Advantage, insurance companies

Published May 11, 2007

The attempt to further privatize Medicare is a growing failure that undermines the program's long-term stability. Rules for private plans, called Medicare Advantage, favor insurance companies over recipients and taxpayers. Now several states report marketing abuses to trick or cajole retirees into switching to private plans that may cost more or offer less than traditional Medicare coverage.

In Georgia, "agents signed up unwilling consumers and even deceased individuals for private Medicare plans, " John Oxendine, the state's insurance commissioner, told the New York Times. Mississippi Insurance Commissioner George Dale said he "receives calls daily from seniors who have been victims of unscrupulous salespeople." In Florida, Universal Health Care Insurance Co. sold policies so hastily that it outgrew required cash reserves and had to postpone new enrollments.

Abusive marketing tactics - including the lure of bonuses and Las Vegas trips to successful salespeople - were almost inevitable given the hefty federal subsidies of those plans. The original intention of offering private plans was to cut Medicare costs by reimbursing private insurers less than the average cost of providing traditional Medicare services. In 2003, Medicare reform driven by the Bush administration swung the advantage to insurers. Under new formulas for reimbursement, private insurance companies can be paid up to 119 percent of traditional costs. New "private fee-for-service" plans are particularly profitable, yet those plans sometimes fall short on benefits, with higher co-payments and fewer doctors.

Although one in five Medicare recipients is now enrolled in a private plan, it has proved to be no help for the overall program or for taxpayers. In fact, higher subsidies strain Medicare's already shaky finances.

This dilemma has caught the attention of the Medicare Payment Advisory Commission (MedPAC), which advises Congress. Rather than improving efficiency, Medicare Advantage "has instead become a program in which there are few incentives for efficiency, " MedPAC chairman Glenn Hackbarth told Congress in April. There is no longer "financial neutrality" to the private plans because incentives push the cost higher than traditional Medicare.

"Overpaying in the short run - especially overpaying indiscriminately without requirements - is never a strategy for achieving long-run efficiency, " Hackbarth concluded.

Fixing Medicare will require some difficult choices, such as raising the payroll-tax cap or premiums, or by imposing real efficiency on the health care system. Congress can start that latter process by reining in abusive sales practices in Medicare Advantage plans, and by making them compete at the same reimbursement rate as traditional coverage. Retirees should be dubious of any privatization plan that weakens Medicare under the guise of saving it.