• GOP Medicare privatization plan is like employer-sponsored insurance. And that’s not a good thing.

    This post originally appeared on Ezra Klein’s blog at The Washington Post.

    This Sunday on “Face the Nation,” Rep. Eric Cantor told host Harry Smith that the GOP’s Medicare voucher plan is much like employer-sponsored health insurance. (See the exchange around the fourth minute of the online video, h/t @TPHealth.) This is the latest in a series of comparisons of the voucher plan to other types of insurance programs. Unlike the other comparisons, however, this one is apt, though perhaps not in a way Cantor intended.

    Under the Republican plan, promoted by Rep. Paul Ryan and passed by the House in April, traditional Medicare would cease to be an option for all who would become eligible beginning in 2022. Instead, beneficiaries would receive vouchers to purchase private coverage. The size of those vouchers would be indexed to general inflation, which is far below the escalation of health-care costs. The CBO has predicted that beneficiaries’ premium burden would nearly triple by 2030 (pdf).

    Don’t worry, proponents of the plan say, it’s just like other insurance programs we’re familiar with, that many people like.

    First, comparisons were made between the voucherization scheme and the subsidized exchange coverage to be available under the Affordable Care Act. But the ACA’s subsidies are linked to the cost of care, not pegged to overall inflation, so this comparison fails.* Ryan and others have said the plan is just like the Federal Employees Health Benefits program. It isn’t. Government contributions to FEHBP rise with premiums. Finally, Cantor and Ryan, among others, have claimed the GOP’s Medicare plan is akin to the current Medicare prescription drug program, Part D. Wrong again and for similar reasons.

    So, what is the Medicare voucher plan like, if anything?

    Cantor offered a new comparison: that the Republican plan for Medicare will turn it into something resembling the coverage non-elderly workers and their families receive from employers. Actually, when it comes to consumer affordability, this analogy works far better than the prior ones.

    Employer-sponsored premiums have grown rapidly, financed by dollars that would have otherwise gone toward wages. The following chart from the Kaiser Family Foundation illustrates how employer-sponsored health insurance premiums and worker contributions toward them have increased much faster than inflation or wages.

    (Kaiser Family Foundation )

    The chart shows that premiums are consuming a larger portion of workers’ resources. For many, they’re becoming unaffordable. That’s exactly what will happen to beneficiaries under the Republican plan for Medicare.

    Finally, the GOP has offered a sound analogy. I agree there is a key resemblance between the voucher plan Ryan promoted and employer-based coverage, a resemblance lacking in comparison to the ACA’s exchanges, FEHBP and Medicare Part D. The resemblance is that premiums are rapidly outpacing individuals’ ability to pay for them.

    Make no mistake, the Republican plan for Medicare ends it. First, it removes the overwhelmingly popular public option (traditional Medicare), replacing it with private plan-based coverage. Then, support for that coverage would erode so beneficiaries would bear more of the cost of care. In time, the government’s role will become so small as to be meaningless.

    In sum, this is a radical departure from Medicare as we know it. Attempting to solve Medicare’s problems by phasing out the program, as the GOP plan would, puts the burden of those costs where it can do the most damage, on a population most in need of health care. In consuming a greater share of personal resources, the plan may be like employer-sponsored insurance, but that’s not a feature even if it’s by design. It’s really a bug.

    • Wow. This post tells me that none of you young guys — including apparently Cantor and Ryan — understand current “Original Medicare.”

      Ryan’s plan is somewhat like ESI and apparently will use the exchange mechanism in Romneycare and proposed for the Patient Protection and Affordable Care Act (I base my comment on reading the CBO memo analyzing Ryan’s plan, not on reading the plan itself). But what Ryan’s plan is most like is Medicare Part C today.

      The difference between Medicare as we know it and the Ryan Plan is that the Ryan plan eliminates two or three levels of insurance-company bureaucracy that we seniors deal with now. In Massachusetts it would eliminate dealing with the National Heritage Insurance Company that is in charge of Medicare Parts A and B and it would most likely elminate the company or companies seniors deal with for Part D (spouses often deal with two different companies because of different formularies). Most likely if a person is happy with the company they have been using before they retired, they would continue with that company and deal with only one insurance company as they had been doing their whole working life (as opposed to the four or more insurance bureaucracies you have to deal with under “Medicare as we know it.”)

