Mark,

I do take exception with your characterization of Medicare Advantage (MA). I do agree that MA's design "virtually guarantees" that it will be more expensive. But who designed MA? It was a Republican Congress and Republican President who wanted to privatize Medicare.

Originally, MA plans were limited to payments of no more than 95% of regular Medicare. The reasoning was that private, free-market practices would be more efficient, thus reducing the cost for this program. Medicare recipients would get the same service, but at a lower cost to taxpayers.

It turned out that insurance companies could not make money if limited to 95% of the cost for regular Medicare. So the rules were changed -- rules that allow insurance companies to make more money. That is why MA plans now cost between 13% and 19% more than regular Medicare.

MedPac (the Medicare Payment Advisory Commission) has long recommended that MA plans be paid no more than regular Medicare. Congress, however, led by putative fiscal conservatives, has consistently ignored this advice.

MedPAC does recognize that a handful of HMOs are able to compete with regular Medicare. These HMOs cost about 97% what regular Medicare costs. They are, however, the exception and not the rule.

Finally, a recent report in The New York Times would challenge your conclusion that the costs from MA plans "come not from insurance company inefficieny or profiteering, but from the extra benefits shoehorned into it."

The Times, reporting on Humana's first quarter profits has this to say: According the Humana, "increased Medicare Advantage membership helped its first quarter profit rise above Wall Street's expectations."

If insurance companies were simply a pass through and didn't make more money through MA, then the number of MA clients wouldn't make any difference. Indeed, MA is a big profit center for insurance companies.

Other than that, your comments about insurance companies and MA plans were ok.

In particular the Private Fee For Service (PFFS) MA plans are a bad deal and MEDPAC would like to get rid of them.

Alan,

I think the problem with the "no more than 95%" model wasn't just that insurers couldn't make money. It was that insurers' couldn't make money with a plan that seniors actually wanted to join.

The typical MA HMO plan (80% of MA plans) does in fact cost 97% of what Medicare does, if (yes, I know it's a big "if") you take out the rebates and incentives.

By the way, while I don't get into it in the story, I might offer an even more vigorous defense of MA. The bottom line is that it is more expensive than ordinary Medicare. But the way that the standard Medicare program controls costs winds up punishing seniors who are unable to afford even fairly small co-payments and deductibles. That to me seems like bad policy, to a point where I would call it morally callous.

Mark

Mr. Gimein, thanks for taking time to engage in the Fray.

But, I have to say, your whole take on MA seems like a truism: You have to spend more to get more. No one originally argued that MA would cost more, it was proposed as a way to save money which is why MA Plans were supposed to only receive 95% of the average costs of covering a beneficiary. As it turned out the 95% was a gross overpayment anyway as the benes who enrolled in Medicare Choice plans were healthier than the average beneficiary and used far fewer services. They would have cost less to cover under regular Medicare.

If all we wanted was for Medicare benes to have more benfits we could eliminate the middleman and simply give them more benefits. In the end if MA Plans don't save money, there is no reason to have them.

Steve,

We may have very little disagreement. I absolutely agree, the original idea behind MA was that it would cost less. Then incentives and entitlements were added to it, and it now costs more. My point was not that MA is a good idea--only that you can't use it as an example of how private insurance is more expensive than Medicare.

As it happens, I think that some of these additional benefits should be included in any health plan. Or there should at least be some provision to waive Medicare's co-payments for poor beneficiaries. (Something that in practice some doctors already do, despite the fact that the government, in a nearly Orwellian twist of language, considers it "Medicare fraud")

Mark