Administrative Costs Will Choke Federal Health Care
Both major political parties are on record proposing or implementing health programs/policies which will increase the already ridiculous administrative costs in American health care delivery.
International Journal of Health Services (Forthcomimg)
Medicare Overpayments to Private Plans, 1985-2012
Shifting seniors to private plans has already cost Medicare $282.6 billion
By Ida Hellander, M.D., Steffie Woolhandler, M.D., M.P.H., David U. Himmelstein, M.D.
Previous research has documented Medicare overpayments to the private Medicare Advantage (MA) plans (also known as Medicare Part C or Medicare HMOs) that compete with traditional fee-for-service Medicare. This research has assessed individual categories of overpayment for a single year, or at most a few years. However, no previous study has calculated the total Medicare overpayments to private plans since the inception of the Medicare program.
There are five ways in which private insurers systematically garner excess Medicare Advantage payments from the Medicare program.
Prior to 2004, the selective enrollment of healthier seniors by private plans – what we call “old cherry-picking” – was the major source of excess payments. We conservatively estimate that this old cherry-picking has added $41 billion to Medicare’s costs since 1985. Medicare adopted a new risk-adjustment scheme in 2004 based on 70 medical diagnoses (“hierarchical condition categories”), but this scheme has not curbed, and may have increased, private plans’ ability to game Medicare’s payment system, albeit with a new strategy: now, plans seek to selectively enroll patients who have mild versions of the medical conditions that determine payment. This “new cherry-picking” has added $122.5 billion to Medicare’s costs since 2004.
Congress mandated increased payment to private plans in the 2003 Medicare Modernization Act, adding $84.4 billion to the cost of Medicare through 2012.
The Affordable Care Act (ACA) mandated a drop in these overpayments, but a new demonstration project on quality will offset one-third of the reductions called for by the ACA through 2014.
Another major way that private plans are overpaid is by enrolling persons who are eligible for Veterans Health Administration (VA) benefits. The VA has provided $34.8 billion in care to MA enrollees since 1985.
In total, we find that Medicare has overpaid private insurers by $282.6 billion, or 24.4 percent of all MA payments, since 1985. In 2012 alone, we find that MA plans are being overpaid by $34.1 billion, or 6.2 percent of total Medicare spending.
In 2012, 13.5 million Medicare beneficiaries are in private plans, 27 percent of total enrollment. Some proposals would push millions more beneficiaries into private plans (e.g. voucher-type Medicare reform).
Risk adjustment does not and cannot work in the setting of for-profit MA plans, which have a strong financial incentive, and the data and ingenuity, to game whatever payment system Medicare devises. It is time to end Medicare’s long experiment with privatization and look toward proven-effective methods for controlling costs and improving coverage.
And. . .
New regulations under President Obama have cost states and private companies more than $27 billion, the conservative American Action Forum said in a new analysis.
The think tank, led by former Congressional Budget Office Director Douglas Holtz-Eakin, said the equivalent of 18,000 workers nationwide will be devoted to complying with the new law.
About $20 billion in new compliance costs fall to private businesses, according to the AAF paper, and another $7.2 billion fell to state governments. States must undertake new initiatives such as planning for an insurance exchange, while the total for private employers includes healthcare requirements such as calorie labeling on restaurant menus.
Dr. McCanne's comment:
The reason that this is so important is that it reveals the dishonesty behind the efforts to privatize Medicare through "premium support" - code for vouchers. Telling us that private insurers could provide equivalent Medicare benefits at a lower cost was the first deception, now proven false by three decades of experience. Nevertheless, because of anti-government ideology, legislators moved forward with the Medicare Advantage plans, deliberately paying them extra in order to draw beneficiaries into their plans through extra funds for high-profile marketing while affording them the ability to offer attractive extra benefits.
Once enough beneficiaries are drawn into these private plans, legislators could then begin the gradual process of defunding the traditional Medicare program. The premium support vouchers would provide a means to that end. As access in the underfunded traditional program diminished due to a decline in willing providers, beneficiaries would be able to use their premium support to move into the "better" plans offered in the private sector.
The traditional program might survive as a vestigial Medicaid-like welfare program, but essentially all who could afford it would have moved into the private plans. The next step? Reduce the value of the premium support both through attrition and through more nudges and pushes that the politicians would claim are absolutely essential to help close the gaping deficit hole.
ObamaCare is a giant administrative cost to the American health care system which already leads the world in health care bureaucracy. And privatizing Medicare is another increase in administrative costs. The private health insurance business model is all about using huge chunks of money to administratively avoid paying for health care. We don't need business models, we need health care.
Dr. Joe Jarvis