal budget.

If that is a good bet, why wouldn't Medicare HMO stocks be reflecting that risk? Instead, they have generally been up nicely in value since the election.

It is also notable that Wall Street analysts have estimated that Medicare Advantage HMOs will receive a 3% to 4% payment increase in 2008--based upon the payment policies instituted by the Republican Congress.

In fact, a number of key managed care analysts just reaffirmed their confidence in the Medicare HMOs. Matt Perry of Wachovia recently wrote, "We view 3% as a reasonable increase that will sustain membership growth and margins for most plans in 2008." Carl McDonald of CIBC wrote that some Medicare Advantage plans might have to reduce benefits a bit because health care inflation will likely be more than 3% to 4%, "which means products will not be as attractive as they are this year." Matt Borsch of Goldman wrote, "It appears likely that the 2008 MA rate increases will lag medical-cost trend, implying a modest level of benefit reductions and/or member-paid premium increases will be needed to maintain profit margins." However, "We continue to believe that the [Medicare Advantage] program will provide strong growth for managed care companies in 2007 and 2008." (Source: Kaisernetwork.org 2/22)

So, Wall Street would appear very confident that Medicare HMO payments will continue at minimal, but adequate, levels in 2007 and 2008. Based on the fantastic Medicare Advantage profits reported by the Medicare HMO players in 2006, they apparently feel confident the Medicare Advantage growth and margins will remain strong through 2008.

However, all of this is based on CMS continuing to pay the HMOs from the Republican payment base.

Apparently, these analysts don't think the Democrats will be able to cut Medicare Advantage payments presumably because they think the number of seniors enjoying these plans constitute a powerful political force and because George Bush will still wield a powerful Presidential veto until January 2009.

I will counter that they don't know Pete Stark, John Dingell, Charlie Rangel, and Ted Kennedy very well. They also don't understand the power committee chairmen have in the Congress--particularly late in the budget process. They also don't seem to understand how badly the Democratic Congress needs the Medicare Advantage "over payments."

The CBO report yesterday, estimating these "over payments" to be worth $65 billion over five years, just put the icing on the Democratic cake.

Wall Street needs to do a better job of factoring in the political risk to Medicare Advantage plans:

• A Bush veto will do the MA plans no good --an earlier post.
• Why the Democrats Hate Medicare Advantage Plans--an earlier post.
• Why the Democrats need the MA money--an earlier post.

The Democratic Congress certainly won't be able to impact 2007 Medicare Advantage payments making the next few quarters almost certain to look good for the Medicare HMOs. It may also be that the Congress won't be able to impact 2008 payments since that process will pretty much be put to bed by this summer. But maybe not--the Congress makes the rules and the Congress can change the rules. And, then there will be 2009--maybe the first real Democratic budget year for the HMOs.

Whey are the HMO stocks doing so well in the face of these Medicare Advantage political risks?

Short-term versus long-term.

Since when did Wall Street care about the long-term?

Medicare Advantage HMO Stocks Down Big This Week

Matthew Holt, publisher of the Health Care Blog, and I have been in a state of incredulity over Wall Street’s head in the sand view of the Medicare Advantage business for more than a year. See his post today, "I Don't Really Understand Wall Street, Part 98."

Why was it that in the wake of a Democratic take-over of Congress in 2006 and Obama’s victory last November that HMO stocks heavily invested in the Medicare Advantage business had not paid a bigger price for betting the Republicans would still be in power in 2009?

This week, HMOs disproportionately invested in Medicare Advantage, like Humana and Universal American, were down 30% on top of their already huge plunges from their 52-week highs. Two things drove the loss of confidence this week. First, CMS said that the Obama administration would begin the cutting in 2010 by announcing a much lower 0.5% increase in the National Per Capita Medicare Advantage Growth Percentage. The market was expecting the Obama administration to be as generous as the Bush folks and announce a 3% to 5% increase.

Then the first Obama budget was announced and, guess what, the administration put $177 billion in Medicare Advantage cuts into it. Not like the new President hadn’t told us he would do this, maybe two or three hundred times, during the campaign.

In January 2008, in a post, Medicare Advantage Cuts? I said, “From the looks of Medicare Advantage-heavy HMOs' share prices, there's apparently lots of sand on Wall Street and a great many people have their heads buried in it.”

On the very first day this blog went online in a December 2006 post called, The Democrats Will Change MedicareAdvantage I said, “What many of these financial analysts on Wall Street don’t understand (Humana is trading at the highest price/earnings multiple in the HMO industry) is that, to the Democrats, this is not just about a fair funding level for private Medicare plans and whether they want to risk messing with them. It is about deep-seated ideological objections.”

I also said in that 2006 post, “In fact, Goldman Sachs analyst Mat Borsch came out with a positive report on Humana, a company that has been particularly aggressive in the Medicare market. Borsch said that while it is possible Democrats would change the Part D program, 'the odds of substantial change to the Medicare Advantage plan program (which is what really matters to Humana) are remote.”

But here is what Barron’s is reporting the analysts are saying this week,

In a note today [February 23, 2009] downgrading both HealthSpring and Humana, along with $575 million Universal American Corp. (UAM) to “Underperform” from “Market Perform,” BMO Capital analyst Dave Shove writes today that Medicare’s profitability growth “will all but disappear” as a result.

Medicare programs will see “significant” reductions in enrollment in 2010 and a 1.5 percentage-point drop in profit margins, writes Shove, and the movement of many of the insured to public programs away from private Medicare coverage. The last time HHS “dealt a crushing blow to Medicare Advantage capitation rates,” in 2000, writes Shove, “the program lost roughly 10% of enrollees in the first year, and bottomed out with 22% participation loss over a three year span.” (Bear in mind, the capitation rates statement is preliminary: final rates will be decided on April 6 and could potentially be higher, meaning, more profitable.)

