If you're a senior citizen or just happen to know one, you're probably familiar with the flaws in the Medicare Modernization Act (MMA) -- the legislative monstrosity that Congress enacted, after one very long night in 2003 when Tom DeLay held the vote open for three full hours to intimidate a majority of unwilling members into voting for the bill. It prohibits Medicare from bargaining with drug companies over the price of their medications. It fails to cover seniors' medications if their annual costs rise over a specified level, only to mysteriously resume coverage once costs rise over a higher specified level. It costs taxpayers trillions in order to make pharmaceutical companies billions. You've heard this all before. You know the drill. Or do you?
On balance, even a poorly conceived drug benefit is -- though just barely -- a net plus for Medicare beneficiaries, if not for taxpayers. But tucked deep inside the act were a series of provisions aimed at realizing the long-running Republican goal of privatizing Medicare. They augment decades-old efforts by the GOP to use tax revenue and government regulation to advantage private plans and handicap traditional Medicare -- effectively overpaying the private sector in order to help it outcompete the public one. This strategy, however, had been a proven policy failure. The MMA gave it a new lease on life.
Conservatives have never liked Medicare. Wall Street Journal editorialists have long derided the program for imposing a "Soviet-style bureaucracy," applying arbitrary and rigid price controls on the health-care system and thereby supposedly stifling health-care innovation. Newt Gingrich was even more forthright in his plans to kill the program: "Now, we don't get rid of it [Medicare] in Round 1 because we don't think that's politically smart. But we believe it's going to wither on the vine because we think people are voluntarily going to leave it -- voluntarily."
But whether conservatives try to gut the program in Round 1, 2, or 12, Medicare is enormously popular. The GOP's only way out of this dilemma is to stack the deck: Use taxpayer money to make the private health insurance alternatives to Medicare so enticing that beneficiaries voluntarily desert the traditional program, and it perishes from neglect. The first attempt at unleashing the private sector on Medicare came in 1982, when Congress created legislation allowing beneficiaries to choose between the traditional Medicare program or privately administered Medicare plans that the government paid insurers to offer. The private plans had to provide benefit packages at least as good as what Medicare itself guaranteed and, once upon a time, they were expected to do so at a lower cost. If the insurers could work the magic of the market to force their costs below what Medicare pays, they could then add supplemental benefits and make their plans more attractive to seniors. In that way, the private plans could compete with Medicare.
Initially, the private plans were paid only 95 percent of what it would have cost to care for the average beneficiary in traditional Medicare (private plans are more efficient, remember?). Taxpayers were to pocket the 5 percent savings, and plans were still supposed to have enough left over to provide additional benefits, including much better prescription drug benefits than those now provided under the new Medicare Part D drug benefit. It would be a win-win, with both beneficiaries and taxpayers coming out ahead. Only, it wasn't. The government consistently lost money, even in the halcyon days when it was keeping 5 percent. The private insurers understood that the surest way to increase profits wasn't to increase efficiencies but to avoid patients with serious or chronic health problems. In Medicare, 5 percent of beneficiaries account for nearly half of spending in any year. Because health plans cherry-picked healthy enrollees, they made money, while traditional Medicare kept the sickest -- and costliest -- patients.
By the late 1990s, amid the backlash against managed care, HMOs and other managed care plans had given up whatever advantage their stinginess had engendered in holding down health-care costs. In 1997, the Republican Congress threw them a lifeline: They created a "private fee-for-service" option that could impose Medicare's payment schedules on hospitals and physicians. In other words, Republicans invested private entities -- the insurance companies -- with the authority to use governmental regulatory powers over other private entities, all in order to further disadvantage traditional Medicare. At the same time, however, they modestly reduced Medicare's overpayments to the private health plans. Many plans then withdrew from Medicare and dropped beneficiaries. Others stayed in the game but made the extra benefits they offered less generous.
Facing pressure both from the health insurance industry and from beneficiaries accustomed to receiving extra benefits, congressional leaders devised the Medicare Modernization Act to make things only worse. They began by throwing money at the private insurers. So instead of saving 5 percent by contracting out, taxpayers are now paying 12 percent more per beneficiary to the private plans. That means the government is paying private insurers almost $1,000 more per enrollee than it would cost to keep the beneficiary in the traditional plan -- all in order to help the private plans entice healthy seniors away from traditional Medicare. More than 40 percent of Medicare beneficiaries in south Florida have left traditional Medicare for this reason. And the private fee-for-service option is now flourishing because these plans are getting paid nearly 20 percent above traditional Medicare's costs. Almost a million beneficiaries have left the traditional program for these Medicare look-alikes, while taxpayers foot the bill.
Sadly for the insurers and ideologues, most Medicare beneficiaries do not want to leave traditional Medicare, even for additional benefits -- they remember how the insurers stopped offering coverage in the past. Rising to the challenge, Republicans used the MMA to sweeten the pot even more. Now, any beneficiary who wants to stay in traditional Medicare and enjoy prescription drug coverage (which Medicare is not allowed to directly provide) and protection against catastrophic expenses (which Medicare also does not provide) must negotiate three separate insurance plans -- traditional Medicare, a stand-alone prescription drug plan (Part D) offered by scores of private companies, and a private Medigap supplemental insurance plan. Indeed, the MMA expressly forbids Medigap plans that provide catastrophic coverage from offering the approved Part D prescription drugs benefit.
Because the same private plans that offer Medicare Advantage are also offering the stand-alone drug benefit -- prominent insurers like UnitedHealth, Wellpoint, and Humana -- beneficiaries will likely find it much simpler to just let that same provider offer all their care, including their basic Medicare benefits. Fair enough -- if the insurer's quality or efficiency earns the insurer a competitive advantage -- but outrageous when the advantage is bestowed by Congress through overpayment and regulation in order to undermine traditional Medicare.
Humana is forthright about this unique new business opportunity. The Louisville-based health insurer has an assortment of Part D benefit packages, and prices them to attract market share. So far, Humana has enrolled some 2.5 million beneficiaries in its various stand-alone plans. But Humana's Part D strategy, says CEO Mike McAllister, is to capture as much market share as possible at a modest profit and "to ultimately migrate those customers" to their more profitable Medicare Advantage plans.
In short, Medicare privatization is unfolding just as Gingrich predicted. As a Goldman Sachs report concluded, "[Medicare Advantage] may represent the end game for Medicare and unprecedented multiyear growth opportunity for managed care."
So are Democrats missing the point of the Medicare Modernization Act? It surely is not the inadequate drug benefit, with its silly doughnut-hole coverage gap and prohibition of government negotiation over prices: All of that is easily fixable. The real problem is the gop's decades-long campaign to privatize Medicare without anyone noticing, without ever having to put the issue to a politically dangerous up or down vote, by using taxpayer money to advantage private plans and government regulation, paradoxically, to disadvantage government. Newt would be proud.
