Seniors Would Save Far More Than They Lose
Like Ezra, I am impressed by health-care economist Austin Frakt's analysis of Medicare Advantage (MA) . I wrote about it here . A quick summary: "under Obama's plan a small fraction of Medicare beneficiaries will lose their MA benefits and/or face higher costs. However, the potential savings are enormous and research shows that the benefit cuts needed to achieve them will not be terribly missed."
At the same time, Mark Kelley tells us that his patients love their Medicare Advantage HMO plans, and that before giving up on MA, the government should look at plans "on a case-by-case basis, examining the performance of every contractor."
Kelley is right: there are individual insurers out there providing value for tax-payer dollar. But these are insurers who offer the Medicare HMOs that he is talking about. These HMOs do a much better job of managing costs than Medicare Private Fee-For-Service plans (PFFS).
The average PFFS plan receives $114 more per member per month than traditional Medicare would spend on the same senior. Meanwhile, it delivers "extra" benefits worth $35 a month. And who is paying the $114 tip? Medicare Advantage is financed by traditional Medicare.
Thus the 78 percent of Medicare beneficiaries who have stuck with traditional Medicare are funding the bonus for PFFs. Not only that, they're spending $3 for $1 of extra benefits going to someone else. This hardly seems fair.
Why are PFFS so expensive? They are not designed to rein in spending. Quite the opposite, "fee for service" encourages over treatment: the more a provider does, the more he is paid. Let me be clear: very, very few doctors recommend tests and treatments that they know their patients don't need. But there are so many gray areas in medicine, and this is where fee-for-service does create an incentive to "do more."
By contrast, the Medicare HMOs that Kelley is talking about receive a fixed annual payment for every beneficiary. It's up to them to figure out how to use that money to keep their patients healthy. If they fail, the cost of patient care may exceed the yearly payment.
These HMOs "bid" for patients, telling Medicare how much they think they will need to care for the average patient for a year. The 2009 Medicare Payment Advisory Commission (MedPAC) report explains that this year, the average HMO is offering to provide patient care for 2 cents less than it would cost traditional Medicare. So for every dollar spent, the average beneficiary in a Medicare HMO receives an extra 2 cents worth of benefits. The quality of the HMOs varies widely; the more established HMOs typically offer the best value, MedPAC observes.
This suggests that some private insurers have found ways to enrich the benefit package by being more efficient. This stands as persuasive evidence that private insurers do not need corporate welfare. They can provide comprehensive care without spending more than traditional Medicare. The best HMOs have figured out how to do this and Kelley is not the only witness who reports that patients are satisfied with the results. I have heard from patients and doctors in the Northwest where Medicare Advantage is working well. Often, the insurers are non-profits.
But don't some expensive Medicare Advantage programs provide freebies that seniors like, such as eyeglasses frames and gym memberships? Yes, they do. But there is no reason that the 78 percent of seniors who have stayed with traditional Medicare should be footing the bill for the 22 percent in Medicare Advantage--especially when they are paying three times what the benefits are worth. Nor is there medical evidence that most of these extras improve health.
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