All three companies have the greatest exposure to Medicare among managed care as a percentage of earnings. “We believe that budgetary strain and sentiment shift on Capitol Hill will cause 2010 [Medicare Advantage] plan changes to drain the profitability from the program,” writes Shove.

Wall Street now seems to think the Obama health plan budget is a threat to the Medicare Advantage business.

It is not.

But since Wall Street hasn't listened to me for two years, I am not going to tell them why!

Here's a hint: Medicare Advantage Payments to Insurers--Baucus Zeroing In!

The Medicare Fee-For-Service Product is a Kamikaze Flight for Health Insurers--But Are the LBO Guys Interested in Humana Anyway?

There is plenty of speculation over just what the Congress will do about Medicare Advantage payments to health plans.

I have posted on this many times before.

To summarize, I believe:

• Medicare Advantage payments to health plans will not be cut by the Congress for 2008.
• But health plans will suffer some relative Medicare Advantage payment decreases in 2008 because the average 3.5% increase the plans are scheduled to get is less than the approximately 5% senior costs are rising.
• The Medicare Advantage plans will likely be able to compensate for these minor adjustments by making benefit reductions.
• The first year the Congress can dramatically impact Medicare Advantage rates is 2009, since CMS will have set the 2008 rates with the health plans prior to the Congress finalizing the next budget late this year.

But make no mistake, the Congress will make measurable changes to Medicare Advantage payments for 2009.

Key House Democrats really want to hit the Medicare Advantage plans hard to pay for S-CHIP reauthorization and to reverse much of the 2008 10% Medicare physician fee cuts that are set to take place without Congressional action.

Senate Democrats are inclined to make 2009 payment adjustments but are not interested in scuttling the Medicare Advantage plans. Democratic Senators like Max Baucus and Ron Wyden stand out in that category.

When the day is done, House Democrats will want big cuts and Senate Democrats will be more moderate in their approach. The result will be compromise cuts for 2009 that will be measurable and will cut into both benefits and profits.

But I will tell you where even the moderate Democrats are not going to be defending private Medicare--the private fee-for-service plans.

Everyone, in Washington and the health insurance industry (in their off-the-record moments), see Medicare Advantage private fee-for-service plans as nothing more than an arbitrage play. Initially created as a transition plan, there isn't any evidence any of the plans are using these programs to do anything other than grow profits.

No one on the Democrat side is going to defend fee-for-service Medicare Advantage plans (and maybe not a lot of Republicans either).

Yet, health plans continue to announce plans to expand their Medicare private fee-for-service products, in may cases in markets where they don't have the "upstream" network Medicare Advantage plans.

With the Congress poised to go after private fee-for-service Medicare plans, such a strategy is nothing but a Kamikaze flight!

We are hearing that there is speculation on Wall Street that the biggest Medicare fee-for-service player, Humana, may be of interest to the leveraged buy-out guys. The reasoning goes that Humana's profits are really out on a limb because of their focus on Medicare Advantage, and especially their emphasis on their fee-for-service product, with the Democrats wanting to cut both. Therefore, getting taken out sooner rather than later makes sense for them. The speculation goes on that with such a high stock multiple, and the political risk, no competitor would be dumb enough to pay a premium on the existing stock price to take them out. That leaves the LBO players who have more cash and access to debt than they know what do do with.

An interesting, if only highly speculative, scenario.

Do you know of any LBO guys who have their pilot's license?

Bush Defends Medicare Advantage Plans--That and Five Bucks Will Get You a Six Pack

President Bush will shortly release his new budget. He will cut $70 billion from Medicare--largely from providers--and leave Medicare Advantage payments unchanged.

President Bush's budget is about as close to irrelevant as it can be. The Democratic Congress will start from scratch.

Doctors and hospitals have enormous clout on the Hill. Just as doctors have been able to protect their Medicare fees from the regular 5% "Sustainable Growth Rate" cuts so many years in a row, they will do so again. Democrats are just as close to the provider lobby as were the Republicans. If Republicans couldn't make these hard Medicare provider choices on the budget how does anyone expect the Dems to do so????

One of the more laughable contentions circulating in Washington today is that the Bush veto is going to protect Medicare Advantage plans from payment cuts. All you have to do is look at how the year-end "omnibus reconciliation" process works to know his veto will do no good once the Dems figure out just how much money they need from Medicare Advantage.

Last December, the Republican Congress wrote one giant "omnibus reconciliation" bill that combined 19 tax cut extensions, three trade bills (Andes, Vietnam, and Sub-Saharan Africa) and I don't know how many hundreds of other items. They also dropped a $7 billion cut to the Medicare Advantage stabilization fund into the final budget bill to override the "Sustainable Growth Formula" 5% cut to Medicare physician doctor fees for one year.

Congressional chairmen have enormous power to decide what is going to be in this last budget reconciliation bill. There were many things in last December's bill that never passed either house of Congress--like the health savings account (HSA) enhancements that became law in this bill.

Last year it was Republican chairman that drove the process. This year it is all Democratic chairman--and some very liberal Medicare Advantage haters at that (Dingell, Rangel, Stark, Kennedy).

My point is that if the Dems want to cut Medicare Advantage "over payments"--and they do--they can get them in the final "omnibus" package. If Bush wants to veto this year's package with this year's tax cuts, trade agreements, and the rest, he can. But the Dems will be smart enough to lard it up with things he has to have in order to protect the things they want.

Would Bush veto the whole final budget bill over Medicare Advantage payments and force a government shutdown-style show-down just to protect the extra Medicare Advantage payments? Dream on.

Get over it, Medicare Advantage payments are going to be cut!!!!

Don't bother to even read the Bush budget. This "lame duck" President is finished.

