Medicare Advantage in the crosshairs

As President-Elect Obama prepares to take office in January, new research has added a weapon to his health care reform arsenal. A report, just published by the journal Health Affairs, supports Obama’s contention that Medicare Advantage — a program that allows private insurers to offer Medicare-funded health plans — is wasteful and ineffective. Obama has pledged to make cuts to the program, a move that would have serious implications for many private insurers.

Among other things, the Health Affairs report finds evidence that Medicare Advantage plans are considerably more expensive for the government and don’t improve health outcomes for senior citizens or produce efficiencies that lower health care costs.

Nearly a quarter of all Medicare beneficiaries belong to private Medicare plans, a number that has grown enormously since the Medicare Modernization Act of 2003 gave incentives to private insurers to expand access to such plans. The theory behind Medicare Advantage, popular with Republican lawmakers, is that private insurers can more efficiently provide coverage, thus lowering costs for seniors and the government.

The problem is, that hasn’t happened.  The federal government pays about 13% more for each Medicare Advantage enrollee than it does for an enrollee in traditional government-run Medicare. MA participants may receive additional benefits from their private plan — like fitness club memberships and vision benefits — but non-MA seniors and taxpayers are the ones who foot the bill for those extras.

In the last presidential debate, Obama called the extra money going to private MA insurers “a giveaway.” And it’s true that the expansion of Medicare Advantage has been a boon for many private insurers, which have enrolled millions of retirees when other new customers were hard to come by. UnitedHealth, Humana, and Kaiser Foundation Health Plan are the largest providers of private Medicare plans, though Humana might be hit the hardest by any cuts to the program. The company has grown its Medicare Advantage business aggressively and now depends on it for more than 40% of revenues. WellCare Health Plans and HealthSpring are also mightily beholden to Medicare Advantage members.

Needless to say, those companies aren’t going to be happy with cuts to Medicare Advantage, though there are other parts of Obama’s health care reform agenda — namely, the expansion of health coverage to more than 45 million uninsured Americans — that might soften the blow. Still, I wouldn’t expect them to give up their government paychecks without a fight.