Competition in Medicare programs: Boon or boondoggle?
June 13, 2013
Does competition to provide insurance for Medicare recipients reduce costs? Or does competition simply increase the tab picked up by taxpayers?
Dr. Ida Hellander, policy director for Physicians for a National Health Program, a nonprofit research and advocacy group, thought taxpayers should know the answers to these questions.
In her research study published in the International Journal of Health Services, Hellander found that competing insurance programs, called Medicare Advantage plans, did not save money. In fact, since their introduction, the private (mostly for-profit) insurance programs have cost taxpayers an extra $282.6 billion.
Hellander adds, "In 2012 alone, private insurers are being overpaid $34.1 billion." This money, Hellander believes, should have been used to reduce the federal deficit, shore up Medicare's trust fund or improve patient care — not to enrich private insurance companies.
(B)ecause of the added benefits, the lower premiums and the need to make a profit, the Advantage programs cost Medicare about 25 percent more than the traditional Medicare program.
In 1985, Medicare contracted with private (mostly for-profit) insurance plans such as UnitedHealth and Humana for coverage of Medicare enrollees in a plan called Medicare Advantage. The idea was that Medicare Advantage plans would compete with the traditional fee-for-service Medicare insurance.
Ironically, part of the argument for introducing the Advantage plans was that the competition would lower Medicare costs. Indeed, since their inception, the Advantage plans have become increasingly popular because they offer enrollees additional benefits at reduced premiums. But because of the added benefits, the lower premiums and the need to make a profit, the Advantage programs cost Medicare about 25 percent more than the traditional Medicare program.
Medicare currently pays these privately run plans a set premium per enrollee (about $10,123). This amount is $2,526 more than the premium paid for enrollees covered under the standard Medicare plan.
About 27 percent of Medicare beneficiaries are currently covered under Medicare Advantage plans. Given how profitable the Advantage plans are for private insurers and how attractive the expanded benefits and lower premiums are for enrollees, this number is expected to grow at a fast clip.
Just how profitable are these programs for the private insurers?
UnitedHealth Group could afford to bump the annual compensation of its chief executive officer, Stephen J. Hemsley, to $13.9 million from $13.4 million in the prior year. The increase was based in part on his leadership in solidifying the company's position as "the biggest provider of the privately run, subsidized versions of the government's Medicare program for the elderly and disabled people."
Guess who's subsidizing Mr. Hemsley's salary? Look around. It's you, me and other taxpayers.
Dr. Steffie Woolhandler, coauthor of the study, concludes, "It's clear that having Medicare Advantage programs compete with Medicare doesn't save us money. In fact, the opposite is the case. The private plans only add waste, and the aggregate waste is staggering — enough to be a significant drag on the economy."
Can taxpayers afford the extra cost to help private insurers make a profit from Medicare? Given the intent of Medicare to provide basic healthcare coverage to all enrollees, should all enrollees receive the same benefits? Or are some recipients entitled to expanded benefits at reduced premiums? If so, should taxpayers cover the cost of paying for these extra benefits and lowered premiums?
Or does a single-payer, not-for-profit model with universal benefits and premiums make more financial sense?
What do you think?
Carole Carson lives in Nevada City.