My post on why the Dems will change Medicare Advantage.
My post on how Medicare Advantage cuts will be used to fund the budget.
My post on why the Bush tax credit proposal will not be enacted anytime soon.

A Flawed Defense of Medicare Advantage

If private Medicare is to be continued proponents had better make better arguments than Scott Gottlieb made on Tuesday's Wall Street Journal op-ed page.

Gottlieb is a former Bush Administration CMS official and is currently at the American Enterprise Institute.

The context of his arguments is that this week Congress is debating making cuts to the private Medicare Advantage program in order to pay for deferring a 10.6% physician fee cut that is set to begin on July 1.

A number of sources have estimated that Medicare Advantage plans are paid 13% more than traditional Medicare pays for similar seniors--the private fee-for-service (PFFS) product gets 17% more.

Since you can't access the op-ed unless you have an electronic subscription to the WSJ, here are his key points:

• "The crucial question is where the controls [on our health care system] should be – with patients working through private plans or with government agencies. While private health insurance is imperfect, there's a misguided faith in Medicare's superiority that rests on flawed assumptions."
• "First, there's a mistaken belief that Medicare is better staffed than private plans, and can therefore make better decisions about patients' clinical circumstances and the access to new therapies they should have. Yet at any time, Medicare has about 20 doctors and 40 total clinicians (including nurses) inside the coverage office, and fewer than a dozen in the office that sets the rates that doctors are reimbursed for the care they provide. Private insurers employ thousands of doctors, nurses and pharmacists, many experts in new technologies."
• "Recent data from Price Waterhouse Coopers found that private plans spend roughly four times more than Medicare on "consumer services, provider support, and marketing," which includes money spent answering the telephone to adjudicate individual issues. Smaller health plans use one clinician for every 10,000 beneficiaries. Medicare would need 4,500 clinicians to keep pace."
• "If Democrats have their way these plans could be in for big cuts. If Congress does nothing before July 1, doctors in Medicare will take a 10.6% cut in their pay. To stop that from happening Congress will likely raid Medicare Advantage and use the money saved by cutting that program to cushion the blow to doctors. What terrifies members is facing constituents over the July 4 break who will be upset about rising co-pays and uncertainty about their coverage. The question is how big of a bite the House and Senate will take out of Medicare Advantage. But cut they will, because Medicare Advantage plans enable competition that serves as a model for shaping Medicare into a privately run system."

Gottlieb's points can be summarized as:

• Private Medicare spends more on its health insurance product than Medicare does and that makes it better.
• If Congress cuts Medicare Advantage seniors will be mad.

His first point, that HMOs spend much more on "consumer services, provider support, and marketing" is tantamount to General Motors arguing it spends a lot more to build a Chevy than Toyota spends to build a Camry and therefore you should buy the Chevy. So?

The real question is just what do we get for the money spent--What's the return on investment in better cost and quality for the money our government spends on either private Medicare or the traditional plan?

If the HMOs really want to effectively defend Medicare Advantage they need to demonstrate value. Where is the industry data showing that after five years in this recent version of Medicare Advantage, and 20 years all told in the program, the private sector delivers a better cost/quality result?

Gottlieb's second contention, really a warning to members of Congress getting ready to vote, is that they risk upseting seniors in the private programs now getting lots of extra benefits because of the big private plan payments: "What terrifies members is facing constituents over the July 4 break who will be upset about rising co-pays and uncertainty about their coverage."

So he is arguing that Medicare Advantage plans should be paid more so the seniors in them can get better benefits? If seniors getting better benefits is a good idea why must that be confined to just the private plans?

The extra private Medicare payments (13% generally and 17% for PFFS) were intended to be a "prime the pump" strategy to get insurers and seniors interested in these plans in order that a sufficient market scale could be created to give the private strategy a chance to work.

Gottlieb now seems to be arguing in favor of a permanent private health plan entitlement. This isn't any different than the HMO trade association rolling out the NAACP last year in favor of continuing the extra payments indefinitely arguing extra payments for HMOs are a good way to provide better benefits for poor people.

What troubles me even more about Gottlieb's arguments is that he never makes a distinction between the mainstream Medicare Advantage products and the private fee-for-service (PFFS) version.

The PFFS products are too often a simple arbitrage of the Medicare payments system as a few health plans simply take advantage of the most generous payments never intending to build real networks. These "inch deep and thousand mile wide" players are just playing games with Medicare rather than really investing to create a better cost and quality outcome.

It is from these PFFS plans that the Democrats want to get most of the money Gottlieb is protesting. Just how does he rationalize these PFFS plans and the Democrats proposals with his contention that, "private plans spend roughly four times more than Medicare on consumer services, provider support, and marketing?"

I actually thought that Senate Finance Chairman, Max Baucus (D-MT), made the health plan industry a great offer this month that they should have taken. First, he did not propose making any significant cuts to the program. Most of his savings would have come from a requirement that the PFFS players would have to convert their programs to networks over a two year period--which is what the "prime the pump" strategy was supposed to be anyway!

Instead the health plan industry rejected that deal likely throwing the whole debate over to 2009 when the next President and Congress are likely to make even bigger changes--likely impacting more than just the PFFS players. If they had taken the Baucus deal, Congress might well have left the private Medicare program alone for a number of years more. Maybe not--but just what did the mainstream plans have to lose? Clearly, they would have resolved the most controversial part of the program.

One has to wonder just how long the mainstream health plan industry is going to protect the "inch deep and thousand mile wide" PFFS guys and in doing so putting at serious risk the standard Medicare Advantage program.

If the health plan industry is relying on Gottlieb to speak for them on why private Medicare needs to be saved, I'm not optimistic.

