The Rural Patriot

October 13, 2006

Medicare Privatization Report Released Today

Filed under: Federal Government,Health Insurance,Medicare D — theruralpatriot @ 6:08 pm

The group, Families USA, released their 16 page report: Medicare Privatization: Windfall for the Special Interests. They analyze the impact of the Medicare Modernization Act of 2003 (MMA).

But now, nearly three years after passage of the MMA, the move to privatize Medicare has resulted in windfalls for the drug and insurance industries and huge costs to both taxpayers and beneficiaries.
…This report analyzes three aspects of Medicare that were affected by the MMA: 1) payments to the private managed care plans that participate in the Medicare Advantage program; 2) special funding provided by Congress to promote regional Medicare PPOs; and 3) the cost implications of offering the new drug benefit through private plans rather than through the Medicare program. In all three areas, our analysis found that Medicare is overpaying the drug and insurance industries for products and services that Medicare could provide directly for far less. Overpayments to Medicare Advantage plans and regional PPOs could easily cost more than $60 billion over the next 10 years. Billions more will be spent on overpriced prescription drugs.

Who wins? The winners are the special interests – the drug and insurance industries – that are enriching themselves at taxpayer expense. This waste of Medicare dollars is particularly troubling at a time when experts such as Medicare’s trustees are raising concerns regarding the long-term fiscal health of the program. The billions wasted on subsidizing these special interests could have been invested in the Medicare program to hold down costs and enhance benefits. Instead, they will go into the coffers of the insurance and pharmaceutical industries.

The report provides evidence on the subjects of how “Private Medicare Advantage Plans Cost More, Not Less”, and “The Cost of Overpayments” (2005 – $546 per beneficiary/$2.7 billion total; estimated 2006 – $770 per beneficiary/$4.6 billion total; estimated 10 year overpayment cost – $50 billion). They cover Preferred Provider Organizations (PPOs) where Congress had set up additional subsidies ($10 billion over 10 years). The report’s analysis determines that the subsidies are unnecessary.

They dissect the Medicare Part D prescription drug program and extensively compares this program’s costs to those of the Department of Veterans Affairs (VA) program, “where the government negotiates on behalf of consumers”.

The federal government has often used its negotiating power in other contexts to obtain good prices on purchases. The Department of Veterans Affairs (VA) uses the bargaining power of the 5 million veterans and dependents the program serves to negotiate the drug companies for reduced prices. Logic would seem to dictate that Medicare, with the bargaining power of 43 million enrollees, could do even better. However, when Part D was created, Congress included provisions that explicitly prohibit the Medicare program from negotiating with drug companies. Instead, Congress handed the bargaining power to private drug plans, insisting that those plans would secure lower prescription drug prices through marketplace competition.
When it comes to achieving reduced drug prices, private Part D plans are hardly living up to the promises made by their supporters in Congress. Marketplace competition has not resulted in drug prices comparable to those secured by the VA. And although there has been no precise estimate of the additional costs foisted on both taxpayers and beneficiaries, these costs likely run into the hundreds of billions of dollars.

The report then moves to the category of Consequences.

“Gains to the Insurance and Drug Industries”,

The MMA has directed billions of taxpayer dollars to inflated payments to private insurance plans and overpriced prescription drugs, benefiting the insurance and pharmaceutical industries. Early on, these industries recognized that the changes made to Medicare could yield new – and significant – profits. They have not been disappointed. Less than a year into the Part D program, insurance companies have seen sizable growth in income and earnings.
Even the design of the Part D drug program has helped the drug and insurance industries. The Park D coverage gap (the “doughnut hole”), for example, is a profit-making dream for insurers. During the gap, Part D plans pay out no benefits, but they continue to collect monthly premiums. And the transfer of dual eligibles (Medicare beneficiaries who also have Medicaid coverage) from Medicaid drug programs to Medicare Part D has been a little-recognized boon to the drug industry, as well as being profoundly disruptive to beneficiaries.

