The De-Privatization of Medicare

From MassCare

Most of you will have missed a short article tucked away in today’s Boston Globe, which – when put in context – speaks volumes about our health care system. Robert Weisman reports that Harvard Pilgrim will be canceling all of its Medicare Advantage plans in Massachusetts and two other states, and will instead offer a plan allowing seniors to purchase supplemental coverage to traditional Medicare:

Medicare Advantage plans were created in 2003 under George W. Bush and a Republican majority in both houses of Congress to privatize Medicare: it allowed seniors to choose a private insurance company to manage their Medicare benefits instead of the traditional public Medicare plan. The law was essentially written to intentionally overpay Medicare Advantage plans compared to the publicly managed Medicare program; it allows them to cherry pick enrollees in parts of the state with the highest reimbursement rates; and Medicare Advantage plans have often used this
overpayment to offer more extensive benefits and lure seniors away from public Medicare. This is not exactly what you would call an open market with a level playing field! The number of seniors enrolled in privatized, Medicare Advantage plans has ballooned to 28% of all seniors in 2008, and insurance companies that provide Medicare Advantage coverage have been paid on average 14% more than it costs our public Medicare plan to cover the same people.

Sounds like a lucrative business – so why would Harvard Pilgrim be jumping ship in Massachusetts? The answer is national health reform. It was a priority of Democrats to start reducing those overpayments to private insurance companies, for the simple reason that the country cannot afford it. This proposal, you may remember, elicited nationwide fear-mongering that Obama was attempting to slash benefits for seniors.
However, death-panels and granny-killing aside, the new national health reform will freeze Medicare Advantage reimbursement rates in 2011 and slowly begin eliminating the 14% overpayment in the following years.

This suddenly puts in perspective Harvard Pilgrim’s decision: “We became concerned by the long-term viability of Medicare Advantage programs in general,” said Lynn Bowman, vice president of customer service at Harvard Pilgrim.’ In short, Harvard Pilgrim does not believe it can compete with traditional Medicare on an even playing field, and is getting out of the business.

Traditional Medicare is not a single payer insurance plan for seniors. The efficiency of a single payer system comes from providers – hospitals, doctors offices, nursing homes, etc – dealing with only one payer. That one payer is also able to plan and budget across the health care system. Medicare can not do any of these things and, like the private sector, faces unsustainable cost growth. However as a public insurance program, Medicare is much more efficient than a private insurance company, spends less on overhead expenses, and is able to set lower but equitable rates for providers.

Today’s article tells us an interesting story about the incredible waste of our private insurance system, and the growing role it plays as an unnecessary middle man that drives up our costs.

Read the Globe article here.

Read the Congressional testimony from MedPAC – the independent agency tasked with overseeing Medicare’s fiscal solvency – about overpayments to Medicare Advantage (start at page 17).