Eliminating Overpayments a Must

Posted March 9, 2008 at 10:59pm

For 43 years, traditional Medicare has been a reliable source of health care for our nation’s seniors and disabled. If not for Medicare, some of our most vulnerable populations would have little, if any, way to access important medical care.

Despite its tremendous success, Medicare has come under continuous attack from Washington, D.C., Republicans who refuse to acknowledge the program’s achievements and use every attempt to dismantle the program through privatization. We all remember the now infamous words of former Speaker Newt Gingrich (R-Ga.), who said he intended to allow Medicare to “wither on the vine.”

Medicare Advantage is the private insurance program that Republicans created to accomplish their nefarious goals. They claimed private plans through Medicare Advantage would produce significant savings to both Medicare and the American taxpayer. The exact opposite has occurred.

The Medicare Payment Advisory Commission, Congress’ expert advisory board on Medicare payment policy, estimates that Medicare Advantage plans were paid, on average, 13 percent more than it costs the traditional Medicare program to cover the same beneficiaries — a difference of $1,000 per beneficiary.

Furthermore, a new report from the Government Accountability Office concludes that of the $59 billion that Medicare paid the Medicare Advantage program in 2006, $7.1 billion could have been saved if Medicare Advantage beneficiaries were instead covered under the fee-for-service plan. The report estimates such overpayments to Medicare Advantage will cost Medicare an additional $54 billion from 2009 to 2012.

Not only are we overpaying private insurers through Medicare Advantage, but the American taxpayer is losing even more money because Medicare Advantage has proved to be less efficient than traditional Medicare. While Medicare spends anywhere from 95 percent to 98 percent of its overall funding on medical expenses, GAO found that, on average, Medicare Advantage plans spend only 87 percent of their total revenues on medical expenses. Instead, the remainder of their revenue goes to administrative costs, marketing and profits.

Never should we forget these are private insurance companies whose main goal is to make money, and that’s perhaps why nearly one-third of Medicare Advantage beneficiaries are in plans that spend less than 85 percent on actual medical expenses.

It goes without saying that using 15 percent or more of revenue on profit and marketing — at the expense of direct medical services for beneficiaries — is poor management that is not in line with the purpose of Medicare.

Medicare Advantage plans also claim to offer added value and services to their enrollees, but again the GAO concluded cost sharing for services such as home health services, inpatient services and durable medical equipment and supplies were, on average, higher in these private plans.

If Republicans are so confident that Medicare Advantage is superior to traditional Medicare, they should allow it to stand on its own and join us in eliminating the corporate welfare they created in order to make these private plans more appealing to our nation’s seniors. These excessive payments are wasteful and result in unnecessary costs to the overall program, its beneficiaries and the American taxpayer.

However, rather than eliminate this wasteful spending, both the Bush administration and Congressional Republicans continue to support billions of dollars in subsidies to the insurance industry in an attempt to privatize the Medicare system.

Last year, MedPAC recommended that one of the best ways to shore up the Medicare trust fund was to end these unnecessary overpayments. Such action would add three years of solvency to the Medicare trust fund and lower the premiums for beneficiaries enrolled in both traditional and Medicare Advantage programs. Today, all Medicare beneficiaries are subsidizing these private plans through higher monthly premiums.

Last year, in the House-passed Children’s Health and Medicare Protection Act, we eliminated these overpayments, which the Congressional Budget Office concluded would save more than $157 billion over 10 years.

Unfortunately, the Senate did not follow suit. And this year President Bush ignored MedPAC’s common-sense recommendation when he failed to end, much less reduce, these costly subsidies to the private insurance companies in his fiscal 2009 budget proposal.

While the president protected the insurance industry, he had no problem proposing nearly $183 billion in cuts to Medicare over the next five years. The cuts are focused primarily on hospitals, nursing homes and health care providers. These are the very services that our seniors need the most: access to health care, inpatient treatment and long-term care.

At a time when Medicare faces significant future challenges stemming from skyrocketing health care costs and the impending retirement of baby boomers, it defies reason to continue wasteful spending through the Medicare Advantage program that only serves to pad the pockets of the insurance companies.

Through Medicare Advantage, insurance companies have made out like bandits all at the expense of the American taxpayer and Medicare beneficiaries themselves. This private program offers few additional benefits, higher administrative costs, and, in some instances, higher cost-sharing.

Congress has a responsibility to act on behalf of all Medicare beneficiaries to protect the future of Medicare. We must continue to fight back efforts from those who want to see the demise of Medicare through its privatization. That is why Congress should try again to end this wasteful subsidization of the insurance industry and refocus our attention on strengthening Medicare to better serve our seniors and disabled.

Rep. Frank Pallone (D-N.J.) is chairman of the Energy and Commerce Subcommittee on Health.