“Privatization: The Harmful Impact on Beneficiaries”

…In future years, the size of the deductible, the point at which the doughnut hole starts, and the overall size of the doughnut hole itself will all increase, In 2007 alone, these levels will increase by nearly 7 percent….Overpayments to Medicare Advantage plans have a subtler, but still insidious effect on beneficiaries. Continual overpayments and subsidies for private Medicare Advantage plans undermine traditional Medicare by dividing the pool of Medicare enrollees between the younger and healthier on one hand and the older and sicker on the other. .. traditional Medicare is left with a sicker population that is more costly to cover. And as costs go up, so do premiums.

“Privatization: The Harmful Impact on Taxpayers”

In Medicare Advantage, taxpayers are providing ever-increasing subsidies for something that is entirely unnecessary. Congress has given an artificial advantage (and huge windfalls) to private Medicare Advantage plans compared to what traditional Medicare is paid. It has repeatedly stacked the deck to make sure Medicare Advantage plans prosper.

The report’s final section is the “Conclusion”

…privatization is moving Medicare away from its fundamental mission… Privatization is moving Medicare toward a model in which the nation’s health care dollars are used to enrich special interests. This trend should be stopped in its tracks – major changes in Medicare policy could reduce overpayments to private plans, eliminate and unneeded stabilization fund, and save untold billions of dollars lost due to overpriced prescription drugs.

I wish I could say that I find the above report’s findings surprising; however, I watched much of the debate for this bill prior to its passage. Many of the items above were discussed as realistic possibilities by those who had opposed the bill. Supporters wrote off these concerns and promoted its perceived benefits. The plan even had the support of AARP at the time, although they are now going to push for changes to the program. And, if you remember, the estimated cost of the program has changed tremendously since it was voted on:

$400 billion over 10 years at time of vote (2003); 12/03 – estimated $534 billion; 2/8/05 – estimated $1.2 TRILLION, but with other offsets, would be $720 billion.

Since Rep. Kuhl was not a congressman for the 2003 vote on this issue, I thought I’d take a look to see where he stood on the issue. Rep. Kuhl’s campaign website contains the following paragraphs:

In 2003, Congress passed sweeping Medicare reform, which included Medicare Part D, a voluntary prescription drug coverage program for America senior citizens. Prior to Medicare Part D, many seniors in the 29th District had no prescription drug coverage and were forced to spend a large portion of their fixed income on prescription drugs.

Today, thousands of seniors in the 29th District have enrolled in Part D and are saving on average $1,100 per year on their prescription drug benefits. The Medicare prescription drug benefit is working for seniors in the 29th District and throughout the nation, however, some seniors still have not signed up for this valuable benefit. But after talking with friends and neighbors about the successes of the program, they would now like to enroll in Part D and take advantage of affordable prescription drugs. Those seniors should not be penalized for failing to sign up by the May 15, 2006 deadline. Therefore, I have cosponsored legislation (HR 5173) which will waive the late enrollment penalty for seniors who sign up for the program by January 1, 2007. I have also urged the Speaker and Majority Leader to bring the bill up on the floor as soon as possible.

It looks that his view of the program, with the exception of the enrollment issue, has no negatives. I’m also curious about the sourcing of the $1100 figure; there is no supporting reference as to how this figure was derived.  And for your reference, I sourced HR 5173:

HR 5173: Official Title: To amend title XVIII of the Social Security Act to suspend the Medicare prescription drug late enrollment penalty during 2006. Introduced: Apr 25, 2006; Last Action: Apr 25, 2006: House Energy and Commerce: Referred to House Ways and Means…This bill is in the first step in the legislative process. Introduced House bills go first to House committees that consider whether the bill should be presented to the House as a whole. The majority of bills never make it out of committee.

It looks as though this bill and the Democratically sponsored bill HR 5263 “to extend the 2006 and 2007 initial enrollment periods” are stuck in committee (Latest Major Action: 5/15/2006 Referred to House subcommittee. Status: Referred to the Subcommittee on Health.)

Well, maybe next year something will be done to address the points raised by the Families USA report; maybe not.  I’m not holding my breath.

( November 7 is only 25 days away. Don’t forget to vote.)


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