Dirty little secret:
Medicare is already privatized

2003 act funnels billions of tax dollars to private insurance companies

By
healthinsurance.org founder

It’s a dirty little secret that’s right out in the open: The GOP has already privatized Medicare for more than one out of four recipients. They did it back in 2003 through the Medicare Modernization Act, legislation that sharply increased payments to Medicare Advantage plans. In doing so, they handed the bill to the American taxpayers, who now subsidize private insurance companies to the tune of billions of dollars –  $11.9 billion in 2009 alone.

Proponents back then were singing from the same hymnal that Rep. Paul Ryan (R-WI) is now: that private enterprise can do a better job of controlling health care costs than the federal government can. Except when it doesn’t: since it was passed into law in an unusual vote in the middle of the night, Medicare Advantage has been a blank check that costs taxpayers an additional 14 percent for each enrollee who opts out of the public plan – more than $1,100 an individual.

“Oink, oink.” Can anyone say “pork?”

Hey, it gets worse. Through selective marketing, private companies are able to target younger, healthier seniors in their plans, while leaving the government with fewer dollars to cover those seniors who utilize more services. Medicare Advantage plans entice seniors with perks not available through the government, such as gym memberships and vision plans, with these additional benefits paid out of the bloated subsidies provided by the government. People opting for Original Medicare not only don’t get those benefits; their tax dollars pay for those who do. It’s a lose-lose situation for taxpayers.

It can also be a lose-lose for patients who opt for Medicare Advantage. If those patients get seriously ill, they may find themselves with much higher out-of-pocket expenses than they would have  incurred had they stayed in the government program. They may also face greater co-pays for doctors’ visits – and perhaps that cancer-fighting drug their doctor prescribes is not covered by their Advantage plan.

It might make sense if you are a relatively young and healthy senior. Of course, you are helping accelerate the insolvency of the public plan, so it may not be there for you when you are older and sicker. But hey, free pilates classes!

Obamacare levels the playing field

The Affordable Care Act (ACA) rolls back these subsidies over the next ten years, forcing private companies to compete on equal standing with the government plan. When health reform’s opposition was whipping seniors into a “Hands off my Medicare” frenzy by telling them Obama wanted to make cuts to the program, it was only because “Hands off pork barrel subsidies to Medicare-killing private health insurance companies” didn’t test well.

To Obama’s detriment, “We’re improving Medicare by adding in preventive coverage that will improve your health care and lower the program’s overall cost, while stopping the hemorrhaging of your tax dollars into private hands” didn’t fit on a bumper sticker either.

Ryan’s sour solution

To be fair, Paul Ryan’s plan would cap the amount of tax dollars going to pay for senior care – at about $15,000 per enrollee. But it has no provisions to bring down health care costs, other than a blind belief that left unfettered, private enterprise will do better – a belief that’s not been proven by Medicare Advantage’s continued suckling at the public teat. Under Ryan, the ravages of medical inflation will simply be shifted to senior citizens themselves.

As we’ve said before, Medicare still has long-term solvency problems that need to be addressed, but the ACA at least makes a start. In 2013, the Medicare payroll tax for individuals earning more than $200,000 (and married couples above $250,000) will increase from its current 1.45 to 2.35 percent. The ACA also contains a dozen cost-containment measures to help stop the rise in medical costs, and starts the process of switching from a costly fee-for-service system to payments based on outcomes.

The rise in the payroll tax is really modest – less than a penny on a dollar earned. Seems like a bargain to move toward keeping the system solvent. Before anyone starts screaming about raising taxes, remember that Americans are being taxed at the lowest level since 1958. Facts are so much more informative than slogans.

If Medicare Advantage was set up as a laboratory designed to show that private companies can administer senior health care cheaper than the government, it’s failed. Blind belief in market forces is milk that’s gone sour.

May 9, 2011

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