Paying for Health Reform
Michael Cannon (Cato) took me to task the other day for expressing too much sympathy for Medicare Advantage members who are getting rolled by the new health law. He was complaining about my editorial last week in The Wall Street Journal. The gist of the editorial follows, and my exchange with Michael leads the comment section below. Also in the comments below, I’ve reproduced John Rother’s (AARP) response to me from The Wall Street Journal “Letters to the Editor” section and Devon Herrick’s (NCPA) response to John.
The cost of the new health overhaul will be quite high for some. By 2017, thousands of people in Dallas, Houston and San Antonio will be paying more than $5,000 a year to make ObamaCare possible, according to a study by Robert Book (Heritage Foundation) and James Capretta (Ethics and Public Policy Center). For some New York City dwellers, the figure will exceed $6,000. Unfortunate residents of Ascension, Louisiana will pay more than $9,000!
Who are these people? Are they the rich and the comfortable — the folks presidential candidate Barack Obama told us could afford to pay for health reform? Are they people who have excessively profited during a recession that has caused hardships for so many? Are they the ones who gained the most from the Bush tax cuts?
None of the above. The people getting hit with these very expensive tabs live in predominately low-income households. They are disproportionately minorities. They have trouble paying their own medical bills.
These are the enrollees in Medicare Advantage plans, health plans operated by private insurers (Cigna, Aetna, United Health, etc.) that provide extra benefits to the elderly and the disabled on top of standard Medicare coverage. The price they will pay for health reform will be a double whammy: less spending on Medicare coupled with reduced subsidies for their Medicare Advantage plans. In many areas, Medicare Advantage enrollees will lose about one-third or more of their health insurance benefits.
Despite its popularity, conventional Medicare is actually a lousy health insurance plan. It doesn’t cover most drugs and it leaves beneficiaries exposed to thousands of dollars in potential out-of-pocket expenses. To protect themselves, most seniors get medigap insurance (either from an employer or purchased directly) and buy drug coverage (Medicare Part D) as well.
Many low-income seniors, however, have trouble paying three premiums to three plans, and all too often they find a decent medigap plan unaffordable. For these retirees (about one in every four Medicare beneficiaries) Medicare Advantage plans have been a Godsend. They have been able to enroll in comprehensive health plans that resemble the coverage many nonseniors have — often with no extra premium.
The hostility of the White House and many Congressional Democrats toward these health plans is hard to explain. Ostensibly, they do everything President Obama says he wants to accomplish with health reform. They provide subsidized coverage to low- and moderate-income people who could otherwise not afford it. They have no pre-existing condition limitations and some plans actually specialize in attracting and caring for patients with multiple illnesses. They provide an annual choice of plans. They even compete against a public plan (Medicare). On measures of quality and efficiency, they also score well. According to a study by AHIP (a trade group that represents Medicare Advantage insurers):
- Medicare Advantage enrollees had 33% more doctor visits (presumably representing more primary care), yet experienced 18% fewer hospital days and 10% fewer hospital admissions than conventional Medicare patients.
- They had 27% fewer emergency room visits, 13% fewer avoidable admissions and 42% fewer readmissions.
Other studies report similarly impressive results.
This is not to say that the Medicare Advantage programs could not be improved. Right now, almost all the enrollees are in HMOs. Very few have a Health Savings Account plan. And there is no practical way for the chronically ill to manage their own budgets, the way the Medicaid disabled can in the pilot programs that have been in force for a decade.
Some complain that the government has been paying MA plans about 13% more than what would have been spent under conventional Medicare. This is partly explained by the influence of members of Congress who represent rural areas and that would not otherwise be able to support these plans. In any event, these “overpayments” allow members to get about $825 in extra benefits each year, including lower out-of-pocket payments and better coverage for drugs, preventive care, and chronic disease care.
According to a report by the Medicare Office of the Actuary, about 7.4 million people who would have been enrolled in Medicare Advantage plans in 2017 will lose their coverage completely. Those who are able to retain their coverage will lose significant benefits.
These cuts are financing lavish subsidies for health insurance for young people at about the same income level as the seniors who are being penalized. Moreover, seniors will have to settle for skimpy coverage so that young people can have much better coverage.
To those economic libertarians who view this as an entitlement wash, don’t be mislead. Many of the seniors losing their health plans will enroll in taxpayer-funded Medicaid, in addition to Medicare, and the rest will be on the Capitol steps in the near future — asking to have their benefits reinstated.
So, not subsidizing Paul is the same as robbing Peter?
You and Mike Tanner are not approaching this the right way. You are falling into a trap set by the bad guys. They pay for a half trillion dollars in entitlement spending by taking it away from the elderly and you respond by saying that’s OK because the seniors didn’t deserve their benefits anyway. You will discover that before this is over, the seniors will not have to give up anything. Only the taxpayers.
