Understanding Health Reform's Real Impact on Medicare

Mark Miller

When critics warn seniors that health care reform will decimate their Medicare, what they're really talking about is the proposed cuts to Medicare Advantage--the all-in-one private Medicare option.

The legislation moving through Congress is funded, in part, by cutting $154 billion over 10 years from federal reimbursements to Advantage plans. That has opened the door to claims that the reform bill is "cutting Medicare." But seniors shouldn't confuse reductions in these reimbursements with cuts to basic Medicare.

That isn't being proposed. And, a new report to Congress shows that there's plenty of room to cut Advantage reimbursements without jeopardizing patient care.

Medicare Advantage plans offer all-in-one medical and drug coverage. Most are managed care HMO or PPO plans, and enrollment has been growing rapidly since 2003, when the Bush Administration beefed up the programs.

The idea was to revitalize privatized Medicare options by boosting federal payments. As a result, Advantage plans receive 14 percent more per-patient than what is spent on basic Medicare beneficiaries. A good deal of the Medicare savings proposed under the reform legislation would come from pulling back Advantage reimbursement rates over several years to match those of basic Medicare.

That should be doable, since the basic proposition of managed care is to deliver more health care more efficiently.

Now comes a little-noticed report to Congress that shows just how much Advantage programs can be tightened up. The report, prepared by the majority staff of the U.S. House Committee on Energy and Commerce, examined the books of 34 major Advantage plans. The committee requested--and received--detailed financial information from the insurance companies on their insurance plans--and also on executive compensation, bonuses, stock options and travel perks.

Here are some of the key findings of the report:

--Medicare will pay $12 billion more for Advantage beneficiaries this year than it would if the beneficiaries had participated in basic Medicare.

--Advantage plans are spending less of every premium dollar on actual medical care delivery than basic Medicare. This is measured through a statistic called the "medical loss ratio"--the percentage of premium revenues that plans spend on care; two-thirds of Advantage plans reported ratios under 85 percent for at least one year between 2005 and 2008, and one plan spent as little as 36 percent of its revenue on care in 2007. Overall, the plans reported average loss ratios of 85 percent--but that is far less than traditional Medicare's 98 percent ratio.

--One insurance company with a 2007 loss ratio of 79 percent paid over $35 million to a single executive that same year, and compensation packages worth more than $1 million each to 16 other executives.

--In 2008, the company with the lowest ratio (66 percent) awarded $34 million to 16 executives.

--Twenty-three companies with loss ratios under 85 percent spent $121 million on 355 corporate retreats for executives, insurance brokers and board members between 2008 and 2009. One company with a loss ratio of 82 percent in 2008 spent nearly $2 million that year to send 445 employees to Cancun, Mexico for a week-long sales meeting, and spent another $1.5 million for another meeting in Edinburgh, Scotland.

The report also raises questions about the quality of Advantage programs, noting that only half of the Advantage plans offered nationwide receive "above average" ratings from the Centers for Medicare and Medicaid Services, which publishes annual rankings based on its own analysis of patient outcomes and customer satisfaction ratings.

Aside from these findings, there's the challenge Advantage participants face when they shop for plans. Enrollment for Advantage and Medicare D prescription drug plans occurs during a six-week window from November 15 to December 31st each year.

Many plans revise their benefits annually--especially the drug coverage--which means consumers need to shop annually to assure they're getting the best possible coverage. Shopping is extremely difficult due to the complexity of the offerings; you can find my annual guide to plan shopping here: http://bit.ly/1tGd5w.

And, if you'd like to read the provocative findings about Advantage plans in the report to Congress, download it here: http://bit.ly/8BdH1q

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Understanding Health Reform's Real Impact on Medicare