      The CBO memo describes a Ryan-plan-related means-tested process for those that need help but it is unclear from the CBO memo how that would work. I assume those who would otherwise qualify for public assistance under today’s Massachusetts and CMS rules (tens of thousands) would not have to deal with MassHealth under the Ryan Plan (but that is based on a hope that the Feds and state could somehow better coordinate data collection by then).

      • It was a piece about what the GOP says the plan is like. As for Part C, see this: http://theincidentaleconomist.com/wordpress/for-cost-control-vouchers-and-medicare-dont-add-up/ .

        • So you agree it is more like Part C than like ESI but that changes your analysis above, correct?

          As for your blog post from August 2010 to which you link, I also see a fundamental misunderstanding of “Medicare as we know it” in that article. You write:

          “They can also stick with traditional fee-for-service Medicare–and about three in four beneficiaries do so.”

          That is technically true but highly misleading. I have never seen nationwide statistics but speaking of Massachusetts (and I think this applies nationwide), more than 50% of traditional Part A/B subscribers also buy retiree beneifts managed by “private” insurers and/or sign up for a “private” Medicare Supplement plan costing thousands more per year plus the $1500 for Medicare.

          They have to. “Medicare as we know it” is terrible insurance. It has high deductibles, high co-pays, lifetime limts, no dental/vision and is not any good outside the U.S. (I’m talking Ontario or B.C., not Bora Bora). That’s all in addition to the fact that it is going broke in a dozen years or whatever the trustees said recently.

          For those that cannot afford a supplemental plan in Massachusetts, the state runs about a dozen supplemental welfare programs. I believe there are similar programs in all states. Everyone agrees that Medicare is totally inadequate. The CMS has organized tens of thousands of volunteers around the country (500 in Mass.) to explain this to seniors.

          As for the way you all put a curse on the word “private,” I think there is a similar misunderstanding of the Medicare program in that slur. All parts of Medicare (A, B, C, and D) are equally involved with and dependent on private insurers under contract to the CMS. CMS heavily regulates Medicare Supplement but it is truly private in the sense of your curse. I have not seen anything that indicates which approach Ryan’s plan proposes.

          The major thing you are missing is that “Medicare as we know it” is terrible healthcare insurance.

          • I assure you, we’re not missing anything. There’s only so much one can put in a single post. If you search the blog, you’ll find we’ve covered many of the topics that concern you. I have not put a curse on “private.” I have endorsed a plan that would include private coverage. I really think you’re misreading me, if not us.

          • To Sid: I think you are the one who does not understand “Original Medicare”. Medicare was designed with deductibles and co-insurance because these things generally act as speed bumps in the road to getting medical care. The theory is that if people have no co-pays for care, they will overuse the health care system.

            Medicare supplements fill the gaps in Original Medicare, and people who are willing and able to pay the highest premium can fill all the gaps in Medicare. Studies of Medicare claims show that people with 100% coverage (as in Plan F Medigap) do indeed use the system more than those with co-pays.

            The National Heritage Insurance Company is contracted by Medicare to process claims for the northeastern states. I have not heard of many people having issues with Medicare claims being denied – which is very different from Medicare Advantage.,

            When I sign a client up with a Medicare supplement I tell them I have enjoyed working with them, but they probably won’t be calling me to complain about services they are denied.

            When I enroll people in Medicare Advantage, I tell them to be sure to contact me if they have problems. And I get plenty of calls when seniors don’t understand their bill, or have been waiting for prior authorization for an MRI. I act as their advocate and contact the Advantage plan to try to get answers.

            The Ryan plan would turn Medicare over to these Medicare Advantage companies which are profit-driven and have 20% overhead costs, including their profit margin.

            The Medicare Advantage companies work just like other health insurance companies in that they must approve most tests and treatments. One Advantage plan I work with must approve every x-ray a doctor might request. Another plan has doctors’ support staff submitting more and more paperwork to get an MRI approved. These prior approval requirements are meant to keep people from causing the Advantage plan to spend money, thus affecting their profit margin.

            By the way, Medicare Advantage companies receive a monthly payment from Medicare for each person in their plan. The payment is between $800 and $1200. The insurance companies get this money upfront every month, so the less money they spend on health care services, they get to keep.