John
I believe Tanner and I have consistently said that it is wrong both when the government taxes Peter and when the government subsidizes Paul. And that we have consistently opposed new entitlements, the higher taxes that will inevitably pay for those new entitlements, and exposed the fraud that these Medicare cuts are realistic (i.e., they will eventually be repealed and replaced with higher taxes). If you can point to some economic libertarians who see this as a wash, please do. We will help you convince them otherwise.
The problem is when you and the Republicans complain that it’s wrong for the government to reduce Paul’s subsidies. That gets Paul fired up, which is useful today. But tomorrow, when we try to restrain future Medicare spending with vouchers, the Left is going to use your words against us.
There is a principled way to oppose the form of these Medicare cuts: by saying that they constitute government rationing, whereas restraining Medicare outlays with vouchers protects enrollees from government rationing. But I don’t see that in your oped, which is mostly about how deserving of subsidies these MA enrollees are. (BTW, in your email you write that “the seniors will not have to give up anything,” but your oped is about “How Seniors Will Pay for ObamaCare.”)
I hope this comes across as respectful criticism. You are, after all, the country’s 69th most powerful person in health care.
Michael
Only 69th?
John
Below is the “Letter to the Editor” from John Rother (AARP), published in the Wall Street Journal today:
“How Seniors Will Pay for ObamaCare” by John C. Goodman (op-ed, Sept. 23) provides a grossly misleading analysis of the health-care law’s effect on seniors and the value of Medicare to 45 million older Americans.
Of course, Medicare is not perfect. But the new law significantly improves it, with better benefits for prescription drugs (phasing out the “doughnut hole”) and the elimination of co-payments for a range of preventive services and screenings. It also advances high-quality care in traditional Medicare through an array of pilot programs that seek to improve patient safety, care coordination and treatment of chronic illness.
That is the big picture. These improvements can help all seniors, not just those who have opted for the private, government-subsidized plans known as Medicare Advantage. New quality bonuses, which we support, will also reward those Medicare Advantage plans that provide quality care.
Those who share our concern for low-income households should support the improvements to Medicare that help all needy seniors. By strengthening and improving traditional Medicare, we can ensure a more competitive marketplace that offers genuine choice to health-care consumers of all incomes.
No one understands better than AARP—or has worked harder to fix—the gaps in Medicare coverage. Despite widespread misunderstanding, the Patient Protection and Affordable Care Act takes major steps to achieve this goal.
John Rother
Executive Vice President
AARP, Washington
And here is Devon Herrick’s (NCPA) response to Rother’s “Letter to the Editor”:
John Rother touts new benefits for seniors (e.g. eliminating the donut hole in Medicare Part D and providing a range of preventive services without cost) but doesn’t explain what seniors are likely to give up in return. The CBO estimates the cuts to Medicare at $523 billion; about $200 billion from private Medicare Advantage plans (the Medicare Actuary estimates $575 billion in cuts to the Medicare program). Funds will be cut from Medicare Advantage plans, which provide seniors about $825 per year in additional benefits – many of which are low-income or minority enrollees. The cuts will also reduce provider payments, causing many doctors to decide to stop treating Medicare patients.
Mr. Rother also fails to disclose that AARP is one of the biggest purveyors of Medicap policies in the country. AARP stands to benefit when seniors lose access to Medicare Advantage plans and have to purchase Medigap policies.
http://www.ncpathinktank.org/pdfs/What-Does-Health-Reform-Mean-for-You-A-Consumers-Guide.pdf#page=35
Riight on Devon. These guys sold the seniors out.
Ken, at least AARP sold out the seniors for money. A lot of Washington DC groups sold out their members and got nothing in return.
Why isn’t AARP guilty of commiting fraud? And if they are, can we sue and get damages? They should have to pay for all of the harm they are trying to cause to millions of innocent people.
Oh, boy. There will be “an array of pilot programs.” Yippee! Medicare always has an array of pilot programs and they are usually ignored when they fail to produce the results the Left was hoping for — like the chronic disease management demonstrations that failed miserably.
The inconsistencies in the position of Democrats is never starker than when comparing government-run Medicare to private sector coverage. The Dems for some reason hate co-insurance in private plans but love it in Medicare. The Dems hate high out-of-pocket exposure in private p;ans but don’t mind that Medicare has absolutely no limit whatsoever in OOP under Medicare.
Devon is right. AARP’s sole motivation is to sell more Medigap coverage, so AARP loooooves that Medicare is such lousy coverage.
As for Cato’s argument, I agree completely that vouchers are the way to go. I think the original intent of Medicare Advantage was to show the variety of approaches the private sector could offer within a voucher system and to build up an industry that would be ready to offer vouchers. It is the first step in moving to a voucher program, which is why AARP and the Dems hate it so.
