Medicare's costs will jump by $7.43 billion next year, because of an unprecedented decision by the federal government to change payment rates for private, for-profit Medicare Advantage plans.
The government’s action will result in a huge financial windfall for big health insurers, whose Washington lobbyists pushed hard for the new rates.
Enrollment in privately run Medicare Advantage plans, which cover 13.1 million beneficiaries, was expected to dip sharply over the next few years, because of a planned reduction in government overpayments to these plans.
Studies by the Government Accountability Office and many private groups repeatedly have drawn attention to these overpayments. These studies suggest that if the 13.1 million beneficiaries were enrolled in the traditional Medicare program, their costs of care would have been 14 percent lower than the payments made to the private plans, with no loss in the quality of care.
The overpayments occur because private Medicare Advantage plans tend to enroll healthier, less-costly seniors, yet they receive a larger average payment per enrollee from the government.
The Affordable Care Act also acknowledged these overpayments. Yet the secretary of Health and Human Services, Kathleen Sebelius, has announced that a scheduled 2.2 percent reduction in payments to the for-profit plans this year will now become a 3.3 percent increase instead.
The extraordinary rate-setting directive from Ms. Sebelius to the Centers for Medicare and Medicaid Services (CMS), which spurned historical practice and the advice of the CMS actuary, will result in an obscene windfall for the private, for-profit insurers.
This announcement, leaked shortly before the stock market closed, caused stock prices for the nation’s five largest for-profit health insurers to surge over the next week. That yielded an instant $13.2 billion bonanza for investors.
UnitedHealth reaped the largest windfall. Based on its share of the market, UnitedHealth will receive an extra $1.49 billion from Medicare for its Medicare Advantage plans in 2014, and $14.3 billion to $20.9 billion over the next decade, triggering a $5.04 billion surge in the value of UnitedHealth’s stock.
Other plans saw similar gains. But taxpayers will foot the bill.
It is hard to fathom how we can allow this massive payout to private insurers, when some in Congress are proposing higher premiums, higher out-of-pocket payments, and even vouchers to undermine traditional Medicare, instead of shoring it up. These bonus payments to the privately run plans will further divert resources from the more efficient traditional Medicare program.
Instead of attacking Medicare, we should be improving it and expanding it to all. The traditional Medicare program has worked for more than 50 years to cover our most vulnerable disabled friends, neighbors, parents, and grandparents.
Medicare came into existence because the private insurance industry would not cover seniors and disabled people. Being old and disabled are pre-existing conditions. Medicare would be an excellent model for providing health care to all, and superior to the Affordable Care Act.
The Affordable Care Act will cover only half of the 50 million uninsured Americans. It will cost an extra $100 billion a year, because it builds on a “sickness care” system run by wasteful private insurance companies. Thanks to those companies, our health care is saddled with about $400 billion a year in unnecessary bureaucracy and paperwork.
Studies suggest that by replacing costly private insurers with a streamlined nonprofit agency that pays all medical bills, similar to how Medicare operates today, we could cover everyone and upgrade existing coverage at no added cost.
Research consistently has shown that for-profit health care and insurance produces worse outcomes at higher prices. When will we conclude that health care is a basic human need and provide it to all our fellow citizens, just as we together support education, police, and fire and rescue services?
Expanding Medicare to all Americans would save lives and money. It is the right thing to do.
Dr. Johnathon Ross of Ottawa Hills is past president of Physicians for a National Health Program, which supports single-payer national health insurance.