Are Medicare Advantage Plans Overpaid and Corrupt?

Medicare Advantage consists of private plans in which Medicare beneficiaries can choose to enroll. They were made more popular by the Medicare Modernization Act of 2003, which also introduced Medicare’s drug benefit (Part D). If not for Medicare Advantage, beneficiaries would be stuck in the traditional Medicare Part A (physician) and Part B (hospital) plans, where the federal government determines how much to pay providers according to bureaucratic formulae. It’s sort of like Gosplan, the old Soviet economic pricing and planning mechanism.

To escape this fate, one third of Medicare beneficiaries now choose Medicare Advantage plans. Obamacare (“the ACA”) was supposed to squeeze those seniors out of their plans in order to finance Obamacare. However, when the time came, the Administration balked. Meghan McCarthy of Morning Consult explains this “Potomac Two-Step“:

The approach, two years in a row, has been that CMS issues a proposed rate in February with very tough reductions, a proposition that rallies insurers and members on both sides of the aisle to vehemently oppose the cuts. After much hand-wringing and commenting, the administration arrives at a much friendlier number in the final release.

Medicare Advantage plans are popular for a number of reasons. Most importantly, they provide better care than traditional Medicare. Joseph Newhouse and Thomas McGuire review this in an academic journal. It is ably summarized by Austin Frakt in the New York Times UpShot blog:

Medicare Advantage plans — private plans that serve as alternatives to the traditional, public program for those that qualify for it — underperform traditional Medicare in one respect: They cost 6 percent more.

But they outperform traditional Medicare in another way: They offer higher quality.

The quality argument is hard to combat, but some try nevertheless. Thomas Huelskotter, writing at ThinkProgress, goes way back to a 2002 article which reviewed the performance of HMOs in the old Medicare + Choice market during 1997 through 2001. However, this was not the same market as the current Medicare Advantage market, which was reformed and re-launched as a consequence of the 2003 law. In the 1990s, many Americans, including those in employer-based and other private health plans, resisted and eventually rejected the limits of managed care as practiced at the time.

And how about that estimated overpayment of 6 percent? Medicare Advantage’s critics claim that it is difficult to measure differences in quality outcomes between traditional Medicare and Medicare Advantage, and they are surely right. However, they have no problem promoting the amazingly precisely estimated overpayment of 6 percent – although that estimate also relies on adjusting actual costs for beneficiaries’ health status, age, place of residence, etc.

Further, Medicare Advantage has positive spillover effects. In Massachusetts, Medicare Advantage’s increased uptake is associated with lower hospitalization costs in traditional Medicare (likely because providers re-organize their care delivery for all Medicare beneficiaries, not just those with Medicare Advantage). This somewhat reduces the overall costs of Medicare.

This is not to say that Medicare Advantage is perfect. Other research indicates that less than half the value of the increased payments is passed through to Medicare beneficiaries. Most of it is captured by insurers. This is not surprising: Because taxpayers are funding the benefit, beneficiaries are not motivated to demand as much value as is being paid for.

As with any government program, there is some fraud. Fred Shulte of the Center for Public Integrity has concluded that some Medicare Advantage plans overbilled $70 billion in seven years, which they achieve by “upcoding” — reporting to the government that their beneficiaries were sicker than they actually were.

However, fraud and overcharging are also rampant in traditional Medicare, amounting to an estimated $60 billion per year, of which only $4.3 billion is recovered. This is despite an aggressive audit program that suffers from bureaucratic inefficiencies common to government operations.

Medicare Advantage fraud is often ambiguous. For example, some plans are eager to send physicians on house calls to patients, hoping to diagnose a condition for which they can overcharge Medicare. The typical government response, of course, would be to forbid Medicare Advantage plans from covering house calls.

There is a better way to further reform Medicare Advantage to ensure payments are responsible and reduce fraud: Give patients more control of the money spent on them. Similar to that which we recently recommended for Obamacare’s proposed “copper plans” in the health-insurance exchanges, Medicare should give some Medicare Advantage subsidies to seniors directly, through Health Savings Accounts, instead of giving one hundred percent of the taxpayers’ contribution to insurance companies.

Comments (109)

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  1. Uwe Reinhardt says:

    According to Medpac, pre-2009 the Medicare Advantage plans on average received a premium of about 14% over what beneficiaries would have cost had they stayed in traditional Medicare. The ACA legislation sought to reduce this “excess payment” to parity, that’s all. There has been a reduction in the disparity, but as John notes, the excess payment is still 6%.

    The excess payment allowed the MA plans to offer superior benefits to prospective enrolees.

    So the ouzzle to be explained is why 70% of beneficiaries still remain in traditional Medicare, if MA plans give them more benefits plus higher quality of care.

    Could the value of freedom of choice of provider be the explanation? Depending on their networks, HMO restrict that freedom.

    Economists usually make much of the value of choice — but in this context they seem to give it zero value. Why they do so in this instance is another puzzle.

    • Devon Herrick says:

      “…why 70% of beneficiaries still remain in traditional Medicare…”

      Maybe it’s partly inertia. Several years ago I read that many seniors sort of liked the monthly ritual of going to the pharmacy and waiting in line to pick up their medication. Overcoming that ritual was an obstacle to more convenient, lower-cost, mail-order medications for chronic conditions. I discussed the article with a PBM executive and he agreed.

      Why would anyone want to go stand in line at the pharmacy? I used to joke that the pharmacy near my old office must have recruited their check-out clerks from the Post Office because they were moving so slow.

      • Uwe Reinhardt says:

        Inertia always plays a role, especially because there are search costs with picking an MA plan.

        But I remain puzzled why the value of the completely free choice of provider traditional Medicare offers never comes up in these discussions, when in another context there has been so much criticism that the networks for policies on the exchanges are so narrow.

        It puzzles me, but perhaps it should not.

        • Devon Herrick says:

          I’ve heard theories that network choice is a means to screen out (unprofitable) sick enrollees. If the theory holds, maybe seniors (and people with chronic conditions) pick their health plan based on the network. A big network with broad choice of providers is proxy for care available. By contrast, young, healthy people tend to choose a health plan based on price, because they don’t expect to need care.

          I don’t know if that’s always accurate. Narrow networks are also a way to negotiate better deals with providers.

    • Bart I. says:

      Some will always opt for the lower price, even if it means lower value. There may be no room in the budget even if the difference represents a bargain.

      On the flip side, wider choice may have zero value to an individual if the narrower plan already happens to include his preferred doctor. Going further, is it possible for a doctor to accept Advantage patients but not those on traditional Medicare?

      • Bart I. says:

        I see that Arnie P. answered my last question.

        Regarding the 6% disparity, I would hope that the focus of reform would be to pass this through to the individuals choosing the plans, and not to simply limit total cost.

      • Arnie Poutala says:

        Bart,

        I have not read any contracts Medicare has with doctors. I can say that their are doctor’s clinics that do accept MA but will refuse to see patients on orginal Medicare. So I accept that they are not violating the contract.
        I have heard that CMS is taking the position that Doctors are not leaving Medicare as some sources are saying. Perhaps the reason this is said is that there are Doctors who close their practice to patients on original Medicare but not to patients on MA. MA carriers are limited to paying only doctors who have a contract with Medicare so those docs who treat MA patients have to keep the contract to get paid. But that does not mean they have to see patients for which they must bill Medicare.

      • Larry Wedekind says:

        No, all physicians who participate in Medicare must accept all willing Medicare traditional Medicare patients, but in practice, these traditional Medicare patients are expected and required by these exclusive MA PCP groups to sign up for MA during their first available enrollment period (Oct 15th – December 7th) each year).

    • Dennis Byron says:

      Just to be accurate, what Medpac said was that “IN 2009 ALL PART C PLANS (NOT JUST Medicare Advantage plans) on average received a premium of about 14% over what beneficiaries would have cost had they stayed in traditional Medicare.” 14% was the kicker in 2009, not “pre 2009.” Before then, some years it was negative 5%. Most years before and since 2009, it was single digit. This was done to increase the availability of managed care particularly for the rural and urban poor. It worked. They now use Part C disproportionately.