By the way, even House Republicans didn't buy Gotlieb's arguments--the House voted 355-59 yesterday to do the Baucus deal.

An updated Baucus/Grassley deal is pending in the Senate and I firmly believe there will be lots of health plan execs that will be wishing later in 2009 they would have taken the first Baucus deal and thrown the "inch deep and thousand mile wide" PFFS players under the bus in order to insulate mainstream Medicare Advantage when they had the chance.

Will Medicare Advantage Payments Be Cut as Soon as 2008?

That's the question a poster asked today and it has been an issue on my mind. So I will address it here.

First, CMS has already started the rate setting process for 2008 and will have it finalized by early September. While the Congress makes the rules and can do anything it wants, it would be very difficult to change the 2008 deal with the private sector after early September.

The only way we would get a 2008 cut is if the Congress reauthorized S-CHIP and used private Medicare Advantage cuts to fund the cost of that program. Under the Democratic rules, the Congress will have to come up with either new taxes or budget cuts to offset any spending on S-CHIP.

Since S-CHIP has to be reauthorized by September 30th, you can see the possibility of a Medicare Advantage cut taking place before the 2008 Medicare Advantage rates are finalized.

Most in the Congress--Democrats and Republicans--would like to use an increase in the tobacco tax as the means to fund S-CHIP reauthorization. The reauthorization process is going to begin in the Senate and move to the House. The Senate Finance Committee wants to take the issue up in the next couple of weeks.

Republican Senate Majority Leader, Mitch McConnell, all but conceded the votes are there to do it with a tobacco tax increase in comments he made this week.

There is more interest in cutting Medicare Advantage to pay for S-CHIP in the House.

S-CHIP reauthorization will eventually get done but it won't be any kind of slam-dunk. The hang-up will be in the details. The Bush administration, and most conservatives, are upset that states have gone beyond the original intent and gone on to cover children in families making up to 350% of poverty and also covering adults. There will be a lot of arm wrestling around just what the new rules will be. Ironically, the Bush administration is still approving state exemptions to cover these "extra" people just as they complain about state action (on May 30th for Wisconsin, for example).

Also, if Democrats were to pass an S-CHIP reauthorizaton bill it will be a standalone bill. That would be subject to a Bush veto. You will recall that I have pointed out that the place Medicare Advantage payments are most at risk is in the year-end "omnibus" budget bill. That is usually loaded up with dozens of big items and is the sort of thing that would be very difficult for the President to veto.

Democrats need lots of money at year-end to counter the automatic 10% Medicare physician fee cut and to offset come possible hospital and other provider cuts. The Medicare Advantage cuts are the logical source for this money.

So, after all that background here's where I see things:

1. In the end, it will be better for the Dems to leave the Medicare Advantage payments alone and fund S-CHIP with only a tobacco tax.
2. Their best shot at getting hold of the Medicare Advantage money is in the final omnibus budget bill (at the end of the 2007 session) that is almost entirely controlled by the key House and Senate committee chairs (most of which hate Medicare Advantage). That bill will be far more insulated from Republican meddling and a Bush veto because it will be larded-up with lots of things Congressional Republicans and Bush will want.
3. If Medicare Advantage is cut in the final omnibus bill--and I think it will be--then the first impact on the program will be in 2009--the Congress will reach forward for those cuts and bring some of them back into their multi-year calculation.
4. Now here's my caveat--anyone interested in this issue needs to watch the S-CHIP bill's progress very closely. What is troubling to me is how poorly worked out the S-CHIP reauthorization outline is. The people in the middle of all of this really don't know how they are going to get it done yet.

When the day is done, I believe Medicare Advantage cuts will come in the year-end omnibus bill. I also think the recent MedPAC recommendations offer a reasonable template for how that will happen.

Senator Max Baucus Is Crucial to the Health Insurance Industry's Continued Medicare Advantage Funding--But How Sympathetic Is He?

Everyone knows that House Ways and Means Subcommittee Chair Pete Stark is the Medicare Advantage program's biggest high-powered Congressional critic.

The view of Medicare Advantage health plan payments, particularly for the controversial Private Fee For Service (PFFS) program, is more moderate in the Senate. Undoubtedly, the House Democrats will be more aggressive in the cuts they want than will Senators.

The lynch-pin in the health plan industry's hopes to maintain the payments will be Senate Finance Chair Max Baucus. He had an important role in enacting the Medicare Modernization Act of 2003, which included Part D and the rejuvenated Medicare Advantage program, in the first place. With his good friend, and now Ranking Republican on the Finance Committee, Senator Chuck Grassley, he was crucial in getting the rural areas better payments and attracting the private Medicare plans to places like their home states of Montana and Iowa.

As the powerful Senate Finance chair from a rural state that is benefiting from the program, where Baucus comes out on this issue of Medicare Advantage (and PFFS) payments is likely going to be the place the whole Congress comes out on it. The cuts will be no more then he will go along with and they will be as big as he will want them to be.

At the heart of this debate is whether Medicare Advantage plans will be cut to fund other Democratic priorities such as S-CHIP and to offset upcoming Medicare physician fee cuts.

So, Baucus' comments on the issue and spending priorities are important:

February 9, 2006 Senate Finance Committee Hearing:
"On the issue of Medicare generally, the administration's priorities are again misdirected. For example, the administration would reduce payments to Medicare hospitals, home health care, and nursing home payments...and yet the same budget would maintain current overpayments to Medicare managed care--Medicare Advantage plans...I do not understand the administration's rationale for overpaying private Medicare plans while proposing cuts for other Medicare providers."

February 7, 2007 Baucus News Release from the Senate Finance Committee:
"If you are going to cut fee-for-service [the traditional government-run Medicare program], why not cut Medicare Advantage. That's where the experts say the fat is. I've seen many, many analysts say [Medicare Advantage plans] get more than they need. I've not seen any say they do not."

