This report by John R. Graham, Director of Health Studies at Pacific Research Institute, examines the costs and benefits of Medicare Advantage, which allows consumers to get their benefits through private insurance plans. Under the Senate Health Care bill, the Medicare Advantage program, would be cut by about $118 billion.
In a very narrow sense, Medicare Advantage plans cost more per beneficiary than traditional Medicare, said Mr. Graham. Medicare Advantage increases the total costs of Medicare by about $12 billion a year, or about 2 percent. However, because traditional Medicare (a government monopoly) does not pay providers enough to cover their costs, they shift costs to the privately insured. This imposes a hidden tax on privately insured Americans that accounts for $49 billion a year: four times greater than the narrowly defined extra costs of Medicare Advantage. Most Medicare Advantage plans relieve this hidden tax because they are more likely to pay providers enough to cover their costs. Thus the extra payments to Medicare Advantage are actually a method of exposing the hidden tax and transferring the burden from the privately insured to the governments general accounting that is society at large, said Mr. Graham.
Congress and the Obama administration intend to cut Medicare Advantage payments, without improving incentives for patients or providers to consume health services prudently. This would simply increase the hidden tax on the privately insured. It would also throw millions of Medicare beneficiaries back into traditional Medicare fee-for service, where they will face increasingly difficult access to care, because high-quality providers are bailing out of traditional Medicare. The government should re-consider this proposed policy, which breaks Medicares promise that seniors will enjoy good access to medical services. added Mr. Graham.