ObamaCare: Taking the ‘Advantage’ Out of Medicare Advantage

By Victor Morawski – Officially dubbed “Medicare Advantage” (MA) in 2003, the program grew out of several Congressional attempts beginning in the late 1990’s to offer consumers a free market based alternative to Medicare’s traditional single-payer Fee For Service (FFS) Plan.

And for many of the approximately 23 percent of current Medicare enrollees who have chosen this option, the program does indeed offer a genuine advantage, having lower premium costs than traditional Medicare enhanced by supplemental coverage and providing them with additional benefits over the FFS alternative.

Yet this very sensible and worthwhile program is right in ObamaCare’s bull’s-eye, slated for $145 Billion in cuts over the next ten years, specifically designed to lower MA’s attractiveness to consumers and to effectively force them back into traditional Medicare. Its own actuaries predict that ObamaCare’s changes will cut in half the number of MA enrollees by 2017.

Why is ObamaCare so focused on attacking MA? For progressives who view ObamaCare as only a step on the way to a complete socialization of medicine in the U.S. by a single-payer system, traditional Medicare has long been their working model for the entire health care system. A free market-based island in the single-payer sea of traditional Medicare, MA is something that they want to eliminate.

The more immediate reason for the attack, however, is that it represents a conveniently available coffer of funds that can be pillaged to help pay for ObamaCare’s extension of health care to 30 million of the now uninsured.

Their claim is that, “Medicare paid Medicare Advantages plans 14 percent (or $1,000 per person on average) more for health services than they did under traditional Medicare, with no measured difference in health outcomes.” So cuts in these payments will not affect outcomes for senior beneficiaries, they argue.

Defenders of MA Plans counter that MA enrollees do receive extra value for the extra payment amounts and that cuts in them will mean real cuts in their benefits.

Reductions to MA payments will be made through ObamaCare by reducing the ‘benchmarks’ from which those payments are calculated. But say Heritage Foundation analysts Robert Book and James Capretta: “Because MA health plans are required to rebate ‘excess’ payments to their beneficiaries in some combination of extra health care benefits, lower copayments, or lower Part B premiums, the reduction in benchmarks will necessarily make MA plans less generous for patients. This translates into a loss in benefits (or money) for patients who stay in MA plans.”

So Obamacare MA cuts will genuinely reduce benefits in the next few years for seniors who have come to depend on this program. What then of the arguments that cuts in MA payments are still justified because MA costs the government more per individual than traditional Medicare? And why is this so?

According to a Johns Hopkins University survey, “The Medicare Modernization Act of 2003 increased payments to private health plans in order to incentivize them to participate in Medicare.” The original thought was that free-market competition among these plans would bring their cost down and that this incentive would not be needed indefinitely — so what happened?

Book and Capretta point out that due to Democratic attempts to sabotage MA plans from the very beginning, true free market competition was never allowed to take place.

Congress rejected a recommendation by a bipartisan commission in the late 1990s that would have had sponsors of FFS and MA plans for a given region submit competing bids for their provision of Medicare services and which would have taken their average bid as what the government would pay for all Medicare enrollees for that region, regardless of which option they chose — putting FFS and MA plans on a level playing field. It was akin “to loosening the highly regulated, administratively determined payment systems for FFS that a move toward genuine competition would require.”

As a result, to this day there remains a discrepancy between government costs for FFS and MA plans. One way various writers view what Paul Ryan is trying to do is not to end Medicare as we know it but to restructure it using its successful private components — MA and Part D — as models in an environment where there is true, legitimate free market competition.

Victor Morawski, professor at Coppin State University, is a Liberty Features Syndicated writer.

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