      As for “the puzzle to be explained is why 70% of beneficiaries still remain in traditional Medicare,” the answers vary but it is not much of a puzzle. 35% of people on Medicare still supplement it with retiree insurance. A lot of doctors are not part of Part C networks so those who like those doctors cannot use Part C. Part C networks are regional so Part C is not good if you reside in different parts of the U.S at different times of the year. And so forth.

      The real puzzle is why do we put up with an insurance system where more than 95% of the beneficiaries find it necessary to make alternative — mostly private — arrangements to protect themselves financially

      • Larry Wedekind says:

        Uwe and Devon and others, The answer, in my learned but humble opinion, is as follows: Medicare beneficiaries who are not covered by a Company retirement Health plan are mostly concerned with making sure that they have the specialists and Medical Homes that they need based on their personal healthcare needs and on their perception of quality and access. They do look at the network provided by the Health Plan first if they have had personal medical issues. They then look at “out of pocket” cost, unless they have not yet had a need for the healthcare system in general. Price is typically irrelevant to them if they do not perceive a personal health need yet and these healthy “AGE-ins” will typically choose a Medicare Advantage Plan because it is so much cheaper for them, if they know about it. Medicare Advantage Plans cost much less than traditional Medicare and expensive supplemental GAP policies are NOT needed under Medicare Advantage. When price is a factor and the Medicare Advantage Plan has the doctors that are needed by the beneficiary, they choose Medicare Advantage – every time.
        The fact is that, despite Obamacare’s structure to replace Medicare Advantage with ACO’s, the market penetration of Medicare Advantage has grown from 22% when Obama came into office to now over 30%, That should tell you all you need to know about the relative success of Medicare Advantage Plans across the country. They are and will continue to gain market penetration due to their much higher quality and improved outcomes for patients themselves. Also, the 6% higher cost is due to the much improved benefit packages that are offered to Medicare Advantage beneficiaries. These higher costs are ENTIRELY pushed to the beneficiaries themselves, not the Health Plans, contrary to popular opinion. Furthermore, the PCP Medical Homes are also paid much better under Medicare Advantage than under traditional Medicare. Medicare Advantage Plans are offering much better benefits to their beneficiaries and the Providers themselves are paid better. All for only 6% higher cost to the taxpayers themselves. What is not to like about this result? Healthcare inflation has all but gone away as well. I wonder why????

  2. Arnie Poutala says:

    Uwe,

    Your statement “But I remain puzzled why the value of the completely free choice of provider traditional Medicare offers never comes up in these discussions, when in another context there has been so much criticism that the networks for policies on the exchanges are so narrow.” is not accurate in all markets. Many providers will not accept a patient who is covered by Medicare, even if the patient also has coverage through a Medicare Supplement plan. Many of these same providers will accept a patient covered by Medicare Advantage (MA). According to the providers they do not choose to bill Medicare because of slow reimbursement from CMS and the extra paperwork required to get claims paid. Many clinics that bill Medicare have to employ up to two extra business office employees just to concentrate on Medicare claims. Other clinics that choose not to bill Medicare don’t need these extra employees and can bill the MA carriers as they bill for claims for their patients not covered by Medicare.
    Their are increasing numbers of clinics choosing to only work with MA plans. Yes the MA plans have narrower networks but MA plans with PPO or HMO-POS plan designs offer the same freedom as Medicare coverage. These plans do raise the costs for choosing out-of-network care, but that is the patients choice to seek such providers. Most patients choose in-network care to keep their costs down.

  3. Ron Greiner says:

    Consider this, a Medigap insurance plan can cost $200 a month in traditional Medicare from AARP. A couple could be double. My Mom was almost at $300 before she died.

    In contrast, Medicare Advantage plans advertise in Tampa Bay that the cost is ZERO, plus enroll with us and we will give you seniors $90 cash, double for a couple, a month, plus a health club membership. Plus, plus, if you come down to the Holiday Inn we will buy you dinner just to tell you about it.

    Sign here, press hard!

    It’s crazy, we have young people working 29 hours a week paying Medicare tax on every dollar earned just so some fat-cat senior can set on his million dollar boat in the bay scarfing down free drugs. Welcome to America.

    • Uwe Reinhardt says:

      Yes it’s a cray country alright. It’s what makes Americans so cute in the eyes of foreigners.

      • John R. Graham says:

        Mr. Greiner’s comment corroborates the puzzle: Why pay for Medigap when you can get Medicare Advantage for free, or better?

        Perhaps I need to look closely at where Medicare Advantage plans are offered: A carrier can pick and choose where he offers. So, if a market is not profitable, it can decline to enter. The decision may not just have to do with the Medicare Advantage market.

        The carrier’s business in private group and (now) Obamacare exchange coverage in the region will also have an impact on the decision.

  4. Barry Carol says:

    Perhaps Uwe Reinhardt can comment on this but my understanding is that those who select MA plans are, on average, healthier than those who stay in traditional Medicare. I’ve read that the average risk score for MA enrollees at one large MA insurer is between 0.80 and 0.85 with 1.0 defined as average risk. Since in any given year, the healthiest 50% of seniors only account for 4% of Medicare costs, there is still plenty of room for MA plans to grow and I hope they do as I own stock in UNH.

    The big cost advantage of MA plans for beneficiaries is that you do not need a Medicare supplemental insurance plan and, indeed, you can’t buy one even if you wanted to. MA enrollees do have to pay the standard Part B premium of $104.90 per month for 2014 plus any premium charged by the MA insurer. The main disadvantage is limited provider choice. Also, if your doctor(s) drops out of your MA plan or your insurer stops offering MA plans in your county, you will have to find a new plan whereas traditional Medicare is always there. If you want to switch back from an MA plan to traditional Medicare, you generally won’t be able to buy a supplemental plan in most states unless you can pass medical underwriting.

    I choose to stay in traditional Medicare because I have some significant health issues, I frequently travel outside of my home region, and I can afford to. My wife and I pay $225 per month each for our AARP / United Healthcare supplemental plan and separate Part D drug plan. It’s not cheap; that’s for sure. However, there are a large number of Medicare beneficiaries who have their supplemental plan paid for them by their former employer. This is the case for most public sector retirees and many retirees who were previously members of private sector unions along with their spouses. For them, the maximum provider choice that comes with standard Medicare comes at no incremental out-of-pocket cost. Finally, about 10 million Medicare beneficiaries are eligible for both Medicare and Medicaid (Dual-Eligible). Traditional Medicare will work fine for them as well, I think.

    In the New York City metropolitan area, some of the leading academic medical centers and doctors accept traditional Medicare but don’t accept MA plans either because they want to pay less than standard Medicare or they are more of a hassle to deal with or both.

    MA plans tend to be most generous in South Florida where per capita spending by traditional Medicare is, by far, the highest in the country at almost three times per capita spending in the lowest spending state, Hawaii.

    Finally, as a point of information, Medicare Part A covers hospital bills and Part B covers doctor and other bills delivered in non-hospital settings except for drugs which are covered by Part D plans.

    • dennis byron says:

      By far the major advantage of public Part C health plans is that they include annual out of pocket health-care (not drug–see Note) spending limits (averaging around $5000 in 2014 with a max of $6700). Original Medicare Parts A and B do not include such a limit and also have lifetime limits on benefits it will pay to acute care and skilled nursing facilities. Only the most expensive private supplemental (Medigap) plans include such an OOP limit. Most private supplemental plans extend but do not eliminate the lifetime limits (but an annual OOP limit almost eliminates the lifetime limits). But such protective private supplemental plans are not available in all states. In Massachusetts, where I live, the only way I can get annual OOP protection and eliminate the lifetime limit is via Part C. Such protection is basically the reason one buys insurance. (But I still would not choose Part C if my doctor did not accept it.)

      The difference between traditional (as opposed to Original; two different meanings) fee for service Medicare plus a private supplement from a former employer or bought individually and Original Medicare plus almost all public Part C health plans (you have to have Original Medicare to select a Part C plan) is the same difference most people not on Medicare face: uncoordinated care from any provider that accepts the insurance vs. managed care from a usually geographically based network of providers.

