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When a Medicare cut isn't exactly a cut

September 24, 2009 |  5:02 pm

Max Baucus, healthcare reform, Medicare, Medicare Advantage, benefit cuts, Wall Street Journal editorialAn editorial in today's Wall Street Journal finds a new setting for the argument that the Democrats' healthcare reform bills would reduce Medicare benefits -- this time, lambasting Senate Finance Committee Chairman Max Baucus (D-Mont.) for calling on an Obama administration "crony" to punish Humana Inc. for warning customers that their Medicare Advantage benefits were at risk. According to the Journal's editorial, Humana wasn't saying anything that Congress' chief budget analyst, Doug Elmendorf, hasn't said.

The Journal's right about Baucus and the Democrats' proposals, and yet it paints a misleading picture of the policy at issue. Medicare Advantage is an HMO-style approach to Medicare, with care managed by private insurers such as Humana. The healthcare reform bills would phase out the additional subsidies that insurers receive for Medicare Advantage programs, bringing the cost into line with conventional Medicare. The reduction will almost certainly lead to the elimination of some of the extra benefits that those programs provide. But think about that for a moment. 

Insurers created HMOs to cut healthcare costs by steering consumers to a network of doctors and hospitals that had agreed to charge the insurer lower fees. Hoping to tap into those savings, Medicare has been encouraging seniors to join HMOs since the 1970s. In the past decade, however, the insurance industry's allies in Congress have ratcheted up the subsidies for Medicare HMOs (dubbed "Medicare Advantage" in 2003), enabling those programs to offer extra benefits in the hope of attracting more subscribers. By MedPAC's estimate, every $1 in added benefit cost the Medicare program $1.30. Medicare Advantage no longer tries to save taxpayer dollars; instead, it exists mainly to shift the elderly into privately run plans by delivering more benefits, but in a less efficient way than the basic Medicare program does. 

Those extra benefits, by the way, typically consist of lower co-payments, although they occasionally take the form of additional services. Medicare Advantage plans aren't as generous as Medigap policies, but those have monthly premiums and Medicare Advantage doesn't. If the healthcare reform legislation drains the extra subsidies from Medicare Advantage, those enrollees will feel the pinch. But they won't receive less than their counterparts in the basic Medicare program -- most likely, there will still be some advantage to Medicare Advantage. Which brings us back to the issue here. Are the Democrats proposing to cut Medicare benefits? No, they're proposing to trim the sweeteners that had been used to draw the elderly into privately managed plans. And if the private plans cost taxpayers more than basic Medicare, why do we have them?

Picture credit: Alex Wong / Getty Images

-- Jon Healey

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