            As an insurance agent working with Medicare, Medicare Advantage and Part D, I actually think the Medicare Advantage model is the answer to some of Medicare’s problems. But I don’t think they should have 20% admin costs. They should be contracted for a set fee to process claims, just like the NHIC does in the northeast. Their admin costs are 2 or 3%.

            The Medicare Advantage model, with co-pays for services – but a cap on annual out-of-pocket expenses for seniors – could probably slow the rise in spending by Medicare – which is the real problem with Medicare. But turning Medicare over to for-profit insurance companies would be financially irresponsible.

            • @denise and @sid

              I cannot see what Sid wrote to which Denise is replying but I’d like to point out a couple of possible clarifications in Denise’s response to Sid:

              — I don’t think anyone objects to deductibles and co-pays; it’s just that Original Medicare’s deductibles and co-pays are very high compared to insurance most people are used to before they retire; it is more like high-deductible plans self-employed people get except most retirees don’t want a high-deductible plan; retirees are shocked when they see the numbers and the premiums; Original Medicare also has life time limits and the other problems noted in my reply to Austin; I didn’t quite get why you were arguing for deductibles and high copays and then singing the praises of Medigap (other than that you are salesperson for Medigap which is OK)
              — Which is why I also don’t get the point you’re making about Medigap; yes it’s expensive; it’s expensive because Original Medicare is so bad; no one disagrees
              — At the end of your comment you suggest co-pays for Part C plans but at least Massachusetts (see below) Part C plans have co-pays and deductibles (in fact, that’s a point insurance salespeople use against Part C to push the “public” Medigap plans

              As for some of the detailed questions you asked/comments you made:
              — one of the most common real issues seniors will hear from National Heritage Insurance Company and all other Medicare A/B/C “private” insurers is the rule about transitioning from hospital to rehab; the senior has to have been admitted to the hospital and not just under observation in order to transition smoothly
              — Another issue that really has nothing to do with National Heritage is the complexity of the quarterly statements; that’s the same for all of the insurers contracting with CMS
              — I find it odd to hear of a Part C insurer turning down an MRI ordered by an MD in its own PPO network or ACO (new wonk acronym for HMO) since they are theoretically all part of the same organization virtually or actually; that’s the idea with Part C; that’s the reason the government pays a premium to the organization over and above the average A/B payments as you describe; it’s the same wonk talk that Massachusetts is pushing with global payments; I’m not saying that what you describe doesn’t happen but it makes no sense; it may be a Massachusetts-only thing (see below)
              — I also don’t understand why your Part C client is receiving “a bill” that you have to advocate about; sounds like a Part C plan somewhere that isn’t doing the right thing; report them

              I guess there is a much bigger difference between your experience somewhere else in the United States and my experience in Massachusetts than I would have thought so it would be good for you to point out the source of your data and the state or states you are working in:
              * at least in Massachusetts, most of the Part C and Medigap insurers are non-profits, not for-profit insurers; so what you say about “turning over Medicare” to for profit companies does not compute here
              * also they are mostly the same insurers; most of the non-profits sell both Part C and Medigap so there is no them vs. us thing like you apparently are seeing
              * also, at least in Massachusetts, all the non-profits have admin ratios less than 10% (or medical loss ratios above 90% if you prefer) in aggregate; I’d be insterested in knowing the source of your 80%/20% statistic for Part C insurers; it is possible that the Mass non-profit insurers selling Part C actually have lower medical loss ratios for their Part C “book” as compared to their totals; not sure why since the plans are almost exactly the same but possibly because of CMS paperwork requirements or becuse of a smaller pool
              *There are only two Medigap plans available in Mass, (there is no A-F lineup like you have); again all the same guys pretty much sell Medgap and Part C
              * I’m not sure how you know National Herigage Insurance Company’s admin ratio since it is wholly owned by a for-profit company but I bet that for-profit that owns them is demanding a much higher profit margin out of its subsidiary than 1%

    • If the Ryan plan is anything like Part D….. it would be a disaster for seniors. As an insurance agent working with Medicare supplements, Medicare Advantage, and Part D plans, I find myself apologizing to clients as they try to understand Part D.

