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October 22, 2014

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How the overhaul could alter the popular but costly Medicare Advantage

Cuts in private plans’ subsidies could force changes on seniors

One battle cry from senior citizens in the health care debate has rung loud and clear: Keep government out of my Medicare.

It’s a line that has drawn chuckles because Medicare is, of course, nothing if not a government-run program — a creation of the Great Society vision of the 1960s that today provides taxpayer money to care for 45 million elderly adults.

As with most punch lines, however, there’s a touch of truth lurking among the laughs.

One of the biggest targets for cost-cutting in the health care debate in Congress is Medicare Advantage, a relatively new offering that is wildly popular especially in Western states, including Nevada. One reason is that plans advertise enhanced coverage compared with traditional Medicare. One in three Nevada seniors on Medicare is enrolled in Medicare Advantage, and the state is often a testing ground for industry research on how well the program is working.

But here’s the catch: Medicare Advantage costs on average 14 percent more per person than traditional Medicare and is helping to bankrupt the program.

Now, under the health care reform bills, Congress is considering substantial reductions to bring the cost of the popular Medicare Advantage program in line with traditional Medicare. Cutting back the program is the single biggest piece of the estimated $500 billion in Medicare changes being considered by Congress. (In the House bill, the cuts would save $156 billion; in the Senate, $123 billion.)

With the Medicare trust fund projected to be insolvent by 2017, the extra payments Medicare Advantage enjoys are unsustainable, analysts say.

“The government is losing money on the Medicare Advantage plans,” said Tricia Neuman, vice president of the Kaiser Family Foundation and director of its Medicare Policy Project. “It is actually a drain on the Medicare trust fund and raising the Medicare costs for everyone.”

But the health insurance industry warns that if the cuts are made, some companies will opt not to participate, meaning seniors on those plans would have to find other options — either with companies still participating or traditional Medicare.

“Seniors in Medicare Advantage should not be forced to fund a disproportionate share of the costs to reform the health care system,” Karen Ignani, president and CEO of the America’s Health Insurance Plans, the industry trade group, said in a statement.

Not long after Medicare came into being, the precursor to Medicare Advantage started gaining ground as the program opened to private insurance plans in the 1970s.

Traditionally, seniors on Medicare would simply go to the doctor or hospital of their choice, and the care they received would be reimbursed by the program.

Private insurers offered Health Maintenance Organizations that were seen as a cost-effective alternative, a way to rein in rising medical costs by offering more prevention and disease management. HMOs and other private plans could charge no more than 95 percent of the average Medicare costs in a particular county. Enrollment was steady, at about 5 percent of the Medicare population, Kaiser reports.

But in the mid-1990s Congress started boosting payments to the private insurers as a way to entice them to offer plans for seniors. It was part of a philosophical shift by the Republican-controlled Congress during the Clinton administration toward what was promoted as privatization and outsourcing of Medicare.

The incentives worked. Responding to aggressive marketing, seniors flocked to the plans.

Payments to insurance companies rose sharply, because of congressional action, from $594 per senior per month in 2003, when the program was renamed Medicare Advantage, to $967 in 2008. So did the number of seniors enrolled in private plans, from 5.3 million then to 10.2 million today, according to Kaiser.

The result is not just higher costs, but also higher premiums for all Medicare beneficiaries.

Because Medicare’s monthly premiums are set at 25 percent of the overall costs of physician and hospital services, if the nation’s Medicare costs are soaring, as they are, the premiums for all seniors on Medicare rise as the higher costs are spread across the program. One estimate from House Democrats shows Medicare premiums are $90 a year higher because of Medicare Advantage.

But health industry studies show Medicare Advantage is popular, and in some cases may be providing better care.

A study released last week by America’s Health Insurance Plans, the leading industry lobby, which represents 1,300 insurance companies, said Medicare Advantage patients in Nevada had 23 percent fewer hospital stays and 33 percent lower readmission rates than those under traditional Medicare.

A 2008 report by the insurance industry pointed to the Medicare Advantage plans’ success in managing chronic health care problems, often using nurse coaches who dial up patients and remind them to take medications and keep doctors’ appointments and watch out for depression. The study noted one strategy at Health Plan of Nevada/Sierra Health & Life, where nurses made 370 calls in languages other than English to make sure patients understood their care.

But as AARP noted in congressional testimony in 2007, the increase in private plan options “has not come without a cost.” AARP advocated a neutral payment system and a gradual scaling back of the extra payments to Medicare Advantage.

But change can be challenging.

Democratic Rep. Shelley Berkley’s office has received many phone calls, e-mails and letters asking about the Medicare changes. The congresswoman explains to her constituents that the billions saved by scaling back Medicare Advantage will be pumped back into “making Medicare better for everybody,” her spokesman David Cherry said.

“To those seniors who come to her for answers, they hear from her a reassurance that she’s not going to let anybody take away Medicare.”

Democratic Rep. Dina Titus also supports the changes.

Often seniors sign up for Medicare Advantage because it allows them to keep using the same health insurance they had through their employer at the workplace after they retire.

President Barack Obama has often said that if you like your insurance plan, you can keep it. More recently, in this month’s joint address to Congress, he altered it slightly: “Nothing in this plan will require you or your employer to change the coverage or the doctor you have.”

But change may come to Medicare Advantage under the congressional proposal. If the insurance companies determine they need the extra payments to make their Medicare Advantage plans pencil out and decide to drop plans, seniors may have to find new forms of insurance. That may be other companies’ Medicare Advantage plans or traditional Medicare.

It could be better, it could be worse. Change is dicey that way.

But one thing is certain: The playing field for all seniors would be more equitable. And the Medicare trust fund would be a little further from bankruptcy.

Lisa Mascaro can be reached at (202) 662-7436 or at lisa.mascaro

@lasvegassun.com.

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