      NOTE: The Part C annual OOP limit is on healthcare spending. The limits on self-administered drug costs follow the Part D rules of four phases of spending: deductible, initial, gap and catastrophic. Most plans do not have a deductible and only a very small percentage of all Medicare beneficiaries reach the third phase. Only 1% of all Part D beneficiaries reach the catastrophic level. If there were statistics on whether Part C beneficiaries reached the gap sooner or later than all traditional Medicare beneficiaries (many of whom like you choose a Part D plan), it might indicate if they are healthier as a group or not. The current indications is that Part C beneficiaries are less healthy on average because they have higher risk scores on average (this would make sense because Part C beneficiaries are disproportionately poorer than all Medicare beneficiaries). There is also an allegation — mentioned in the original article above but not supported by CMS and the GAO — that these risk scores are intentionally inflated by insurers.

    • Uwe Reinhardt says:

      There was solid evidence in the 1990s that the then Medicare + Choice plans benefited from favorable risk selection. But recent evident (a paper just out by Joseph Newhouse and Thomas McGuire in the Milbank Quartely)suggests that with modern risk-adjusted payments, this phenomenon has more or less disappeared.

      It theory it would make sense that MA plans would render superior benefits for the money than the uncoordinated traditional Medicare, whose claims are processed by private intermediaries (mainly BCBS plans) who do not have much incentive to coordinate anything or even minimize costs.

      As both you and Dennis Byron point out, the real issue in re choice is how much beneficiaries value freedom of choice of provider.

      • Barry Carol says:

        I’m pleased to learn that favorable risk selection is no longer a factor within the Medicare Advantage population. Also, the larger plans continually tout their significantly lower hospital inpatient bed days per thousand members compared to standard Medicare which suggests better care management assuming risk scores are comparable. If their payment rates are at least within a couple of percentage points of the standard Medicare rates, the business model appears to be sustainable on a longer term basis at the companies’ target profit margin of 5% pretax.

        Regarding the choice issue, it’s also worth noting that standard Medicare will always be there. Members don’t have to worry about their insurer leaving their county, raising premiums significantly or sharply increasing deductibles, copays and out-of-pocket maximum amounts. On the other hand, those of us with standard Medicare need a supplemental insurance plan and almost all of us have one.

        • Uwe Reinhardt says:

          Your second paragraph makes an interesting point. Traditional Medicare is a bit like a faithful and steady spouse who is always there, even if (s)he may not invariably be all that exciting.

          Private insurance is more like having a serious of ephemeral affairs with partners that may give you the pink slip at any time. It can have its high moments, but does have that drawback.

          And different people seek different things in these matters.

        • dennis byron says:

          You say “the business model appears to be sustainable on a longer term basis at the companies’ target profit margin of 5% pretax.”

          Since you mentioned on an earlier comment that you are investor in a for-profit stock insurance company, it is important to keep in mind that almost all of the companies involved play in multiple parts of the market. All of United States Medicare is run completely by private insurance companies. These companies make the same 5% profit — give or take — running Medicare that they make everywhere else in the their businesses. They have one set of high-paid executives that manage both the Medicare sides of their businesses and the non-Medicare sides of their businesses. In the United States, Original Medicare Parts A and B are run by Wellpoint/Anthem, BC of Alabama, Noridian Mutual, BC of Florida, Wisconsin Physician Services and similar mostly for-profit private insurance companies. For-profit AARP/United, Humana, and Aetna and non-profit Kaiser and others (more non profits are involved in Part C but most people are on Part C plans from for-profit companies) join most of the first group to run Part C of United States Medicare. CVS and a few other pharmacies join most of the previous mentioned companies to run Medicare Part D.

          Most of the private insurance companies that run Medicare also sell or administer Obamacare insurance, large group plans, Medigap, non-Obamacare small group plans, self-insured plans (the fastest part of the insurance market because it is not affected by most of the burdensome government regulation), Tricare, non-Obamacare individual insurance, and so forth. Some administer Medicaid. Some even sell car and fire insurance.

          Original Medicare (and to a lesser extent Parts C and D) is easy money for these insurers because they don’t have to collect most premiums (SS does that for them) or take a loss if the government sets premiums too low. Although their contracts require them to check claims for fraud and abuse, they do that very sparingly and yet lose their contracts very rarely. Not having to root out fraud in Original Medicare Parts A and B particularly holds down the administrative cost on the A and B contracts dramatically.

          • Barry Carol says:

            Dennis,

            Within Medicare, I think you’re confusing apples and oranges. Insurers make very little money from administering Part A and Part B claims. My former employer was self-insured and used Highmark Blue Cross to administer its claims under an administrative services only (ASO) contract. For active employees and their family members, Highmark was paid roughly $20 per member per month (PMPM) for this work. For retirees, their fee was about double that to reflect more claims from these members. The profit margin was in the 15%-20% range but the revenue was only $240-$480 per year per member. Medicare Advantage, by contrast, is a full risk insurance contract. The insurer is paid $900 or $1,000 per month or thereabouts to pay for and administer all covered member claims. At a 5% pretax margin on a $1,000 per month premium, potential profit is $50 per month or $600 per year per member. If the MA plan is priced too low, the insurer will lose money. Claims administration contracts are not money losers but the potential profit is tiny by comparison.

            • dennis byron says:

              I am specifically cautioning against comparing apples and oranges. My point is that the insurers that run all of Medicare are all the same companies and they are balancing their profits within a mix of insurance businesses but are almost certainly looking for the same ROI on all activity (subject to marketing strategies, etc.) I guess we would have to discuss your definition of “very little money” but I am fairly confident that the insurance companies administering Original Medicare (which are also for the most part also selling Part C plans and/or Obamacare and/or Medigap and/or…, etc.) are happy with the margins on their cost-plus contracts that have already been awarded to run Original Medicare in most of the US and that both winners and losers feel it is good investment of legal time and money to keep protesting the four regional contracts that have not yet made it all the way through the process after five years. The fact that these are pretty much all the same guys that did this prior to the current 15-region contract process (that is, they came back for more) tells me they feel there is money to be made. And they are most likely making about the same margin (give or take, as I said) as they are on Part C plans and D plans and Obamacare and so forth.

              (Just to be clear, the numbers in the first half of your comment are not relative to the cost-plus contracts awarded by the Federal government for administering Parts A and B, correct? They are contracts awarded by a private company for administering its retiree plan in conjunction with its employee plan? That’s apples to oranges vs. how the Original Medicare administrative cost-plus process works… or at least it’s comparing Macs vs. Delicious.)

              • John R. Graham says:

                I am pretty sure that no insurers are still operating as MACs (unless Wellpoint/Anthem has a subsidiary whose name is nothing like WellPoint or Anthem.

                Can you please clarify?

                • dennis byron says:

                  Yes, all MACs are insurance companies, some of whose MAC contracts are under a sub’s name (or even a sub’s sub’s name). Specifically, Wellpoint/Anthem’s National Gov’t Services, SC BC’s sub Celarian in turn has one or two contracts under tertiary names, ditto for Florida BC, and BC of Alabama has one MAC contract through a sub. And WPS and Noridian are also MACs under their own names as well as running their other insurance businesses. That’s off the top of my head; there may be others.

                  • dennis byron says:

                    I should add that I think I first read that Original Medicare was administered by private insurance companies on this web site two or three years ago.

                    • John R. Graham says:

                      Thank you. I never looked into who owned the MACS. Before the 2003 Medicare Modernization Act, there were “fiscal intermediaries” who processed claims for Part A and “carriers” who processed claims for Part B.

                      I recall that in those days the insurers used their own names for those services. It is not clear to me why they incorporated subsidiaries to carry out MAC business.

                      Maybe because there are few MAC contracts that cover such big regions that they want a separate subsidiary, whereas in the old days they could get a contract for an area that corresponded exactly to their private business?

                      I wonder which is more efficient, the pre or post 2003 methods?

              • Barry Carol says:

                I agree that insurers and probably all other rationally run businesses try to at least earn enough profit from each business line to cover its cost of capital over time. The net profit to sales ratio can vary materially among business lines depending on capital and labor intensity, pricing power and other factors.

                For health insurers, all I’m suggesting is that the revenue and profit dollar opportunity available from ASO and cost plus contracts to administer claims for Medicare and self-funded employers is considerably smaller than contracts that require insurers to assume the full actuarial risk associated with paying all client claims for covered services less member deductibles and copays.

                • Uwe Reinhardt says:

                  For the ASO business, insurers require little invested capital, other than a pro-rata share of the investment in building and computer systems. So even a thin profit margin on throughput can be a huge return on capital invested in that business.

