Cutting Medicare Advantage hurts seniors

President Barack Obama has promised time and again that his health reforms won’t force Americans to change insurance plans if they like what they already have.

He’s willing to break that promise. A key provision of the Democrats’ reform plan would cut benefits in the Medicare Advantage program by as much as $172 billion over the next decade. If the measure is enacted, up to 11 million seniors may lose their coverage.

These cuts are intended to finance a big chunk of the reform effort. But the Democrats’ assault on Medicare Advantage will have disastrous consequences both for seniors, who will receive substandard care, and for the privately insured, who will end up paying more for their own care.

Medicare Advantage is an important alternative to traditional Medicare, which operates as a government monopoly. Seniors can choose among various plans provided by private health plans and select the one with benefits and premiums that best suits their needs. In order to participate in the program, insurers submit bids to the government for the right to offer policies and are paid according to a regional formula. Roughly one out of every four Medicare beneficiaries is in Medicare Advantage.

The other option for seniors is coverage through traditional fee-for-service Medicare, in which the government pays doctors, hospitals, and other health-care providers according to Soviet-style prices, centrally fixed by bureaucrats in the federal government.

The federal government now claims that Medicare Advantage is too expensive.

A study from the Medicare Payment Advisory Commission found that the average Advantage plan costs the government 13 to 17 percent more than conventional fee-for-service Medicare. That would seem to make the Advantage program a good target for cost-cutting.

Yet, much of that additional expense goes directly toward providing Advantage enrollees with better benefits, which results in better outcomes. A 2004 review conducted by America’s Health Insurance Plans found that Advantage outperformed traditional Medicare in several key quality indicators, including annual flu vaccinations, diabetes testing, and breast cancer screenings. Researchers also found that Advantage enrollees were screened and diagnosed earlier for deadly diseases like cervical cancer, colon cancer, and melanoma.

Not only does Medicare Advantage deliver superior outcomes, it also helps keep health-care costs for other patients lower than they would be if all seniors were consigned to fee-for-service Medicare.

How so? Conventional Medicare reimburses health-care providers much less than it actually costs to treat a patient. In California, for instance, Medicare only pays about 74 cents for every dollar in hospital costs.

So providers often lose money on each Medicare patient they treat. To compensate, they charge privately insured patients more. In fact, Medicare underpayments cause privately insured Americans to pay $49 billion more each year than they would if Medicare paid private-market rates. This “hidden tax” is four times greater than the alleged over-payments to Medicare Advantage plans. By driving more seniors into traditional fee-for-service Medicare, the government will significantly increase this hidden tax.

It will also reduce seniors’ access to care. Low reimbursement rates have already caused doctors to stop accepting Medicare patients. According to a 2008 survey, 36 percent of doctors report that Medicare payments do not cover the cost of providing care. A full 12 percent of those surveyed said that they’d closed their practices to new Medicare patients.

Earlier this year, the Kelsey-Seybold Clinic, the largest medical practice in Houston, announced it would no longer accept new patients with traditional Medicare coverage because reimbursements had fallen too low. The Mayo Clinic closed its two primary care clinics in Arizona for similar reasons. These high-quality providers issued press releases. Surely, many other providers have simply, quietly, stopped accepting new Medicare patients.

Many lawmakers think that Medicare Advantage is the perfect source of funds for their grand reinvention of the American health-care system. If they’re successful in gutting the program, seniors and taxpayers alike can look forward to care of poorer quality — at higher prices.

John R. Graham is director of health care studies at the Pacific Research Institute, a California think tank.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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