June 18, 2007 Kaisernetwork.org, regarding the recent moratorium on new Private Fee For Service sales, Senator Baucus said:
"I applaud plans for volunteering a suspension. I'd like to see CMS spend less time promoting private coverage and more time figuring out how to regulate the actions of insurers who sell directly to seniors."

With friends like these...

Recent post: MedPAC Recommends a Reasonable Road Map For Reducing Private Medicare Advantage Payments--Plan Would Equalize Payments Over a Five-Year Period

Medicare Payment Advisory Commission (MedPAC) Finds Medicare Advantage Plans “Overpaid” by 12%

Told you so—Part Deux.

On top of this week’s CBO report saying Medicare could save $65 billion by equalizing Medicare Advantage payments made to HMOs with the traditional Medicare plan, MedPAC dropped the second shoe saying the very same thing in their annual report released yesterday.

MedPAC is a commission created by Congress to advise on Medicare payment policy. It is composed of 17 members from throughout the health care economy and is seen as non-partisan and well staffed.

MedPAC is recommending that the Congress implement payment changes for Medicare Advantage plans that create, “Neutrality between types of MA plans, including eliminating the stabilization fund for PPO plans [$3 billion remains in this fund] and making bidding rules consistent across plan types.”

“Further, the Commission has recommended a pay for quality performance program for MA plans, and calculating clinical measures” for the traditional Medicare plan that would better enable the government to compare quality between the traditional plan and the Medicare Advantage plans.

MedPAC also challenged the way CMS pays the Part D Medicare drug plans pointing out that CMS did not fully weight plan bids in 2007, which had the effect of not allowing “the full benefits of competition to be realized and thus, the cost to Medicare will increase.”

MedPAC also made recommendations regarding hospital and physician reimbursement calling for increases at about the “market basket” rate after expected gains from a quality incentive program are accomplished—which means small up-front reductions in payments to hospitals and physicians. The MedPAC report also said that the cuts the Sustainable Growth Rate formula requires of physicians fees would threaten beneficiary access over time.

The bottom line: We need to make Medicare cuts and the best opportunity to find extra fat is in the Medicare Advantage and Part D drug plans.

MedPAC has given the Democratic Congress both the road map and the rational to begin to cut what HMOs get—both for Medicare Advantage and Part D.

No surprise.

The full MedPac Report on Medicare Payment Policy

Why Bush administration support for Medicare Advantage Plans is of little help.

Why Congressional Democrats want to cut Medicare Advantage plans.

Why the Democrats need the Medicare Advantage money.

So why aren't HMOs stocks suffering with all of this news.

Medicare Advantage HMOs Gearing Up for Payment Cuts--Could They Come as Early as 2008?

Bill Boyles--Publisher of Health Market Survey--returns as a guest commentator. Bill keeps a sharp eye on the Medicare Advantage business and on Capitol Hill. Here's his take on what the Congress--and the health plans --are up to:

We are hearing that the health insurers are getting ready to dump markets in response to the Democratic threat to cut Medicare Advantage payments. But first they will try to stop it. The word is that millions of dollars have already been raised to fund a major grass roots campaign to lobby Congress against making any major cuts to the popular—and profitable—program.

Some of the insurers are not waiting. Some large plans are already starting to pull back from less profitable markets in 2008 to minimize the hit they expect to take in 2009. Budgets for marketing MA plans are being shifted. One of the biggest HMOs is already slowing its growth in the MA product and has told Wall Street to expect a change.

It is likely that 2008 Medicare Advantage rates will not be significantly impacted by any Democratic budget action. The 2008 Medicare Advantage rates will be settled between CMS and the HMOs this summer with final agreement occurring in September. That would be well before Democrats have a chance to cut HMO payments through the annual budget process that will take place later in the year following Senate action.

That timing makes it very likely that the first chance the Democrats will have to change the way Medicare Advantage HMOs are paid – and grab the budget savings -- will be in the 2009 budget.

However, we are also hearing that House Democrats would like to begin the process of cutting Medicare Advantage payments through the budget resolution that is expected within weeks. That is the broad spending roadmap the Congress agrees to prior to filling in all the details later in the year.

If the House and Senate both were to agree to reduce MA payments early in the budget resolution process, that would force CMS to negotiate with the HMOs at the reduced rates this summer. While it is more likely the House will take this course, it is less likely that the Senate would go that far this year. Senate Finance Chair Max Baucus (D-MT) has already told the industry the Senate won’t act until the later date, and he is not inclined to do anything for 2008 -- but that 2009 Medicare Advantage payments may be on the table.

So, it will be important to watch the early stages of the budget process. Right now it appears that Medicare Advantage payments will not suffer any major change in 2008. But the industry is not waiting to find out how deep the cuts will be

Expect to hear more about insurers “adjusting” their Medicare offerings – starting now. But the actual budget savings won’t arrive for at least two years--after the election. That could play out poorly for Democrats if the timing is off and seniors start complaining too soon.



Read more: Why the Democrats Will Cut Medicare Advantage Rates

Another Government Study Questions the Medicare Advantage Business

You can now add the Government Accountability Office (GAO) to MedPAC and the CBO as highly respected government agencies who have issued reports questioning the cost effectiveness of the private Medicare program.

This time, the GAO said:

• Insurers will receive $86 billion this year for the private Medicare plan--Medicare Advantage.
• Last year the government paid the private plans $8.3 billion more than the traditional Medicare program would have spent on the same enrollees.
• Private insurers will collect $54 billion more over the next four years than the traditional Medicare plan would have spent for the same seniors.
• A "relatively small" portion of the money will go to extra benefits for seniors.
• The extra benefits seniors get in these plans are financed partly by higher senior premiums deducted from their Social Security checks.
• 30% of the seniors enrolled in private Medicare plans are in plans that will spend less than 85% of their premiums on benefits.
• Overall out-of-pocket costs are less for seniors in the private plans but 16% of beneficiaries pay more for hospital stays and 19% pay more for home health care services.

