Lessons of Medicare Dis-Advantage

The Washington Post’s “Hidden Costs of Medicare Advantage” reports that seniors should beware; Medicare Advantage not only costs the government more but might cost seniors more too. The challenge to healthcare reformers is whether to consider Medicare Advantage an entitlement or an extra cost option for seniors. The opponents of reform are curiously framing Medicare Advantage as an entitlement, while professing opposition to the expansion of entitlement spending.

Let’s examine the pragmatist opponents of reform arguments: 1. Medicare Advantage provides choice, 2. Medicare Advantage improves the quality of care, 3. Medicare Advantage lowers costs for low-income seniors, and 4. raising Medicare Advantage premiums through lower subsidies effectively removes an existing benefit. The opponents don’t discuss the danger seniors face in restrictive provider networks.

Medicare Advantage limits choice of doctors, hospitals and covered procedures. If virtually all doctors and hospitals accept basic Medicare, by definition each network can only be a subset. Whether the advice provided by primary care doctors in Medicare Advantage HMOs improves the quality of care is questionable. But the requirement for a separate referral for every single specialist, test and procedure is enough to weed out the more frail seniors from Medicare Advantage. How easy is it to get a referral if you can’t drive?

During younger seniors’ healthy periods, Medicare Advantage might substantially lower seniors’ medical expenditures. Providing the plans have no additional premiums and minimum “out of pocket” deductibles and co-pays, poorer seniors benefit. But like all private insurance, there of traps everywhere. There could be many situations when a senior actually pays more for the same test or procedure under Medicare Advantage than basic Medicare.

Seniors were never entitled to Medicare Advantage which costs the government an average of $850 per month, 14% more than traditional Medicare. With 25% of seniors on Medicare Advantage, it’s become too politically difficult to take it away. Once a senior starts having a serious or chronic medical problem, the government actually raises its payments to the private insurers. The risk exposure for private insurers is minimized; all upside with little downside.

The only protection seniors are provided is that they cannot be turned away during annual open enrollment periods. But at the same time they cannot change plans if they get sick and are not satisfied with the providers’ networks during the contract year.

The New York Times’ “Choosing a Policy to Cover What Medicare Doesn’t” reports on how expensive and complex the process of acquiring Medigap coverage is. After a 6 month open enrollment period, state insurance laws control whether policies are medically underwritten and other consumer protections. With a few exceptions open enrollment starts with Medicare eligibility and is never repeated. This leaves the Medigap route even more difficult to navigate than Medicare Advantage.

Medicare controls the minimum benefits for 12 model Medigap plans [A-L], but not the cost of premiums. Medigap “Select” plans restrict benefits to the insurers’ networks. Outside of networks, Medicare co-pays are not covered. But even with Select seniors are protected from the price gouging that can occur outside the Medicare Advantage networks. Given that Medicare does not allow balance billing, Medigap coverage might not make any economic sense anyway.

Pete Peterson’s (Blackstone Group co-founder) Financial Times commentary “Questions America must ask on health costs” states that 30% of Medicare expenditures are for end of life care. Regardless of whether public opinion feels this is justified, the real issue for Medicare Advantage providers is have they been able to eliminate seniors from their memberships before the final year of life?

Since I am not a senior, I have not experienced either basic Medicare or Medicare Advantage. But if I could buy my way into to basic Medicare, I would gladly surrender my private insurance.

Allowing private insurers to engineer their networks and benefits to exclude the worst risk seniors while costing the government more is no benefit to either the seniors or the government. The only reason that Medicare Advantage has any popularity at all is that a constantly growing population predicates a constant flow of younger healthier seniors.

My conclusion is that seniors should stick with basic Medicare and not purchase Medigap. Save the Medigap premiums to pay for Medicare co-pays and deductibles. Seniors – stay with the ultimate choice – virtually every doctor and hospital in the country. And to the health reformers in Washington, I say open Medicare to all so every American has the ultimate choice!

It’s time to sell Humana (HUM), UnitedHealth (UNH) and WellPoint (WLP) before this Medicare Advantage and overpriced Medigap Ponzi scheme comes to an end.