In 1999 the Presidential Commission on the Future of Medicare almost got through a voucher-system (“premium support”) reform of Medicare. (My memory says a majority supported it, but not the super majority required by the congress) Does anyone know that whole story, how such a solid idea got so far then failed?
I am old enough to remember the time when many of us believed that, relative to the traditional, open-ended and unmanaged Medicare fee for service program, private health pans were so much more efficient that they could deliver added benefits to seniors chosing them and make a good profit margin even if they were paid only 100% of the equivalent average actuarially adjusted annual per capita cost per senior in traditional Medicare. In fact, with a view to the Wennberg data, many of us believed that doing well by doing good in Florida and certain parts of Texas would be like shooting fish in the barrel for private health plans.
It was therefore disappointing to see that the Medicare Advantage plans held out for the extra payment they receive under the Medicare Modernization Act of ’03. Weren’t they embarrassed by holding out their hands for that bakshish?
Now, I have seen research (e.g., Ken Thorpe’s) showing that for the extra payment they get the Medicare Advantage plans do provide seniors with added benefits, relative to traditional Medicare, as John rightly points out.
But if one is filled with deep compassion for the low-income seniors, as John clearly is, then why not extend that deep compassion to all seniors, regardless of what option they choose? I have not seen John make that case but look forward to seeing him make it.
What we have here is the government, through the MMA ’03, telling seniors: “We are willing to transfer more money from taxpayers to you alright, but only if you dance to our tune, that is, if you choose a private health plan that meets our specifications.” What is the priciple here? Is it: “Private is good even if it costs taxpayers more?”
I have been as amazed as amused by seeing so many conservative thinkers support this approach, the editorial page of the Wall Street Journal included.
Uwe, we are never going to get a rational payment system under Medicare as long as government is constructing the reimbursement rates and Congress gets to look over the shoulder of the fee setters and approve or disapprove of what they do.
The ideal is to get everybody into a private plan. Let government restrict the amount the taxpayer has to pay. But leave the private sector free to find less costly ways of providing the care.
The trend is clear that more and more physicians (especially primary care) are dropping Medicare/Medicaid.
A voucher system for primary care would be a great way to attract medical students to practice family medicine and internal medicine. PCP’s would be working for their patients and not have to hire staff to deal with bureaucracies and increase their overhead. Overhead is killing primary care. Solo practitioners simply can’t afford to keep their practices open.
Since we take care of 80-85% of patients’ needs, it would complement catastrophic coverage by Medicare (or Medicaid) for specialists and hospitals. Medicare/Medicaid patients would only be allowed to cash them in with their PCP. Think what that would do for rural America.
Patients are entitled to all aspects of primary care. That is the beauty of membership-driven primary care.
We have smaller practices and they can call or see their PCP all they want. We are ground zero for disease management.
I wish those with the time would do the math….How much would it cost for Medicare (or Medicaid) to provide baseline vouchers for unlimited access to primary care? What would the potential savings be?
The key for vouchers:
They should pre-pay for a year of PCP services. That keeps the overhead down at the point of service..the doctors’ office…..
Excellent post!
Dr. Goodman,
I have read that the Government pays Medicare Advantage plans a premium of about 13%. But what I haven’t read is that for this 13%, members get additional benefits and the Government gets to hand off to the insurance companies the cost of fraud and abuse. Under traditional Medicare, fraud and abuse comes in at about 13% of the total cost. So how much does 13% really cost?
To extend Greg’s comment: and when pilot programs that free people from regulation and let them control the subsidy given them reduces both costs and expenditures while improving health, government ignores that, too.
Dr. Ewin makes an excellent point. It seems that because docs are opting out of Medicare more and more, the good ship Medicare is currently drifting in the North Atlantic in the dead of winter while the politicians are busying themselves re-arranging the deck chairs.
So what happens when there simply are too few docs in the program? Does the government bring in the Gestapo to force treatment? Or maybe ration tickets can be distributed like done for gasoline in WWII.
John, Medicare Advantag (MA) was always a scam as was “Medicare -C”. The MEDICARE HMO plans were only corporate enrichment programs at the expense of all taxpayers. The curious things is that the Dems loved HMOs yet hate the MA program. And Repubs love MA since they think HMOs are private free enterprise when they are only weak MCO cousins of the far more powerful NHS-MCOs abroad. All MCOs say “give us your money, and we’ll take take care of you”. For you who buy this, I have a bridge to sell, if anyone is interested. Bob
Why not end this hopelessly tangled debate by simply ending Medicare? After all, what economic distortion does it fix? What is the market failure that it corrects? There isn’t one, or at least not one that, to my knowledge, anyone has shown to be quantitatively significant. Its origins were a confused mess of ignorance of how markets work, misunderstanding the distortions the government (federal, state, and local) had already created when it was enacted, and a Depression-era desire to transfer income from the “fortunate” to the “less fortunate.” On top of all that, it is unconstitutional. End the whole thing, along with all the other federal interventions in the health market, and watch our nation’s health care problems disappear.