Acting CMS administrator, Kerry Weems, defended the program noting that "choice" is "at the heart" of the value private Medicare brings to seniors. He also said the private plans add an extra $1,100 per beneficiary in value beyond original Medicare.

However, the GAO report reminded everyone that Medicare Advantage was never intended to be a way to channel more money to just the seniors who signed up for it--it was also created to save money overall for the Medicare program.

Democrats predictably jumped on the findings calling for Medicare Advantage cuts in order to fund other Medicare priorities--such as the Medicare physician fee fix.

At a Congressional hearing, only one Republican spoke on the record calling the report from the non-partisan GAO, "a fake report with fake conclusions."

Well, it is a lot more than that. It is yet one more analysis by a highly respected third-party saying that Medicare Advantage is costing taxpayers a lot more rather than saving anything.

Medicare Advantage payments to private health plans would have been cut last year if it were not for President Bush saying he would veto any bill that did so. But now President Bush has only 11 months to go and can be easily bypassed by the Congress waiting for the new President to take over and sign a budget.

It's going to take a lot more than some backbench Republican yelling "fake" to turn this debate around for the private Medicare plans.

Prior posts:
CBO Issues a Major Report on Medicare Advantage Plans--Pours More Fuel on the Private Fee For Service Fire

MedPAC Recommends a Reasonable Road Map For Reducing Private Medicare Advantage Payments--Plan Would Equalize Payments Over a Five-Year Period

Senate Finance Committee Reaches Bipartisan Agreement to Fund S-CHIP Expansion With a Tobacco Tax--No Cuts to Medicare Advantage

The Senate Finance Committee has reached a tentative agreement to expand the State Children’s Health Insurance Program (S-CHIP) by increasing the tobacco tax by another 61 cents—for a total per pack federal tax of $1. With state taxes, the average per pack tax would rise to about $1.68.

Under the agreement, the Senate would not go forward with any Medicare Advantage cuts to fund S-CHIP.

While 2 million kids would be added to the 6 million already covered, the program would be tightened up in other places. The tentative deal reportedly includes excluding all adults except pregnant women and moving any adults currently covered to Medicaid.

Democrats have called for an increase to S-CHIP spending of as much as $50 billion over five years. This compromise would increase the program’s spending by about $35 billion over five years.

It appears the House is still interested in putting Medicare Advantage cuts on the table as part of their parallel legislation that would increase S-CHIP spending by $50 billion. However, without Senate support it will be very hard for the House to get more than the Senate compromise. It is particularly important that there are plenty of Senate Republicans onside with the Senate Finance compromise.

President Bush has called for an increase in S-CHIP spending of only $5 billion over five years arguing that the program has been too often expanded in the states beyond its original low-income objectives. The President would like to limit eligibility to children in households below 200% of the poverty level and provide access assistance to private plans for the uninsured above the 200% level.

The President has relatively few allies in this opinion.

When a final House/Senate bill is worked out later this summer—most likely looking like this Senate compromise, it will set up a major showdown with the President who could well veto it. Just what action the President will take will have a lot to do with exactly how many Senate Republicans come onside. The final compromise could easily get 60-votes in the Senate but it would take two-thirds in both houses to override a Bush veto.

So steep a tobacco tax is not a slam-dunk.

Would this tentative deal mean the threat to Medicare Advantage cuts is past?

Not at all.

The Congress still needs plenty of money to offset pending physician and hospital Medicare cuts. It makes more sense for Democrats to deal with potential Medicare Advantage cuts in the final omnibus budget work at year-end where a simple Senate majority is necessary and a Bush veto of a comprehensive budget bill it a lot harder.

There is also a sense of inevitability here in Washington that private Medicare Advantage plans are going to sustain cuts--particularly the Private Fee For Service product.

What this agreement would do is make it virtually impossible for the Congress to impact 2008 Medicare Advantage funding—the earliest a year-end agreement would impact private Medicare Advantage payments would be January 1, 2009.

But, none of this is final and it will be important to follow the Senate’s final negotiations and the reconciliation that will have to occur with the House during the summer.

This compromise could also set up a remarkable show-down between the Congress, which looks like it will come to a bipartisan agreement, and a "lame-duck" President opposed to it on ideological grounds who has been severely weakened politically.

If the President is able to block the deal, then everything shunts forward to the year-end budget negotiations and Medicare Advantage cuts as a means to fund S-CHIP come back on the table.

This will be a fascinating process to watch!

The Budget Outcome--Everything Was Decided and Nothing Was Decided

The Budget agreement, SCHIP, the Medicare Physician Fee Cut, and Medicare Advantage HMO payments.

For months, I have been telling you four things:

• The federal budget impasse would be resolved because Democrats and Republicans weren't going to go home without their earmarks. In predicting the budget outcome you might recall my telling you to follow the "pork."
  
• SCHIP would not be allowed to expire and would be extended.
• The 10% Medicare Physician Fee cut would be avoided just as it has been for a number of years in a row.
• Democrats were adamant about cutting Medicare Advantage payments as a means to pay for the Medicare physician fee cut and seeing the program's payments ultimately equalized with the traditional Medicare program.

This was a great year for earmarks or "pork-barrel spending." When the day was done about 9,000 earmarks were inserted in the final bill in addition to about 3,000 more that were in the earlier defense appropriations bill--bringing the total to about 12,000!

