Medicare "Advantage": Your Gift to the Insurance Industry

Medicare “Advantage” plans have come in for some criticism lately. The NY Times, on November 29, 2008, is quite critical of the fact that they cost, on average, 13% more than “regular” Medicare. The Times calls for these plans to be paid only what it would cost the government for a patient on regular Medicare, saying that it is “only fair”. They note that there would be opposition from the insurance companies currently benefitting from this arrangement.

“Back in the 1980s,” the Times editorial notes, “private plans — known as health maintenance organizations — were seen as a savior for Medicare. They could provide the same or better services as traditional fee-for-service Medicare, but because of managed care they could do it at a lower cost. Over the years Congress brought other, less managed private plans into Medicare, and in 2003 the Republican-dominated Congress substantially increased government payments to private plans.” That is, the anti-government, the private-sector-is-always better ideology of the Republican party (surprise!) has led to the creation of Medicare Advantage plans that are more popular with consumers because they get extra benefits, but bill the taxpayer for both these added benefits and extra profit for the insurance company.

Insurance company profit is the key concept here. Many people have less-than-positive memories of managed-care companies, or Health Maintenance Organizations. Rather than thinking of HMOs as being able to “…provide the same or better services as traditional fee-for-service Medicare, but…at a lower cost,” people mostly remember restrictions on access to care, including limited access to specialists. What people did not, and often do not recognize, is that the problem was not the structure of managed care but it was the vehicle used by private, for-profit corporations, usually insurance companies, to expand their control over the healthcare delivery system.

Historically, HMOs, way before they were called HMOs, were consumer-owned cooperatives much like farmers’ cooperatives. By cutting out the middleman (the insurance company) these groups, such as HIP in NYC, Ross-Loos in LA, Group Health in Seattle, were able to provide their members the same coverage for less money or more coverage for the same money. They were perceived, particularly by groups such as the AMA, as socialized medicine.

But then, with the support of the Reagan administration, insurance companies saw that if they owned the HMOs, they could increase their profits. In the old (and now current) fee-for-service system, where money is made by providing more care, the health risk to the patient is receiving unnecessary (and perhaps risky) service, and the cost is higher. Under the prepaid model of HMOs, the less care that is provided, the greater the profit to the owner. When the “owners” were the patients in the era of consumer cooperatives, this was unlikely to happen; when the owners are for-profit insurance companies, the ratcheting down of services provided, reducing the percentage of the premiums actually spent on medical care for patients, was a given.

So let me be clear. The problem absolutely is not capitated care, HMOs, or even “managed care”, which have many positive characteristics to recommend them. The problem absolutely is the control of the health care delivery system by for-profit corporations. Whether doing it through the mechanism of managed care, or in the current fee-for-service systems by restrictions on services, high copays, and high deductibles, such for-profit companies will always seek to maximize their profit by collecting as much money as possible and delivering as little care to patients as possible. Indeed, the insurance company term for the amount of money they collect in premiums that is actually spent on beneficiaries’ health care is termed, amazingly, the “medical loss ratio”! No wonder our per capita “health” costs are so much greater than in any other country – many of those dollars being spent not only on overhead but on corporate profit.

We can’t afford it, and we shouldn’t have to pay for it. The Times is correct in its opposition to excess payments to the Medicare Advantage plans but misses the greater point that corporate profit does not belong in health care delivery. Medicare, whose overhead is less than 3%, is a great example of cost-effective management of a payment system.

We need a universal care, single payer program so that the health system can focus on providing high-quality, necessary care for all the people of the United States.


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