                  For the risk bearing business, insurers must put aside sizable cash reserves plus, of course, a pro-rate share of structure and equipment cost. So here the margin on revenue needs to be a bit larger, including a reward for risk bearing.

                  Overall, though, the asset turnover rate in the insurance business is high. Roughly 80% of the premium revenue is just pass-through of costs from providers to the insured via the books of the insurer. Do we believe that if hospitals raise prices to insurers, insurers deserve more profits? Surely not.

                  So if you take the 5% or so margin insurers have on their total revenue and relate it to the capital they have invested in what is really their share of production — about 20% of the premium consisting of marketing and administration — then insurers earn a very tidy sum on invested capital. Even at a 2% margin it is a very fine business, from an ROI perspective. That’s what the Medicaid Managed Care companies make — about a 2% margin.

                  • John R. Graham says:

                    I agree utterly. I’m sure we can figure out what the risk-adjusted required return on capital (RAROC) is on self-insured business versus fully insured business, but as you point out it is not a clear difference.

                    The financial statements of a health insurer are very different than those of a P&C , life, or auto insurer, where premiums are for the bearing of risk, not claims processing.

      • Allan says:

        “…with modern risk-adjusted payments, this phenomenon has more or less disappeared.

        Uwe, do you really believe that? That is what was said in the past and now we hear it again. Who produces the data they use to draw this conclusion? Do you think some of this data is coming from interested parties?

        If our risk adjustment is so fine tuned and understands All the variables then perhaps we could do a blinded study by labeling patients with a risk adjustment value and then in the future see what actually happened.

        I assume they use medical data for their risk adjustment, but medical data is only part of the story and is hard to accurately interpret. Culture, education, socio economic status and many other things have to be integrated into risk to obtain the needed information. I think those investing their money are smarter than government officials in figuring out ways to tip the scales of risk in their favor.

        • Uwe Reinhardt says:

          I say this mainly because it comes from a paper by Joseph Newhouse and Thomas McGuire, for whom I have the utmost respect. To be frank, I just downloaded their paper and have not poured over it as I should have, but Austin Frakt has and he, a perennial skeptic, buys into it.

          That said, I did hear form the CMS actuaries directly that they believe the risk scores are easily gamed by the health pans, which would impair proper risk adjustment.

          You certainly are right that operating a system under which different plans compete for government business is extremely difficult to do properly.

          • Allan says:

            In that case I hope you let us know your opinion after you have examined their paper. Austin Frakt is not sufficient as though he is on occasion a skeptic, at least in his public writings, he has a tendency to forget papers are only looking at certain variables and sometimes he utilizes the wrong type of methodology.

            I’ll add my insignificant voice to the significant CMS actuaries and assume risk scores are easily gamed. I have first hand knowledge of that fact from the past though don’t have it in the legitimate form of a study.

  5. Pariksith Singh, MD says:

    It seems to me that all these suggestions are coming from a very abstract understanding of how Medicare Advantage works. A lot of our concepts are romantic, unrealistic and not grounded in reality. Running an MA program is no joke! The logistics is onerous; the requirements and compliance extremely restrictive. It is painfully difficult to fulfill all the CMS goals for a solo primary physician and the operational needs are expensive. I assure you that patients on their own will not be able to navigate through all these requirements. And the present political gridlock will not bring any sane solutions to this extremely complex machinery.
    There is so much to be said on this subject. All i can say is we need practical solutions and, at present, i am not seeing any at least in MA business

    • Uwe Reinhardt says:

      All of these complications would go away if we just treated health care like we do pizza. But the public wants to impose a different distributional ethic on health care, and that begets all of these problems. Other countries have solved these problems with simpler, one size fits all insurance programs. American particularism demands that, ideally, every American is offered precisely the deal he or she prefers, and that begets all of these problems.

      The ACA is a classic example of it. And what we legislate then exceeds our administrative capability.

      • Arnie Poutala says:

        Uwe,

        What does “our administrative capability” mean? If it means our healthcare system as we have it with the ACA, I agree. And I agree because of the involvement of the government in healthcare. If it was totally left to the private sector, their would be an incentive to get the administrative system to work. But with government involvement, that incentive is lacking. In fact, the incentive may to not have it work as that is government job security.
        I wish I could see government involvement as a benefit to the system, but observing the politics and the implementation of the ACA leads me to my view.

        • Uwe Reinhardt says:

          Arnie:

          I view your statement more as the expression of faith rather than of solid evidence.

          If you look at the MLRs typical of the many small companies selling insurance in the individual market pre ACA, they tended to range between 55% and 70%. Think about that!
          If you challenge me I will find you the letter to the NAIC by the Council for Affordable Health Insurance pleading for those MLRs.

          Also, when I served on the Duke Health System Board, I learned that we had 400 billing clerks. I was told that Medicare was not the problem, because billing was fully electronic and payment usually came within 20 days. The bulk of the workforce in billing was devoted to the back and forth with about 100 distinct private health plans, each with its own rules and even nomenclature.

          I know this is only an anecdote and not a data set, but I’d wager a fair sum that if you asked CEOs of major health system, they’d tell you the same story.

          I know there are people who sincerely believe, as a matter of faith, that it would have been more efficient to have Haliburton or Blackwater take Fallujah in Iraq, rather than the 3/5 of the 1st Marines, because a Marine division is, of course, a purely socialist enterprise.

          I don’t belong to that faith.

          • Allan says:

            Uwe, you write: “I know there are people who sincerely believe, as a matter of faith, that it would have been more efficient to have Haliburton or Blackwater take Fallujah in Iraq, rather than the 3/5 of the 1st Marines, because a Marine division is, of course, a purely socialist enterprise.”

            The founders of our Constitution recognized the intracies in what you are saying, but the Constitution states that the President is the Commander and Chief of the Army and Navy of the United States. It made no mention of him being the CEO of healthcare resources.

            • Uwe Reinhardt says:

              We are talking here about efficiency, not the U.S. Constitution or what the founding fathers, bless them, may have thought.

              My assumption is that many Americans would view the USMC as inherently inefficient, because it is a purely socialist enterprise.

              Think about it: their equipment is government owned, they are government-paid employees, their officers eat last (can you imagine the CEO of a corporation eating last?), and no one gets bonuses or stock options for conquering a city or a hill — aside from some cheap medals not even made of silver and gold.

              You ask yourself: how can such an outfit work, don’t you?

              That was my point.

              • Allan says:

                Of course you are correct Uwe, choice, freedom of speech, and all sorts of things offered by our Constitution are not efficient nor are they meant to be so. They are meant to protect the rights of people when others wish to abridge them in the name of efficiency. It is my personal belief that these protections offer much greater benefit and efficiency in total making up for any short term loss of efficiency. Nothing is more efficient than a dictator until he starts running into problems.

                I don’t consider the USMC as socialism in part because the USMC was not intended as a profit making organization nor do I consider the USMC terribly efficient. However the President is the Commander and Chief. I think the Army including the USMC as such is ingrained in our culture, but if anyone wishes to include it under the banner of socialism they are free to do so.

                • Uwe Reinhardt says:

                  I just go by the definition of socialism, namely, an arrangement under which the state owns the (capital) means of production.

                  If you think the USMC is not inefficient, you admit that sometimes socialism can be efficient.

                  I won’t argue with that.

                  • Allan says:

                    I don’t want to belabor the point, but I am having trouble following you with your use of a double negative. Using your definition of socialism:

                    The USMC : “The state owns the (capital) and means of production” Isn’t that true of the USMC?

                    Thus when I say: “[N]nor do I consider the USMC terribly efficient.” am I not saying the opposite of what you think I am saying?

                    • Ron Greiner says:

                      In my mind Allen with Socialized Medicine the State owns the (capital) and means of production. Medical Fascism is when the State blends with business, like Blue Cross, and creates a giant monopoly, in this case non-profit too, that other for-profit competitors are crowded out of the market. What we know for sure is city, county, State and Federal employees are restricted to Blue Cross. Not all county governments have Blue Cross but most do. That’s Medical Fascism.

                  • Uwe Reinhardt says:

                    I see. I misread you.

                    So you probably believe that Blackwater or Haliburton could have done the Fallujah job more efficiently than did the Marines.

                    I can believe that you would.