The Democrats wanted $22 billion more in domestic money than President Bush wanted--about a 2% difference. The Democrats later offered to "split the difference" looking for $11 billion more--which Bush quickly rejected. In the end Bush got his cap--but they also agreed to about $11 billion more in "emergency funding" above the cap.

The Democrats also made Bush pay by cutting many of his favorite programs to get in under his cap. The alternative minimum tax (AMT) fix had no funding so will add $50 billion to the budget deficit. All told, funding for the war on terror, the AMT gap, and the rest of the spending will give us a whopping budget deficit of $240 billion next year.

If you are wondering just what got decided here, who really won, and what's different, you aren't the only one.

On the health issues:

SCHIP has been extended to March 2008. The Congress and the President have allocated enough money that children now covered will be able to stay in the program. There is some disagreement about whether new CMS rules might result in some cuts but CMS is showing no inclination to force any kids off the plan in an election year.

The bipartisan agreement to expand SCHIP from the current six million kids to ten million by spending another $35 billion ended up being shelved after the President vetoed that deal twice and the Democrats fell about 10 House votes short in their attempts to override him.

The docs did not get their January 10% Medicare fee cuts and instead got a half percent increase.

The bad new for the docs is that they only got a six month reprieve this time--until July 1, 2008. I see no reason to believe the Congress won't again find someplace to get the money it will need to defer the cuts to January 1, 2009.

But on January 1, 2009 the docs will face a whopping 15% cut--the 5% from last year that is funded only until July 1, this year's 5% cut that was also deferred only until July, and a new 5% cut the Sustainable Growth Rate Formula (SGR) will automatically create on January 1, 2009.

The Congress has fixed nothing for the docs, they have only pushed the pending cuts forward by six months--and most likely twelve months until January 1, 2009.

Just before the holiday recess, we thought we had a twelve month doc fix that would have been funded by taking the extra six months money from the "double dip" payments Medicare Advantage plans pay to teaching hospitals. But it wasn't the health plan lobby and conservative Republicans that KO'd that Medicare Advantage cut--it was a powerful Democrat looking to protect his local medical centers.

The big teaching hospitals have always had some of the most powerful allies in Congressional delegations from states like Massachusetts and New York where some of the nation's leading medical centers are based and some of the most powerful Democrats hail from. That was the case this time as the medical centers prevailed on the Chairman of the House Ways and Means Committee, and New York Congressman, Charlie Rangel, to kill that idea.

With the extra money cut by Rangel, and time running out, the only out was to use what money they had for just a six month fix and later try to find more funding by July of 2008.

As a result, the Medicare Advantage (MA) plans suffered no material cuts. It was clear that any real cuts would run into a Bush veto with the same fate as the two SCHIP bill votes. In the Senate, where 60-votes would have been necessary for any bill that contained MA changes, there had already been tacit agreement among Republicans to a one-year doc fix and some MA cuts. The big difference was an intransigent President who wasn't going to budge on this issue and later objections from Rangel.

Because of these agreements, payments to the MA plans should be safe until January 1, 2010 because CMS will have set the 2009 rates by the time the 2009 budget is dealt with later next year.

Does this mean that Medicare Advantage plans have won and will not have to worry about any big cuts?

Hardly. This was a draw.

Bush held the cuts off. Bush is a lame duck. The Democrats are more intent than ever on getting back on this one and cutting the Medicare Advantage "over payments."

George Bush may not have to sign the 2009 budget and therefore be a factor in next year's negotiations. It would be a simple matter for continuing resolutions keep the government going a month longer than they did this year--to inauguration day and a new President in late January.

Late in 2008, the docs will be facing a 15% Medicare fee cut on January 1, 2009, SCHIP will be out of money a few months later on March 1, 2008, the extra payments to Medicare Advantage plans will present the same plump target, and we will know who won the November elections.

I heard someone say recently that with every additional year of the extra Medicare Advantage payments there will be more seniors on the plans and it will be politically more difficult to cut them. That misses an important point--the docs are facing a 15% cut and if they don't get the money from the HMOs they will get it from other providers. AARP, the AMA, the hospitals, and about every other provider organization can agree on just one thing here--get the money from the Medicare HMOs. AARP can rally a lot more seniors than the insurance industry can.

The Medicare physicians held off some big fee cuts for likely another year, the Medicare Advantage HMOs held off any real cuts to their programs but are far from safe going into 2010, and the kids have their health plan until March.

No one won.

It's a "do over."

Medicare Advantage Payments to Insurers--Baucus Zeroing In!

Senate Finance Chair Max Baucus (D-MT) released his health plan white paper last week.

Buried in it was this regarding how private Medicare payments to HMOs should be changed:

“Congress must act to level the playing field between traditional Medicare and Medicare Advantage payments and the Baucus plan would do so. Enacted in July 2008, MIPPA [the July physician fee fix that will end PFFS] took modest steps to reduce overpayments to private plans beginning in 2010. There are a number of ways to complete this. One is to set MA payments on par with traditional Medicare in every county in the country. However, Medicare costs can be low in some areas of the country and extraordinarily high in others. Simply setting MA payments equal to traditional Medicare could maintain overpayments in some areas and create severe underpayments in other areas relative to insurers’ costs.

“The Baucus plan would seek to better understand how insurers’ costs differ by region of the country in designing new policies to eliminate the remaining excess spending in the Medicare Advantage program."

I have lost count of the number of different Democratic proposals there are out there to use these extra payments made to private Medicare Advantage plans above the levels paid for the same senior risk in traditional Medicare for new spending.

MedPAC estimates these extra Medicare Advantage payments are worth $62 billion over five years and $169 billion over ten years. That makes them about the only "free money" in an otherwise bleak deficit picture.

Most calls to eliminate these extra payments simply call for "equalization" between insurer payments and traditional Medicare costs for the same senior risk.