      For people who take numerous medications, they find that not all of their drugs are on many company “formularies”. Some plan premiums are in the twnety-five dollar range while others cost $50 to $90. But the higher premium doesn’t necessarily mean they cover more drugs or have lower co-pays. Some plans have a deductible. Some plans have co-pays that are set ($45 for brand drugs, for example). Other plans have the senior pay 25% of the retail cost of the drug.

      As an insurance agent, I make a $50 commission if someone is new to Part D. $25 if they are changing plans. I have spent hours trying to find the best plan for people, and then an hour explaining how the to the senior How the plan works. I usually end up saying, “I’m sorry this is so complicated. I don’t know why there aren’t just two or three plans to choose from to make it easier to pick a Part D plan.”

      One other thing: Part D premiums started out in 2006 at around $15 per month. Premiums are now generally $28 – $50 for plans without a deductible. Co-pays have gone up as well. Part D is expensive and confusing because it was turned over to insurance companies.

      One more thing: Part D was a gift to insurance companies which also offer Medicare Advantage because agents say, “Why pay $25 for Part D and $200 for Medicare supplement when you can enroll in our Medicare Advantage plan for $0 premium!” Part D opened the door to expanding Medicare Advantage enrollment – which is where the real money is.

    • Great post and great timing. I came back from vacation today to hear from my office manager that our insurer wants to increase premiums by 42%.


    • One element that has not been discussed by anyone, except maybe this blog here,


      is whether or not the private insurance companies that replace Medicare will do individual or group underwriting. If the private insurance companies do individual underwriting, and that is what is implied since the Ryan Plan allows for higher premiums for those with pre-existing medical conditions, then it is totally unlike the employer sponsored insurance plans currently offered to both private employees and members of Congress.

      Those are group plans, and everyone in the Group gets the same coverage and the same premium, regardless of age, health condition etc. Those who use little health care services subsidize those who use a lot, which is the way a risk pool operates.

      If individual underwriting is adopted, no private insurance company will provide insurance for the 75 year old man with a history of heart disease and prostate problems, and if required the premium will be simply unaffordable even with a subsidy. This is just one of thethe great failings of the Ryan plan.

      If the Ryan Plan envisions Group underwriting, well, that is what we have now with Medicare. Why would anyone beleive that private insurance companies, who have to add admin costs and a profit to the equation would provide coverage at less cost than Medicare, whose huge market power gives it the ability to negotiate favorable costs, and as a single player has very low admi costs.

      The fact that the Ryan plan will fail to meet its objectives can be demonstrated by two unanswered questions.

      1. If the Ryan plan is so great, why wait 10 years, why not put it in place now?

      2. If private insurance plans hold down the costs of Health Care, why haven’t they done so in the non-Medicare population?

    • Maybe it was your comment, Dennis, that I was responding to. Here’s a response to your last comment.

      I am in Tucson, AZ and 45% of seniors are on Medicare Advantage plans here. One of the plan broker manager (who trains brokers like me) boasted last year that his plan’s MLR is just 70%. All the plans here are run by for-profit insurance companies.

      I looked up Boston MA plans and United is listed with three plans. Tufts and Blue Cross may be non-profits, but that doesn’t mean they operate much differently than for-profits. “Managed Care” means referrals from a PCP and prior authorization for tests.

      NHIC is just a claims processor and nothing more. It is a Medicare rule that a person must spend three nights in a hospital in order for Medicare to pay for a skilled nursing facility. Medicare sets the rules, such as new limits on how many physical therapy sessions a person can get without needing justification from a doctor.

      As for prior authorizations required by Medicare Advantage plans: yes, they have networks of labs and providers, but they are just contracts for payment amounts. The lab is not owned by the Advantage plan and the specialists don’t work for the Advantage plan.

      The few Advantage plans that do have all their services and providers in-house are usually highly rated – like Kaiser in California and Cigna in Phoenix. Most Advantage plans are just HMO and PPO contracted providers.

      While Mass. may have more non-profits than for-profits, the big players in Medicare Advantage across the country are United and Humana. They also sell Medigap plans, but those are different divisions of the companies. Because they are supplements to Medicare, they operate very differently from Medicare Advantage which is “Medicare replacement”. The Advantage plan becomes a person’s Medicare. And the big money is in Medicare Advantage.

