The Medicare Vote

by hilzoy

On Wednesday, the Senate passed a Medicare bill by unanimous consent (the vote on cloture, which was the important one, passed 69-30. Guess who the missing Senator was.) It did two main things. First, it blocked a pay cut of 10.6% to doctors. This is a good thing: we can debate reforms to physician compensation under Medicare, but cutting fees by 10.6% across the board, not as the result of, well, thought, but because a deadline had expired and no one could figure out a way to agree on how not to have those cuts kick in, is surely not the way to do it.

The reason Congress was having trouble finding a way not to make that cut was because they had the curious idea that they should, well, find a way to pay for it. As it happens, a really wonderful way was at hand: cutting reimbursement for Medicare Advantage programs.

Paul Krugman has a good summary of what these programs are, and what’s wrong with them:

“The story really begins in 2003, when the Bush administration rammed the Medicare Modernization Act through Congress, literally in the dead of night. That bill established large de facto subsidies for Medicare Advantage plans — plans in which Medicare funds are funneled through private insurance companies, rather than directly paying for care.

Since then, enrollment in these plans has been growing rapidly. This has had a destructive effect on Medicare’s finances: the fastest-growing type of Medicare Advantage plan, private fee-for-service, costs taxpayers 17 percent more per beneficiary than Medicare without the middleman. It also threatens to undermine Medicare’s universality, turning it into a system in which insurance companies cherry-pick healthier and more affluent older Americans, leaving the sicker and poorer behind.”

The basic idea is that it would be good to have private plans competing with Medicare. We could debate this: would it be better for all concerned to have Medicare patients in a single risk pool? Or would private companies be able to find new and innovative ways to save money? However, one thing that seems pretty clear to me is: if we want competition between Medicare and private plans, that competition should be on a level playing filed. But that’s not what Medicare Advantage does. It pays companies 13% more (pdf) per patient than straightforward Medicare does. And whatever your views about having private plans compete with Medicare on a level playing field, there’s very little to be said for paying them 113% of what Medicare pays, per patient, and calling that “competition.”

But surely, you might think, these plans must provide better service, or better something, for all that money. Actually, though, they’re not all that efficient, and for some seniors, they’re a very bad deal. The CBPP summarizes (in a very good fact sheet on MA programs):

“While it is difficult to assess differences in the quality of care between Medicare Advantage and fee-for-service due to the lack of comparative quality measures, levels of beneficiary satisfaction were relatively similar, with traditional Medicare receiving slightly higher ratings than Medicare Advantage with regard to beneficiaries receiving care they needed, overall quality of care, and patient satisfaction.

The quality of care appears to vary widely across private plans. The Congressional Budget Office concluded that “though Medicare Advantage plans cost more than care under the FFS program does, on average, they would be more cost-effective if they delivered a sufficiently higher quality of care. The limited [quality] measures available suggest that Medicare Advantage plans are not more cost-effective than the FFS program” (emphasis added).”

There are undoubtedly many reasons for this, but one is obvious (pdf):

“The excess payments to private plans allow them to be less efficient than they would otherwise have to be, because inefficient plans can use the excess payments—rather than savings from efficiencies—to finance extra benefits that in turn attract enrollees to such plans.”

(Medicare Advantage programs have other problems as well: there have been persistent charges of deceptive and abusive sales tactics, which are particularly troubling snce they’re used on the elderly. In addition, they have been accused of rigging their reporting to boost their Medicare reimbursements.)

So, long story short: these programs are supposed to introduce competition into Medicare. But instead of a fair competition, these plans receive a very large advantage over traditional Medicare. One reason for this is precisely that they don’t have to compete on a level playing field, and thus don’t have enough incentive to be efficient. (If I had a guaranteed 13% cash advantage over my competitors, I might not feel the need to compete much either.)

The Congress decided to cut back on the subsidies to these programs. According to the CBO, this would save $12.5 billion from 2009-2013 period and $47.5 billion from 2009-2018. The Republicans in the Senate blocked this by one vote a couple of weeks ago, but after some fairly intense lobbying over the recess and the sudden appearance of Senator Kennedy (the one vote the Democrats needed), they changed their mind.

Bush, of course, plans to veto the bill, though its majority in both houses is veto-proof, if it holds. His reason is interesting: “”Taking choices away from seniors in order to pay for the reimbursements for physicians is the wrong way to pass this bill and to extend the reimbursements that we want to see physicians get,” said White House spokesman Tony Fratto.” — The bill itself takes no choices away. The only way seniors’ choices would be affected is if some Medicare Advantage programs can’t survive in a fair competition with Medicare. But if they can’t, I don’t know why we should subsidize them in the first place.

As long as the Medicare Advantage program is set up to give an unfair advantage to private plans, I can’t imagine why anyone outside the insurance industry would support it. Good for the Congress for taking them on. And good for them as well for making hard choices about how to pay for what they do — even though this choice isn’t all that hard intellectually, it was vehemently opposed by a fairly wealthy set of lobbyists, ad it would have been easy for the Congress just to raise the doctors’ reimbursements without paying for it.