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ALJ/MAC Decision Database


Quacks Like a Duck:
Subsidies to Private Medicare Plans


Apparently not all cost overruns are created equal. Case in point: the well-documented, $150 billion subsidies being paid to private Medicare plans – about 12% more than would be due for enrollees in the regular Medicare program. The Senate failed to follow the lead of the House of Representatives to protect the integrity and stability of the Medicare program by cutting these subsidies. The Administration threatened to veto any bill that even trimmed the subsidies, under the guise of being against legislation that reduces choice and access for Medicare beneficiaries.


Thus the subsidies continue for another year, notwithstanding repeated studies and little debate about their wastefulness. (See, "Two Insurers Increase Bet on Medicare," Milt Freudenheim, NY Times, 12/5/2007.) Even with the subsidies, many private Medicare plans are reducing coverage and adding to patient cost-sharing. Meanwhile, all beneficiaries and taxpayers bear the financial burden of maintaining the extravagant overpayments. Unless action is taken, private Medicare plans will collect a total of $150 billion in subsidies, while doctors who care for Medicare patients face a 10% cut in payments.


The private plan overpayments affect all Medicare beneficiaries. They lead to increases in Part B premiums and encourage plan proliferation and marketing abuses by companies looking to benefit from the robust Medicare payments. These overpayments affect all Americans by weakening the financial stability of the Medicare program and by increasing federal expenditures.  Even a recent study issued by a for-profit insurance industry group shows that, at best, private Medicare plans spend 300-400% more on administration than traditional Medicare.[1]


The lavish subsidies to private plans continue at the same time that we are repeatedly warned, in solemn tones, that "we just can’t afford Medicare" for our ever-increasing aging population. The Administration rails at fraud, waste and abuse throughout the federal government, yet the President and a powerful minority in the Senate were able to block action to reduce the billions of dollars in overpayments to corporate Medicare. As a result, taxpayers, most people with Medicare, and doctors are losers.  Private corporations win – big time.


Some claim that the 20% of Medicare beneficiaries enrolled in private plans will lose benefits and oversight if payments to Medicare Advantage plans are cut.  But many private plans are cutting benefits and passing along additional costs to Medicare beneficiaries anyway – even though they continue to be paid far more than traditional Medicare. Further, there is no evidence that private Medicare plans provide more care coordination than is available in traditional Medicare. In fact, beneficiaries who choose an MA plan are likely to find that it limits the doctors and other health care providers they can use. The traditional program allows them freedom of choice among almost all providers - that's the kind of choice that matters to people.  


Private plans do not provide the flexibility or stability of the traditional Medicare program, which covers 80% of all beneficiaries, and they should not be paid more than traditional Medicare. The overpayments to private Medicare plans look, smell, and act like a boondoggle.  As Chico Marx said in Duck Soup, "Who you gonna believe, me or your own eyes?"

[1]  Council for Affordable health Insurance, Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector (Based in Part on a Technical Paper by Mark Litow of Milliman, Inc.),  Merrill Matthews, Ph.D. January 10, 2006.


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