      Perhaps you are better at math than I am, so figure this: United has one million people in its Advantage plans (actually more). Multiply that times $800 per month (a low-end amt). That’s 800 million per month United is receiving from Medicare. Even if their profit margin is 5%, that’s a lot of money going out of the Medicare system.

      And yes, I am an insurance agent, and I tell my clients the best coverage is Medicare plus a Medigap Plan F. Rates in Arizona are much lower than in Mass, but many people balk at paying $130 per month, so they choose Medicare Advantage. I give them the info and they decide which coverage to take. I enjoy it because I never have to say, “sorry, you survived cancer five years ago, so you can’t get insurance.”

      I’m okay with Medicare Advantage, because the plans here have contracted with most doctors. But people do have issues over prior authorizations taking weeks – or being refused. And seniors on these plans get bills because of the co-pays. I had a client show me her bill for $389 for an emergency room visit. I told her the co-pay for an ER visit is always $50. So I called the hospital to ask about the bill. They said, “Oh, never mind about the bill, the insurance company paid it.” So I asked, “Why did this lady get this bill when it should have gone to the insurance company?” The response was, “I don’t know”.

      This sort of conversation has never happened for my medigap clients.

    • Thanks for the info

      As you say, AARP does do business here but most Massachusetts residents of all ages are insured by non-profits — not counting the 25% insured by the federal or state government — and I believe the same is true of seniors. But I don’t know how it breaks out by payor at that level of detail. I was hoping you had a source. We have all kinds of data from the state on the overall market.

      I suspect you might be right about NHIC just being a “claims processor” but they are supposed to do much more than that. They are supposed to turn down unjustified claims; this is the frontline on the Medicare fraud/waste/abuse war that we seem to be losing. I have no particular knowledge of them because I don’t know anyone that just uses just A/B without either Medigap or Part C. I know people who just have A and B complain about understanding the quarterly reports. I haven’t received my first one yet so I don’t know if the Part C quarterly reports are as confusing. I think those on Medigap receive forms from both NHIC and the gap provider but they just throw em away because everything is paid for…

      I belong to a real HMO in a different Massachusetts county than Boston but I believe Tufts MA and HMO Blue MA work the same way in Boston (and anywhere else in the state that they sell Part C) as my provider/ACO does in my county. You would never get this pre-approval stuff; the doc rules. Harvard–which I think was the orginal HMO in the country–dropped out of Part C last year supposedly because of the coming changes under PPACA.

      On Medigap, we’re not that different from what you describe other than that there are only two plans. I suspect the lower level plan is like about your mid level plan and that our “bronze” plan (that’s BC’s brandname but everyone refers to all the second level plans as bronze) is like the caddillac plan you describe. It costs around $200 a month. The lower level plan averages around $100 a month (it eliminates the A/B co-pays but keeps the high deductibles)

      There are about a dozen state assistance programs for anyone that cannot afford medigap or Part C premiums (as well as B of course and D). They vary from the national SSI and other dual eligible programs up to a state program for drugs that any senior can buy into with no asset test as long as their retirement income is less than $80,000 to avoid most of the donut hole and get stuff not on the CMS formulary. I suspect Massachusetts is different than the rest of the country on many of these programs. Unfortunately an increasing number of physicians are not accepting new patients on these state assistance plans and many are also not even accepting Medicare patients (or even seeing them for reasons I’m sure you understand)

      Thanks again

    • You are right about Massachusetts, Dennis. It is very different from other parts of the country. I lived in Boston for 15 years and was covered by Harvard Community Health Plan. It was great insurance. In Arizona, we have programs for low income people, but I meet many women living on $1,200 Social Security payment per month with no savings – and they make too much money to get help. I have one client who is $15 over the limit for getting help so she has to pay $40 co-pays for doctor visits and 20% for diagnostic tests – and she is in a Medicare Advantage plan. It’s a different world from Massachusetts.

      And then I meet men and women in their 50’s and 60’s who can’t get health insurance because of a pre-existing condition. They lost their job and their insurance and, if they saved for their retirement, they have to pay for their health care and go broke. Then the state will help them. It’s very sad actually. That’s why I enjoy working with Medicare. It’s not perfect – just as Medicare Advantage is not perfect – but it’s better than what people under 65 can get.

      It’s been nice chatting with you.