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Who Takes the Hit?
April 9, 2009 • Volume 9, Issue 14
This week the Centers for Medicare & Medicaid Services (CMS), following the legal requirements set out by Congress, announced the 2010 payment benchmarks for Medicare private health plans. Analysts believe the new rates could translate into cuts in the subsidies received by Medicare private health plans of as much as 4.5 percent. These so-called Medicare Advantage plans cost taxpayers—and people with Medicare, through higher Part B premiums—14 percent more than providing coverage under Original Medicare.
The lobbyists for the insurance companies say the subsidy cuts could mean sharp premium increases and reductions in the extra benefits provided to enrollees in these plans. It is up to the companies offering these plans to decide whether to pass through the subsidy reductions to plan members. There is another option, of course.
Insurance companies can become more efficient at providing services. Universal American, a company with over 240,000 Medicare Advantage enrollees, spent just over 83 percent of its premium income on medical services for its enrollees last year. The other 17 percent went toward administrative costs and agent commissions (13 percent) and profit (4 percent).
Original Medicare spends about 3 percent on administrative costs. It does not make a profit. If Universal American and the other insurance companies could reduce their administrative costs, or even their profits, then their plan members might see little, or no, premium increase or reduction in benefits. Such a strategy, of course, puts the interests of people with Medicare ahead of the financial well-being of shareholders and insurance agents, whom Universal American recently enlisted to fight the subsidy reductions.
It is also worth noting that the value of additional benefits provided by Medicare Advantage plans is greatly exaggerated. Take, for example, Universal American’s Today’s Options Access plan, which is marketed to low-income people with Medicare in New York, Pennsylvania and North Carolina. It offers benefits nearly identical to Original Medicare—same 20 percent coinsurance for doctor visits and outpatient care, same $1,068 deductible and no out-of-pocket limit on medical expenses. The plan does provide limited dental, vision and hearing benefits, but any low-income person with Medicaid coverage already has this coverage. And any low-income enrollee without Medicaid coverage would be hard-pressed to afford medical care under this plan, since they cannot use supplemental insurance to cover their cost-sharing.
This plan seems designed expressly to provide the minimum in additional benefits and reap the excess subsidies from Medicare. It is a private-fee-for-service plan, and so leaves enrollees on their own to navigate the Medicare-Medicaid maze and find a doctor willing to treat them.
It remains to be seen whether the new Medicare Advantage benefit guidelines announced by CMS last week will allow plans like Today’s Options Access, and others like it from different companies, to exist next year.
“The cuts mean beneficiaries enrolled in the private plans could see higher premiums or cost-sharing amounts next year, depending on the extent to which insurers try to preserve the 3% to 5% profit margins they usually make on the plans.” (U.S. Reduces Subsidies for Private Medicare, Wall Street Journal, April 2009)
“Our Senior Managed Care—Medicare Advantage segment generated segment income before taxes of $94.6 million in the year ended December 31, 2008, an increase of $41.9 million compared to 2007, primarily due to growth in HMO and PFFS member months . . . and improved PFFS and HMO medical loss ratios, partially offset by false claims of $18.9 million submitted by fictitious providers in our PFFS business.” (Form 10K, Universal American Corp., March 2009)
“If you would like to join forces with other concerned Medicare Advantage sales professionals and Medicare beneficiaries in the interest of protecting the Medicare Advantage program, please visit www.medicarechoices.org/universal-american to learn about the Coalition for Medicare Choices.” (A Healthy Collaboration, Universal American, March 2009)
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