But Max Baucus is telling us here that he knows something that isn't commonly discussed in the private Medicare world--that even if you just equalize payments there is, and was before 2003, plenty of opportunity to game the county-by-county private Medicare payment system--"One is to set MA payments on par with traditional Medicare in every county in the country. However, Medicare costs can be low in some areas of the country and extraordinarily high in others."

Where the 98-page Baucus plan goes from here is debatable. That Senator Baucus is the most influential member of the Senate on the issue of Medicare Advantage payment reform is not.

I expect there are plenty of Medicare Advantage players, knowing that payment "equalization" is on the way, who are getting ready to just play the old county-by-county cherry pick game all over again and preserve a substantial block of profitable private Medicare business doing it.

Think again. Baucus literally has your number!

"Medicare Advantage: Wrong Way to Spend $54 Billion"--The AMA Goes After the Medicare HMO's Money

The American Medical Association (AMA) in an editorial in its journal, American Medical News, has pulled no punches in its argument that Medicare HMO plans (Medicare Advantage) need to be cut in order to find the money to fix the upcoming Medicare physician fee cuts--10% in 2008 and another 5% in 2009.

Without a doubt their attack on "excess payments" to insurers is self serving--as about all lobbying is. But it also gives us a look into the pitched battle that is now going on in Congress over who is going to win and who is going to lose when it comes to Medicare provider payments.

Here is an excerpt from their November editorial:

"Meanwhile, many more seniors could well be affected by physician pay that faces a staggering cut, currently estimated at about 10% for 2008, and 15% through 2009. It's no surprise that an AMA online survey of nearly 9,000 physicians, released in June, reports that about 60% of doctors say the cut will force them into the position, at the least, of having to limit the number of new Medicare patients they take.

"It is time for Congress to look at Medicare Advantage with clear eyes. Congress needs to level the playing field between traditional Medicare and private Medicare plans by eliminating excess payments to Medicare Advantage. The $54 billion saved would be more than enough to offset eliminating the two-year cut in physician reimbursement, as well as an update in payments to reflect increasing physician costs -- all while limiting premium increases for seniors.

"Medicare Advantage, which covers managed care and private fee-for-service plans, was created to make Medicare more competitive and efficient, as well as to entice private plans to rural areas or to offer extra benefits. Instead, the program appears to have become more of a Medicare benefit for insurers, which on average received 112% of the amount that traditional Medicare paid for each senior's care in 2006. For private fee-for-service plans alone, that figure was 119%.

"Yet despite Medicare Advantage's good fortune, it has managed to disappoint many patients and physicians. More than 50% of 2,022 physicians responding to an AMA survey on Medicare Advantage, released in May, said they have seen plans deny services typically covered in the traditional Medicare plan. More than half of physicians report receiving payments below the traditional Medicare rate."

Read the full editorial here.

"Undue Advantage"--The Washington Post Calls for Medicare Advantage Cuts

Tuesday's Washington Post had an editorial on the debate over whether HMOs should be paid more than Medicare receives for the same senior's health care.

Originally, the Congress decided to pay private health plans more as a means to "prime the pump" to encourage both private health plan insurers and seniors to give the new Medicare Advantage plans a try. Both had some bad experiences in the late 1990s when government payments to private Medicare plans sustained big cuts and both seniors and health plans fled the private programs.

Now, the health plans are arguing the extra payments ought to be made permanent.

While there is a legitimate debate over just how many years it should take to equalize payments, The Post has it about right.

Undue Advantage

The House was right to scale back the insurance industry's subsidies for seniors.

Tuesday, August 21, 2007; Page A14

KAREN IGNAGNI, chief lobbyist for the health insurance industry, had an important point. Testifying before Congress in 1999, Ms. Ignagni argued that private insurance plans offering coverage for seniors ought to operate on a "level playing field" with regular fee-for-service Medicare, under which doctors are reimbursed directly by Medicare. Back then, the private plans were being paid less than what regular Medicare providers were making. Ms. Ignagni decried what she called the "fairness gap" and argued that the private plans "should not receive disproportionately low government payments."

Times have changed. Instead of being paid less than private providers on the theory that they can operate more efficiently, such plans, now known as Medicare Advantage, are being paid on average 12 percent more. And Ms. Ignagni and her group, now called America's Health Insurance Plans, are lobbying furiously to keep that, well, advantage.

Some of the money is plowed back into extra benefits to attract more seniors into the plans, and the lure is working: Close to one in five are now enrolled in private plans, which range from HMOs to networks of preferred providers to the most outrageous and expensive arrangement of all, private fee-for-service plans, which cost a whopping 19 percent more than regular Medicare.

The extra spending -- more than $50 billion over the next five years -- makes an already financially unstable Medicare program more expensive. It also unfairly raises premium costs for all seniors, who subsidize the extra benefits of those who sign up for managed-care plans.

A bill approved by the House this month would phase out the excess payments to Medicare Advantage plans and devote the savings to the State Children's Health Insurance Program, which provides coverage for children in low-income families that earn too much to qualify for Medicaid. The House would also use some of the savings to help pay for changes in the Medicare program, including extra help for low-income seniors.

Defenders of the existing payment structure argue that while Medicare Advantage plans may cost the government more, the 12 percent differential is inflated, and that flattening the rates would drive the plans out of existence. They argue that the plans, even if there is a higher cost to the government, lower overall health-care spending by providing more preventive care. They also say that the plans provide important and otherwise unaffordable benefits to low-income seniors.

We agree that private plans can play an important and useful role in delivering good medical care to seniors. But if the problem is providing extra help to low-income seniors, there are more efficient means of doing so than overpaying Medicare Advantage plans for every senior, needy or not. And we don't understand why the level playing field the private plans once so avidly sought is now not good enough.