                    • Allan says:

                      No, I didn’t indicate that. I said I didn’t think the marines were particularly efficient. I did, however, say that on occasions dictators were efficient until they run into problems.

                      But, let us bring this to healthcare. No, in this country the free market is more efficient than socialism for one of the largest sectors of our economy, healthcare. Moreover, the free market protects our rights, choices and our Constitution which has made us the strongest nation in the world.

                      However, Uwe, this does not mean that government has to be entirely out of the healthcare equation and unable to protect some of its citizens. It just has to restrain itself as Hayek said so that government has the least effect on the marketplace possible. There are many ways of doing this without destroying the Constitution or using the inferior socialistic system so many people of the world adhere to. I note our living standards to be better than most of them. Moreover, the problems we have been facing in the recent decades are problems created by those progressives that promote socialism without consideration for the nation. I do not include you in that group.

  6. Allan says:

    We are hearing the same arguments as heard before MA when simple Medicare HMO’s became quite prominent a number of decades ago. A lot of statements were made such as it was impossible for the companies to defraud the government, but they did in many ways. They discussed quality issues and were proven wrong. They discussed issues of gaming the system and were proven wrong again. The experts were positive that these bad things weren’t happening and kept providing proof based upon studies performed by the HMO’s and other interested parties. I will bet that much of the information that is being used today directly or indirectly comes the MA companies that have a vested interest.

    How easily we forget and blind ourselves to new data that is questionable at best. Selection is a nasty process that can be so subtle that it can be missed by the experts. In fact selection that wasn’t subtle was missed by the experts. It is one of the most difficult things to control

    A simple first step solution: Do not pay MA more money than traditional Medicare. If the person on MA is getting a better deal the extra financing shouldn’t be necessary.

    • Uwe Reinhardt says:

      This is sane advice, Allan.

      First, one can never trust just one econometric study. Each of them is just an essay in persuasion. Furthermore, economists have a habit of looking only at the signs of estimated coefficients and their statistical significant (estimating the probability that our estimated coefficient is different from 0 just by a fluke), but rarely the economic significance.

      I recall peer-reviewing a study in which someone showed that there were economies of scale in the German sickness fund. The sign of one coefficient suggested so. But when I then used that equation to calculate the optimal, cost minimizing size and next calculated how much money would be saved per insured member by moving from the prevailing to the optimal size, it came to something like DM5 out of roughly DM1,000 per member. And for those DM5 an entire industry was to be shaken up?

      Finally, when the 2003 MMA was passed and I saw the deal AHIP got for the plans from the Bush Administration, I thought the plans should be ashamed of themselves. Beating traditional Medicare with a neutral (parity) payment should have been eminently feasible and, in some areas such as Florida, like shooting fish in a barrel.

      Holding out for that extra bakshish I thought gave private enterprise a bad name.

      Oddly, in Medicaid Managed Care the plans did not get more than traditional Medicaid cost. They usually got less, which is why governors liked the plans.

      • Allan says:

        Thank you Uwe. I knew I could count on you.

      • Ron Greiner says:

        Uwe, if I owned an health insurance company, and I was a scam artist, I would want a 6-year-old and not a 60-year-old because the older ones get sick and cost so much. Then I would charge the state much more than the private sector but that’s OK because we are doing it for the children.

        Then I would terminate all children on their 19th birthday, even those diagnosed with MS like my daughter, and laugh all the way to the bank.

        Wow, did I just describe S-Chip or Kid-Ploy of Hillary and Obama? Of course no one in government ever considered how dangerous Kid-ploy is. Obama said, “I won’t raise taxes one dime.” Then the 1st thing he did was raise taxes on smokers to fuel more S-CHIP spending for scam artists.

      • John R. Graham says:

        What about areas where Medicare Advantage does cost less than traditional Medicare? Robert F. Coulam wrote about that for American Enterprise Institute in 2009. Surely, in such places, Part A and B payments should be clawed back to equal Medicare Advantage.

        • Allan says:

          An intriguing point of view one I don’t hold for a variety of reasons. However, if the money was returned to the taxpayer that adds weight to such a suggestion. I would, however, be careful of the dummy down effect that is possible while at the same time worry about the selection process being used.

          Would this be akin to offering all that wish a cash gift of a percentage of the per capita Medicare payment? The sick ones would remain and the healthy might take the cash. Originally the HMO in a level playing field was supposed to get only 95% of the per capita rate saving Medicare money. There was a reason for that. Instead when risk adjusted they were getting about a third too much which demonstrates how badly such estimates were in the past and bodes very appropriate suspicion as to what will happen in the future.

          • John R. Graham says:

            I appreciate that comment. Let’s say there was a value of $8,000 and a beneficiary had an option of accepting a $8,000 deposit into an HSA or allocating $8,000 fully towards the premium of the Medicare Advantage plan. (Or, any distribution between these two extremes.)

            Yes, the healthier seniors would choose the HSA credits, all things being equal. But so what? It’s fully financed by taxpayers, so there’s no death spiral as in private insurance.

            It would go a long way towards better price formation for medical goods and services.

            • Allan says:

              John, one can figure out a per capita payment for Medicare, but that is incidental. We all know most of the money goes for paying the expenses for a few expensive Medicare patients. If we were to create an HSA we have to make sure that we are not funding the HSA with money that was intended to cover the great risks. Thus there may no death spiral, but there may be a tremendous lack of funding for those that are sick and need expensive care that would now be denied or shifted to Medicaid or another government program.

              Any money removed from the Medicare program should not go to the benefit of a senior or another program rather should IMO be returned to the taxpayer. Thus I think the idea you are presenting in your last comment is a very bad one.

              Take note I am a big supporter of HSA’s.

              • Ron Greiner says:

                Allan, I have enrolled seniors into Medicare’s MSA program in 2007. What you are saying is that Medicare can’t have the MSA program in the future because all money that may go to the senior’s MSA should instead be returned to the tax payer.

                Then you say you are a big supporter of HSAs. I don’t think you should say you are a big supporter of HSAs then say it must not happen in Medicare.

                It’s the same across the nation, HSA discrimination. When will it stop?

                • Allan says:

                  Ron, it is not the senior’s money. It is the taxpayer’s money. There is a difference between that (putting an entitlement directly into an HSA) and an individual buying a high deductible plan with his own money and putting the savings into an HSA.

                  Ron, we could create a type of HSA for seniors on Medicare, but it would have to be done differently where selection is not the basis of choice.

                  I hope I made it clear that John’s discussion involving both an HSA and allocation to a Medicare Advantage Plan are two different things. I can see the rational of the MA plan that might include an HSA/MSA when the payments to that plan are no greater than the payments to traditional Medicare and the selection process is reasonably managed.

                  Yes, I am a strong supporter of HSA’s, but that doesn’t mean that we forget the principles we are trying to uphold.

                  • Ron Greiner says:

                    Allen, in Medicare it’s called MSAs. It is the law of the land, sorry. Look at page 34 of the Medicare handbook. If you hate it so much you better start writing letters to Congress and get it changed.

                    You tell me Allan why the MSA in Medicare violates these so-called principles you are trying to uphold.

                    • Allan says:

                      Ron, the original term used for this type of savings account for the non Medicare population was MSA. It is now HSA. Medicare has been using the label ‘MSA’ within the MA program, but John Graham used the label ‘HSA’ which was fine because that was what he was trying to simulate in his email. I followed suit, but in my discussion with you included the MSA using the designation “HSA/MSA”. Now you want to nit pick even further that the laws (which we weren’t even talking about) use the label MSA?

                      Ron, I’m not going to try to explain to you what was said by me to John Graham. It was more than adequately clear especially after my reply to you, but you are reading in things that don’t exist.

                    • Ron Greiner says:

                      Allan, I know perfectly well that before the HSA there was the MSA because I enrolled the 1st one in the USA in Oct of 1996.

                      My friend enrolled the 1st MSA in Medicare in 2007 so I have a handle on that too. In Medicare it is still called the MSA. But I won’t comment anymore on what you say are “our” principles.

                    • Allan says:

                      Ron: “Allan, I know perfectly well that before the HSA there was the MSA because I enrolled…”

                      From the tone of your response to me it would appear you didn’t know, but I didn’t accuse you of not knowing anything, I let your own words do the talking.