Comments

[EJC1645:]

Clear as mud !!! I have Medicare Advantage and I like all aspects of it. My monthly premium is zero, and my care provider is excellent. One of my options is AARP gap insurance for $300 a month or more.
Are they crazy ? No thanks. The opposition to Medicare Advantage comes from people who want to lower the cost of medical care on the backs of seniors. That is clear !!! The Advantage product didn't pick its name by accident. The disadvantages are in the eye of the blockhead beholders who are over-educated and who don't have an ounce of common sense.

Oct 18 09:16 AM

[Dave Marsh:]

I also have Medicare Advantage (through Healthnet). It cost $67/month, but that puts me in a PPO category and my level of care is very good. Yes, it is a network, but there is a huge group of providers in that network, (the Participating Provider Directory is the size of a midsize phonebook), so I still have a lot of choice. In my PPO, I do NOT need a referral to see an in-network specialist, contrary to your article's statement. I looked at the Medigap plans, and they varied hugely in price beteen different companies, and were typically $250 - $400 /mo. If my cost for Medicare Advantage were to double to ease the costs to the government, I would still be satisfied. When I was still working as a private contractor, I paid $600 a month for insurance that was not as good as what I have under MA, and it still had a $2500 annual deductible. Perhaps it is because you are not on Medicare and don't have personal experience with Medicare Advantage that your article's point is fuzzied if not missing.

Oct 18 11:00 AM

[Truth is...:]

You must be shorting these stocks as all of Seeking Alpha's comments have been negative on these companies. Thankfully, as illustrated in the comments above, you have no clue what you are tallking about...give it a rest. My father has a medicare advantage policy that costs nothing and he is part of the largest network of providers in the nation. The biggest advantage of medicare advantage policy is that there is a cap on the annual out of pocket. I like knowing that the maximum amount my dad is at risk for in a year is $3,600. You don't see that with regular Medicare, not to mention 24 hour access to nurses; nurses who come to your home on a weekly basis to make sure you are taking your medications and helping you with getting proper care. There are also dental and vision benefits that regular Medicare does not provide. Seeking Alpa is just a boring blow horn for the Obama administration. Anybody with brains knows that the whole "health care reform"...oh...I'm sorry, now the administration calls it health INSURANCE reform (since everyone hates insurance companies), is just a cover for the fact that they recognized that Medicare is going broke, and the only way to fix it is to cut benefits. So let's just cut benefits as part of the "reform". Truth is the government can't run anything.

Oct 18 04:41 PM

[Chancer:]

I have Medicare Advantage. My plan is SCAN- a nonprofit, as in no evil profits there. Kaiser is also non profit. I pay zero premium with copays of $5 for primary care physician and $10 for specialist. Many Medicare Advantage plans in my area are zero premium. My plan operates like the HMOs I had from employers, but I think it is much better.

Referrals have been easy. I am in the best medical group and hospital in my area for quality care. I really think they are more interested in my health than the unseen Medicare voice on the phone after you are on hold forever.

Obama is just dead wrong that Medicare only coverage is same as in Medicare Advantage. Also, in most areas doctors limit the number of Medicare only patients they will accept, which makes it more difficult for seniors to get healthcare. I believe that Medicare Advantage coverage is much better than Medicare "only", which is higher for copays and deductibles. In addition, seniors do not have to deal with all those confusing Medicare statements over what is and is not paid, nor Medicare appeals for denials. By the way, did you know that Medicare uses private contractors for their billing statements? I will bet those for-profit vendors have higher profit margins than the insurance companies.

Most people do not know that Medicare Advantage providers negotiate (by bid) individually with Medicare for the amount Medicare pays them. A Kaiser study showed most plans costing 112% to 118% of Medicare only, but some local HMOs have bids as low as 98% of Medicare only. If Democrat liberals cut, will they cut all plans the same, or individually based on their current negotiated bid? Cutting all the same would penalize the most efficient by the greatest amount (putting them out of business) and the least efficient would be cut less and survive. Do I think the government is dumb enough to do that? You betcha.