Excellent article. From afar, I worry that the presence of added costs (even if triggered by ObamaCare) may (will) prompt a Democratic solution of a 100% public option/110% take-over in steps??
John,
Have the bureaucrats stop messing with what works, and, find a way to establish some form of care for those who can benefit from such a program. But, most important, there should be no “free” care, and all recipients should have some skin in the game. Free care is worth exactly what you pay for. Health care is available for half of those who work for companies that provide it, but they can’t afford the premiums. A Sargent, married with two kids is eligible for food stamps. Yes, available health care is a right, but it is also a privilege for those who deserve it. The insurance industry is guilty of sending out “provider” lists and make no differentiation between the calibre in such lists. If we are going to find new ways to make an impact, it should be based on quality, not one who will give away his services, and be satisfied with denigrating our profession for more dollars but with major gaps in quality because of it.
Forgive my diatribe but the more I see and read about fixing our system, the more I realize that it is not fixable, but needs a fresh, new approach.
@Anonymous is suggesting what many believe the Liberal Democrats had in mind all along.
Liberals first attempt was a public plan option that the Lewin Group thought had the could crowd out private coverage. When Liberals failed to get a public plan, they settled for large, broad-based taxpayer subsidies that were unsustainable. Once implemented, the Exchange subsidies could never be withdrawn for political reasons. Liberal architects of the PPACA paid for the subsidies with bogus cut to Medicare – knowing that most of the cuts would never go into effect. Within a decade the costs will be so great that people will throw up their hands and not oppose a government take-over creating Medicare / Medicaid for All.
New approach…
-Medicare should be a stop gap for catastrophic events.
Same for Medicaid for those eligible.
-Patients should pay for their own primary care directly whether fee for service or fee for care (concierge …which should be more affordable)…
and many patients gladly pay for care if, in their mind, it is quality care AND it restores their dignity …QA data and review is worthless)
-Dr Kramer’s analogy is a good one if you apply it to health care….The state/national govt should consider giving those that qualify a health care stamp that can only be cashed in only at a fee for care primary care physicians’ office. One fee, once a year for unlimited access to primary care. If you see someone early, like the two staph infections I had this morning, they will heal in less time and that’s good for everyone…
A stitch in time….
The health care stamp would allow the PCP to work for the patient and not the government….
there is a big difference b/c it cuts out the overhead and the hassles for the Docs, patients and the government…
And ..more money to pay specialists b/c of the cost savings…
To Anonymous –
It seemed, for a while, that the left-wing health care reformers had dropped “public option” from their vocabulary and I thought we’d moved past that. However, as each new level of the health care law is implemented, it seems that a public option is evolving as the inevitable final outcome.
John,
Your analyses of the impact of Obamacare are thorough, accurate and to the point. In case you missed it, please find below the announced ‘death’ of the first MA plan I am aware of. So much for the President’s commitment that if you like your plan you can keep it.
-John Harries MD
Harvard Pilgrim Cancels Medicare Advantage plan
Wow. What a bunch of idiots.AARP does not prvdioe/sell insurance. They sell (with insurance companies) Medicare supplemental policies, also called Medigap policies. Medicare has 4 parts (A, B, C, and D). Everyone gets A, that’s your major medical, hospital, surgical plan. You have to enroll in B, its your more traditional coverage (exams, visits, tests, etc). C and D are complicated and cover HMO and Scrpts, we won’t get into them here.Anyway, B is pretty darned good, and in order to avoid adverse selection seniors who don’t enroll and don’t comparable coverage get penalized if they don’t sign up. But B isn’t perfect, it has some holes for specialty items and doesn’t really extend hospital stays past the A coverage level. So Medigap policies can be bought to fill in the holes. They vary in coverage and premiums from basic to gold standard. they are private in nature but have to meet certain guidelines to prevent seniors from getting screwed with worthless policies. These plans will continue to exist under any of the 3 proposed reform bills. Canada is perfect example here, they have basic coverage for all but you can, and many do, but supplemental policies to fill in the holes that are specific to them (if I’m a diabetic, for example, I’ll want coverage the prvdioes a health coach to monitor my diet for example). The AARP has some really smart people who understand this and realize that health care reform is, at its heart, a cost sharing fix. You have to bring everyone into the system or the system is crushed under the weight of adverse selection. That’s why they support reform. The lie about them being pro-obama is hilarious, the AARP is 90% white elderly, very Republican. Healthcare reform transcends this line though.