                      The “our” principles are the principles that each of us hold. All too frequently many forget their underlying principles when they have a pet program or get on a rant.

                      I am glad you are dropping your question. Probably you reread what was stated and found it did not apply to your comment.

                    • Ron Greiner says:

                      Allan, you said, “I am glad you are dropping your question. Probably you reread what was stated and found it did not apply to your comment.

                      No Allan that is not the reason. The reason is: why talk to you? I have been dealing with uninformed people for a long, long, time.

                    • Allan says:

                      @Ron: “I have been dealing with uninformed people for a long, long, time.”

                      My goodness, when logic and good sense are absent I guess the only way left for you to reply is with insults.

                      I don’t know if you are informed or not, but you certainly don’t read very well.

                      My comment against the HSA that I believe John Graham was promoting, but not seriously or completely, was the ability to put the entire amount of money allocated by Medicare’s per capita rate into a privately owned HSA fund.

                      Medicare funds are pooled because they are supposed to be paying for sickness and we don’t know when one will become ill. That proposal would mean that the individual would have only $8,000 to spend no matter how high his bills were while removing $8,000 from the pool. That means severe and expensive illness costing more than what is left in the HSA or in the pool would have to be made up by some other entity because the money wasn’t being used as intended.

                      MA has MSA’s, but they are different than what I think John’s casually made proposal was. Perhaps you lost sight of that fact.

                    • Ron Greiner says:

                      Allan, I thought John was saying put the cash amount of a MA plan into the senior’s HSA and let the senior choose to purchase insurance with a higher deductible and any unused funds remain in the HSA. So, if a senior has $100,000 in their HSA, like many of my clients, they might choose a deductible that’s higher which would produce a higher amount left into their HSA each year.

                      But you say NO. Because “our” principles can’t handle it.

                      I think John made an excellent suggestion. But, if we all liked the same thing we would all be married to my wife and that would be bad. So good luck with your opinions.

                    • Allan says:

                      Ron, John’s statement was:

                      “Let’s say there was a value of $8,000 and a beneficiary had an option of accepting a $8,000 deposit into an HSA or allocating $8,000 fully towards the premium of the Medicare Advantage plan”

                      Take note of the “or” in between his two options.

                      Take note that the entire $8,000 was being put in the HSA without any restriction.

                      Think of selection.

                    • Ron Greiner says:

                      Allan, we have been discussing this here since the beginning of this site. I guess you missed these discussions in the past.

                      Allan, you could of said to John, that’s a great idea and the senior should be able to purchase insurance from their HSA, with the deductible of their choice, in the free and open market.

                      I know it takes a while to get caught up to speed when you come in so late.

                      John’s idea is much better than the one-size-fits-all Medicare MSA that is currently the law of the land.

                    • Allan says:

                      Ron, you suggest I need to “get caught up to speed”. I suggest you need to abstain from speed and or anything you might be smoking. You don’t sound as intelligent as you think you are.

                      An HSA is a health savings account. That doesn’t mean that one purchases appropriate insurance with that money. MA plans that include an MSA have rules that force the individual to use the premium dollars for insurance so he doesn’t become a ward of the state.

                      What do you think would happen if we gave a thousand people $8,000 a year to put into an HSA without any other restrictions? If group one were all healthy and needed zero medical care then each one of them would have an additional $8,000 that was supposed to pay for group 2. Group 2 is the sick group where the costs are greater than $8,000 that is now in group one’s pocket forcing the taxpayer or provider to make up the additional dollars.

                      This seems to be beyond your intellectual ability, but maybe you are just a little slow and need this extra coaching.

                    • Ron Greiner says:

                      Allan, This is the last thing I’m going to say to you unless you insist on saying negative things about me. You said, “If group one were [all healthy] and [needed zero medical care] then each one of them would have an additional $8,000 that was supposed to pay for group 2.

                      Insurance pays for unforeseen claims or expenses. In the previous post I said they use the HSA deposit to purchase insurance. Then YOU say I’m on drugs. Are you licensed to sell insurance Allen? [Mr Central Planner]

                      Lucky they don’t give IQ tests to comment here because then I would have never met you Allan.

                    • Ron Greiner says:

                      Allan, lets consider the customer service calls of the future. Currently, we have clients with $100,000 in their HSA and they are only 40 years old. In 25 years they could have $250,000, or more, when they hit Medicare at 65 years of age. They are going to call and ask why do they have to have such itty bitty little deductibles?

                      I will have to leave instructions to the customer service reps of the future to say – We tried, we begged, to get this fixed way back in 2014 but there was this Central Planner named Allen who insisted that you didn’t know how to take care of yourself and this Allan guy didn’t want you to have the FREEDOM to choose a rational deductible which would cost so much less. We begged this Central Planner named Allan to consider a Defined Contribution but he said it violated all of our collective principles and you would end up a ward of the State.

                      I know this sounds crazy but you can look it up in history at the NCPA Health Blog and you can see that we tried and tried but this guy named Allan said, No-Way-Jose.

                      I hope this brings a little clarity to your complexity.

                    • Allan says:

                      Ron, you are all mixed up and seem to lack the necessary understanding of the mantra you have memorized. It is as if you are delusional arguing with yourself and not the content or context of anyone else.

                      There are two issues.

                      1) Medicare HSA/MSA
                      2) non Medicare HSA/MSA

                      Medicare is an entitlement. It is not even a guarantee and that is why it isn’t included in our national debt. The money is already pooled thus removing that money has to be performed in a manner that other members of the pool that have an equal right to that money aren’t adversely affected (This does not prevent an HSA/MSA from being utilized. It protects other people.). From what you have been saying you don’t give a d-mn about adversely affecting people remaining on traditional Medicare or the taxpayer as long as you can sell your chosen product.

                      Non Medicare patients haven’t yet pooled their money. I believe they have a right to do with their money whatever they wish. Under our present rules and regulations I find the HSA to be an excellent way for them to go.

                    • Ron Greiner says:

                      Allan you are correct, I am all messed up. Medicare can never be modernized. I only care about selling as you say. Of course I have only enrolled a couple Medicare programs in my life just so I could say that I have enrolled an MSA in Medicare.

                      I have worked in the past in the underage market. Of course we were run out of business in 2010 when the ACA dropped our commissions on health insurance by over 70%. I remember you saying that it is too bad that a million health insurance agents were run out of business. I can tell you like salespeople by your comments to me.

                      Allan, I can honestly say to this very day I have never made a penny on an MSA or HSA. I am so glad that you have finally showed up here to teach me what my motivations are. Thank you.

                    • Allan says:

                      @Ron: “Allan you are correct, I am all messed up.”

                      Correct.

                      “Medicare can never be modernized”

                      Wrong.

                      “I only care about selling as you say.”

                      As a salesman only you know for sure.

                      “I can tell you like salespeople by your comments to me.

                      I neither like nor dislike. They can be useful facilitators. We are seeing that today with the ACA.

                      “I have never made a penny”

                      Whether or not you made money doesn’t tell us about your motivations.

                    • Ron Greiner says:

                      Allan, you are the one that said, “you don’t give a d-mn about adversely affecting people remaining on traditional Medicare or the taxpayer as long as you can sell your chosen product.”

                      Then you say, “Whether or not you made money doesn’t tell us about your motivations.” That’s wrong. You can easily see it’s not the big money I make, get real.

                      Allan, my beautiful wife who still does customer service on the oldest HSAs in America, for nothing I might add, knows so much more about health insurance, sick people utilizing insurance, and tax free HSAs than you could possibly ever know.

                      When she get’s off work tonight at 6:30 PM working at the HSN call center, for practically nothing, because we were run out of business 4 years ago, I’m going to tell her that some guy named Allan, who won’t tell us his last name, has shown up at the NCPA blog and is giving me grief saying stuff like I only care about HSAs because I SELL them.

                      I know she will say, of course, that is what everybody has said since the very first day, so that was to be expected.

                      Then she will say — Ron why do you waste your time talking to people like that?

                      Allan – what is your last name?

                    • Allan says:

                      Ron over all too many postings you were totally mischaracterizing what I said without providing a single quote so that we could put things into context. I provided a quote for you that you didn’t even comment on.

                      You left me without a way to move the conversation in an appropriate direction so I gave you a bit of what you were giving to me. You don’t like it? Maybe you have learned that after multiple mischaracterizations you needed to provide the quoted words and be more careful.