Obamacare provided by the Senate Finance Committee used "voodoo economics" to get CBO scoring that it was paid for. They compared 10 years of revenue (taxes) with ONLY 6 years of cost, because they claim it will be delayed for 4 years with zero cost in those years. Even that is a lie as Obama said they will be setting up the bureaucracy during those 4 years. Those employees will not work for nothing. This would be like a company showing their past 10 years performance with only 6 years of costs and expenses compared to 10 years of revenues. That would be fraud in business that people go to jail for. But the Congress, Obama, and CBO sells this fraud to the American people. So, in second 10 years, they will be over 40% negative, requiring much higher premiums, general tax revenues, or even greater healthcare rationing. That's if you believe their cost estimates. But government programs always cost more than the estimates; in this case, probably 2X to 3X.

And what about the Medicare fraud of $85 billion per year. They have been talking about cutting that since Reagan became president, and no administration has yet. The mafia is now in, because penalties for Medicare are less than for comparable crimes. With a public option, run by the government, there will be more fraud.

I predict that what they pass will be a massive failure: people screaming about the premiums and penalties, skyrocketing healthcare costs (greater than before) for everybody, rationing, and many people still not covered.

Oct 18 05:37 PM

[Captain K:]

Your article states "If virtually all doctors and hospitals accept basic Medicare, by definition each network can only be a subset."

That statement alone tells me that you certainly don't understand how Medicare and Medicare Advantage work. Physicians today have a choice as to whether they participate in basic Medicare plans. Many are dropping participation because govt reimbursements are so low. The advantage of Medicare Advantage plans is that they actually allow the insurers to build greater access and contract at potentially higher reimbursement rates to the doctors. Thus, seniors actually get better access and care than with basic Medicare.

I would suggest that before this type of misinformation is spread through these so called "articles" is that someone does some homework to make sure the basic points made are actually valid and true.

Oct 19 02:14 PM

[Captain K:]

Your article states "If virtually all doctors and hospitals accept basic Medicare, by definition each network can only be a subset."

That statement alone tells me that you certainly don't understand how Medicare and Medicare Advantage work. Physicians today have a choice as to whether they participate in basic Medicare plans. Many are dropping participation because govt reimbursements are so low. The advantage of Medicare Advantage plans is that they actually allow the insurers to build greater access and contract at potentially higher reimbursement rates to the doctors. Thus, seniors actually get better access and care than with basic Medicare.

I would suggest that before this type of misinformation is spread through these "articles", someone does some homework to make sure the basic points made are actually valid and true.

Oct 19 02:16 PM

[Dirk:]

Simple, keep Medicare advantage, but only pay 100% of Medicare rates. If that means that some insurer drop out, so be it. Sort of an equal protection thing, why should the gov't pay $700 a month for Medicare for one person and $$798 a month for the next door neighbor. Medicare Advantage is bankrupting Medicare, and I think it was deliberately designed to do so by the GOP which has always hated Medicare, and tried to undermine it when ever they got the chance to do so. Next open up regular Medicare to everyone, with people under 65 paying in at actuarial rates based on age only. Those rates should be cost neutral.

Oct 19 07:26 PM

[thetruthhurts:]

As you say, you are not a senior and you have not experienced basic medicare or medicare advantage. I have Humana and I pay an additional $46 per month plus the $96.40 for medicare. Humana includes Part D prescription drugs which Medicare does not directly offer. Also Medicare requires payment of $135 before Part B coverage begins, whereas Humana does not require this payment. Also Medicare only pays 80% of doctor visits whereas Humana has a copay of $15. In a recent visit to the emergency room due to vehicle rollover, my entire cost with Humana was $50 whereas it would have been $1500 with Medicare(20% of $7500). Obama is wrong that Advantage Plans are the same as Medicare.

Nov 02 08:20 AM

[old scapegoat:]

I just received my 2010 Humana Renewal Information here in Florida. All aspects of the benefits went strait up. Preferred drugs went to you pay 100%. Hearing service and vision dropped. I'm tired of trying to type because my hands shake and I'm old. My point is that I've read the 169 page book and the increases are staggering for me. I just saw that their profits Increased by 67% so why did the government give them another increase because we are going to pay them big time more profit. I hope that all of us seniors die suddenly just to see if the government would give them another raise to cover for all the dead losers that we are.

Nov 02 10:02 AM