                      I am glad your wife is beautiful and knowledgeable. I don’t know you at all so I really can’t tell you what your motivations are. Likely you are sincere and as I probably said before you were a necessary part of the healthcare sector. This has nothing to do with my like or dislike of salesman rather my recognition that for various reasons we sometimes need middlemen to bring two parties together.

                    • Ron Greiner says:

                      Allan, look around. You are the only one here without a last name.

                      What is your last name?

                    • Allan says:

                      This is a discussion list. I’m not interested in getting married so I don’t feel the need to provide you with a last name that could be real or fake.

                      It is my belief that unless one is making statements based upon specific expertise then one need not provide a curriculum vitae. It is also my belief that one should look at the consistency of what one says (or does when in a different type of setting) and from that define the person.

                      That being stated a lot of people on this blog know my name, address and a lot of things about me. I have had personal conversations with quite a number of them.

                      I don’t believe in consensus thinking so it bothers me not in the least what other people say or do.

                      This is the end of our conversation for we have abused this blog long enough. You are no longer on topic and just wish to verbalize your feelings. Therefore you do not require any further responses.

                    • Ron Greiner says:

                      Allan, that is such an odd statement. You certainly are a professional at twisting things. Rest assured, I don’t want to marry you either, whatever that means.

                      With that said, welcome to the NCPA blog.

              • John R. Graham says:

                This and your comments below are quite accurate, I believe. I was just trying to use a very simple illustration.

                Plus, I am trying to address a political challenge: The Medicare money is allocated to seniors and it cannot be re-allocated away from seniors at a politically tolerable price.

                Returning corporate bailout money to taxpayers sells. Returning President Obama’s golf budget to taxpayers sells. Returning Medicare money to taxpayers does not sell.

                • Allan says:

                  @John: “Returning Medicare money to taxpayers does not sell.”

                  I don’t know, but I would think reducing the amount working people have to contribute to the Medicare program might have some support.

                  • John R. Graham says:

                    Medicare is mostly funded by general federal revenue, which is income tax plus borrowing from central bank of communist China.

                    Less than half the households now pay federal income tax. So, there is not much Medicare money to return to the ordinary folks.

                    • Allan says:

                      John you have a good point there. Maybe it will sell to the Chinese that might be worried about our debt. Maybe that will buy their votes considering the fact that a lot of dead people in Chicago are still voting. :-)

            • Barry Carol says:

              I’m not a fan of HSA’s because, while they may work OK for the upper half of the income distribution, they don’t work nearly as well for lower income people.

              My preference would be to allow Medicare Advantage insurers to offer an actuarial neutral version of current standard Medicare that included a significantly higher deductible for Part A and Part B services combined coupled with a reasonable out-of-pocket maximum liability. Providers would be paid Medicare rates. For prescription drugs, the deductible could also be higher than the current maximum of $320 while eliminating the donut hole. CMS would pay the insurers 100% of what current standard Medicare pays in each county plus or minus risk adjustment payments. While people could still buy supplemental plans to cover the deductible and copays, many would choose not to because their out-of-pocket liability is capped at a reasonable level. They would also retain the ability to go to any provider that accepts traditional Medicare thereby ensuring maximum choice of providers.

              While traditional Medicare does a reasonable job in clamping down on prices per service, test or procedure, it’s always been weak when it comes to innovation in benefit design. For the first 40 years of its history, it didn’t even cover prescription drugs and it seems to prefer very low deductibles for both Part B and Part D claims in order to sprinkle benefits across as many people as possible in order to maximize the number of seniors who perceive Medicare as a reasonable value for the premium they are asked to pay. Even if the government was able to offer a Part D plan, it’s an open question how limited its formulary would be or whether it would use tiers to differentiate copays for drugs in each therapeutic class.

              Overall, about 12% of total Medicare spending is paid by beneficiary premiums today including 25% of Part B and Part D spending and none of Part A spending. This is because Part A is financed by payroll taxes which are credited to a so-called trust fund, while Parts B and D are financed by general federal revenue (75%) and beneficiary premiums (25%).

              • Ron Greiner says:

                Barry, you said, “I’m not a fan of HSA’s because, while they may work OK for the upper half of the income distribution, they don’t work nearly as well for lower income people.”

                Wow, when this argument was used against President Bush they released: “Assurant Health reports that 40% of HSA participants had no previous health insurance.” Broke people love the HSA.

                In the under-age market I can assure you that every single parent mother is paying Payroll tax on every dollar earned. There is no payroll tax on employer HSA deposits.

                In Medicare the broke seniors have to purchase an expensive Medigap insurance product. In contrast the Medicare MSAs that I enrolled paid nothing. The seniors had a $2,500 deductible that paid 100% thereafter. Then Medicare deposited $1,250 in the Senior’s MSA at the bank, Wells Fargo. Broke seniors loved this, getting out of paying $500 a month for Medigap insurance per couple.

                I’m so busy but it is hard to let these uninformed HSA/MSA comments slide.

                • Uwe Reinhardt says:

                  Still, there is something odd in proposing that the after tax cost of a particular procedure should be lower for high income people than for low income people.

                  Maybe Calvinism provides an ethic for that — I am not an expert on it — but not theJudeo-Christian Bible I know.

                  I know the ESI has that feature built in as well. But the right strategy is to limit that tax preference, not to expand it.

                  • Allan says:

                    Uwe, I know this was directed to Ron, but let me have a shot as it has similarities to our discussion below.

                    The classical liberal would agree that we should limit the tax deduction, so why not just get rid of it. ~The lowest half isn’t paying taxes so for the most part they would be unaffected. That is a solution for your Calvinist ethic.

                    “Still, there is something odd in proposing that the after tax cost of a particular procedure should be lower for high income people than for low income people.”

                    Yes it is odd that people working 80 hours a week and saving to educate their young are paying a higher tax than those that work at the identical hourly wage of 40 hours while procreating and not paying for their offspring.

                    We have a lot of things that don’t make sense. I guess that is one reason we need less government not more.

                    • John R. Graham says:

                      Agreed: Exempting health insurance from taxable income leads to over consumption of medical care, classically defined.

                      Moving some of the untaxed money out of premium and into HSA does not solve that problem. It is mean to solve the problem of price formation.

              • Uwe Reinhardt says:

                Interesting plan, Barry.

                Your plan would obviate the need for each MA plan to negotiate prices with each providers and thus facilitatefree choice of providers.

                Plans would have to compete on their ability to manage care efficiently without impairing quality.

                And payments to MA plans would be on parity with what traditional medicare costs. If they could achieve substantiao savings,they could offer better benefits in the form of added covered services or lower premium that called for in traditional Medicare.

                Tbis would, of course, maintain the regional variations in per capita health spending.

              • Allan says:

                “I’m not a fan of HSA’s because, while they may work OK for the upper half of the income distribution, they don’t work nearly as well for lower income people.”

                Barry, if the lower half of the income distribution aren’t paying taxes or are subsidized by the upper half what is wrong with the upper half having HSA’s?

                • Uwe Reinhardt says:

                  What’s wrong with it, Allan, that the upper half of the income distribution then overconsumes health care, because it is heavily government subsidized.

                  Wouldn’t overconsumption be horrible?

                  • Allan says:

                    Uwe, help me out here. The HSA is not really subsidized by the government any more than the higher premium paid by those with lower deductibles. As far as I am concerned we should tax all healthcare benefits, but why should the group that has first dollar coverage get more of a tax benefit than the one with the high deductible? I am advocating a way of equalizing the benefit of the tax deduction. We could, of course permit the tax deduction to be given to all costs below the deductible.

                    I do find fault with your statement that I believe is saying that the result of the HSA would lead to overconsumption. That is not what has been seen. People start noticing prices at least below the deductible with HSA’s trying to preserve their bank accounts. There are other savings with HSA’s recently discussed by (the name slips my mind, but John Graham or Greg Scandlen might have discussed it not that long ago) where HSA’s reduce costs by not having to follow-up so many dead ends.

                    Yes, overconsumption is horrible.

                • Barry Carol says:

                  Roughly 150 million people, including family members, get their health insurance through an employer. More and more employers are moving to high deductible plans some of which include and HSA but many do not. Of employer plans that do include a Health Savings Account, a lot of employers make only a small contribution or none at all. Many other employer plans have FSA’s the only benefit of which is that healthcare costs below the deductible can be paid with pretax dollars to the extent that there is money in the account but there is usually no employer contribution. The bottom line though is that with all of these high deductible plans, lower income people are as likely to avoid necessary care as unnecessary care.

                  The whole tax preference around employer provided health insurance came about as a way to get around World War II era wage controls. It’s long past time to get rid of the tax preference altogether in my opinion. We can offset the impact for middle income and lower middle income people by lowering marginal income tax rates and raising the standard deduction. If people had to buy health insurance with after tax dollars like they do for all other types of insurance, they will start to care a heck of a lot more about the actual cost of both health insurance and healthcare and that would be a very good thing.

                  I would also like to know more about the difference in cost between low and high deductible health plans. In my county, Humana’s Medicare supplemental plan with a $2,000 annual deductible is only $800 per year cheaper than the zero deductible policy. For some people, that’s an acceptable tradeoff and for others it isn’t. Most plans on the insurance exchanges have lots of permutations and combinations of deductibles, copays and out-of-pocket maximum amounts. It would be interesting to see cost comparisons among plans for which the only difference is the amount of the deductible.

              • John R. Graham says:

                Premiums only account for 1/8 of Part D costs.

              • dennis byron says:

                You say

                “My preference would be to allow Medicare Advantage insurers to offer an actuarial neutral version of current standard Medicare that included a significantly higher deductible for Part A and Part B services combined coupled with a reasonable out-of-pocket maximum liability.”

                I agree and I would buy such insurance. That is basically what most zero-premium (and B-rebate) Part C PPO plans are… except for the geographic-based networks? There would be nothing from stopping an insurer from putting all the other “benefits” you requested in a proposed plan today but I don’t know if CMS could approve the no-network feature given the text of the MMA (I’m not saying it can’t; I just don’t know. But I’m guessing it can’t or someone would have done it.)

  7. Bob Hertz says:

    Let’s go back for a moment to what Ron Greiner was getting at many posts ago.

    A 65 year old can get Medicare Advantage in MN for a total cost of $41 a month plus
    the Part B premium of $101 per month. This includes good drug coverage.

    I know this first hand because I am 65 and that is what I have.

    I am healthy, so I paid little attention to deductibles when I chose my plan. I think I might have to pay $500 if I am hospitalized. I had an echocardiogram last month and paid $23 out of pocket.

    My son who is age 30 got a plan on the ACA exchange in No. Car. for $140 a month after subsidies. The cost would have been well over $250 a month without subsidies. He has a $3200 deductible and very skimpy drug coverage.

    His income is far less than mine. He is paying Medicare taxes on every dollar he earns.

    The debates on MA plans versus Med Sups are of interest, but I think they take place in a vast ocean of senior coddling.

    • John R. Graham says:

      Thank you. That is surely true. But we have to keep our proposals in the realm of the real. I don’t think any Minnesota politician can get elected by running against “senior coddling”!

  8. dennis byron says:

    Bob

    In your comparison of what your policy costs you out of your pocket monthly and as needed today vs. what your son pays in those dimensions, you are leaving out the 45-50 years of “premium payments” you have already theoretically made — tens of thousands on average net present value if not more — via income and payroll taxes. But you are counting his prepayments. I understand the money wasn’t really kept in a lock box and really went to subsidize your mortgage deductions and property tax payments over the years ya da ya da. But prepayment was the theory LBJ sold us in 1965.

    It is true that your parents were coddled if — like mine — they were born before 1925 and hopefully lived to use their Medicare benefits widely. But that too was part of what LBJ explicitly sold. The almost free ride for those born before 1940 was well known at the time of passage as was the math that said those born after 1940 would be paying their own way. (When we took off the income limit to which the payroll tax applies in the 1980s or 1990s, that no longer became the case for your son and my daughters. They will pay more than they get out of it on average.)

  9. Bob Hertz says:

    Thanks Dennis, I appreciate the care you always show in your remarks.

    Personally I always assumed that my Medicare taxes were going to subsidize my parents, who were both born about 1922.

    Our society is full of free rides, and given the Depression and World War II, the free ride to my parents’ generation seems kind of harmless.

  10. Barry Carol says:

    I was not familiar with Medicare MSA accounts though I’ve since learned that they entered the marketplace in 2007 after being authorized by the Medicare Modernization Act of 2003. They don’t appear to be offered in my county.

    Anyway, there are significant limitations on who can buy them. People not allowed to buy them include: anyone who has any other insurance including insurance provided by a current or former employer or union including the VA, TRICARE, and the FEHBP, a spouse’s plan, people who qualify for Medicaid, anyone with End-Stage-Renal Disease and those in hospice care. Also, people who live outside the U.S. for at least 183 days per year are ineligible. That could well add up to half of all Medicare eligible people. The plans also do not cover prescription drugs so a separate Part D plan is needed and the standard Part B premium of $104.90 per month for 2014 must be paid.

    I could not determine how much these plans typically contribute to an MSA, how high the deductible and out-of-pocket maximum liability are, how much the insurer is paid to provide the coverage or how much Medicare would have spent on these enrollees under traditional Medicare.

    It appears that these plans are aimed at healthy seniors who have the financial resources to handle the much higher deductibles as compared to traditional Medicare and, presumably, if they later get sick and need lots of expensive care, they can switch back to traditional Medicare. I wonder how popular MSA plans would be if the option to switch back to traditional Medicare were eliminated. It’s clear to me that Medicare MSA plans would not work for everyone including those who have a serious illness or expensive to treat chronic disease that would need lots of expensive care every year and a surprisingly large percentage of seniors have little or no income beyond Social Security.

    In Germany, people with means can elect to go into the private insurance system which is cheaper than the public system, at least at first. However, once you select the private system, you can’t switch back into the public insurance system unless you can prove you are destitute. These Medicare MSA accounts should probably work the same way in my opinion.

    • Ron Greiner says:

      Barry, the 1st MSA in Medicare that I enrolled he had no Medigap insurance plan. I had his wife as a client, and their small company with 10 employees, and she was turning 65 years old and going on Medicare. These people owned a piano manufacturing company. Some of these pianos cost $50,000 and they had a huge inventory of them. The husband with no Medigap plan was responsible for 20% of medical expenses because Medicare only pays 80%. So if he had a $500,000 cancer he would owe $100,000.

      I enrolled both of them into Medicare’s MSA program that had no premium, except the Medicare part B premium, which I think was about $90 each at the time, and he was already paying that. Now they had insurance with a $2,500 deductible each that paid 100% thereafter. It would have been silly for him not to enroll.

      Then on January 1st of each year the Medicare program deposited $1,250 each into their tax-free MSA at the bank. The MSA funds of course could be used for any medical, vision or dental expenses or allowed to grow and rolled over each year, with interest, for future retirement healthcare expenses.

      So, a normal couple on Medicare paying $500 a month for Medigap insurance between the two of them would love the MSA in Medicare if they knew about it. There were no newspaper articles in the United States about it. I’m sure most couples would prefer to get $2,500 per year in MSA deposits from the Medicare program and not pay the $500 a month for Medigap insurance. So added together that would be $8,500 per year, per couple, difference and the maximum they could owe is $5,000 if they both got sick.

      My wife attended a meeting in 2005(?) at the Willard Hotel, where the term lobbyist was created, in Washington D.C. and the NCPA’s Dr. John Goodman was also there to give them a presentation. At the end during questions and answers my wife stood up and asked,”The MSA has been passed as a new option in Medicare and to this day not one senior has received the 1st dollar into their MSA, why is there a delay?” Dr Goodman said, “That’s a good question I’ll look into that.”

      It must have blown Dr. Goodman’s mind that someone knew what they were talking about.

      • Barry Carol says:

        Thanks Ron. That’s very helpful. What is the typical deductible amount on these policies today and why don’t more people know about them? Are they profitable for insurers, and if so, why don’t they want to sell them? How limited or extensive is the typical network and what happens when you need non-emergency medical care when traveling outside of your home area?

        • Ron Greiner says:

          MSAs in Medicare are no longer offered by an insurance company Barry. My partner says that insurance companies hate it when the seniors get any of the MA funds.

  11. Uwe Reinhardt says:

    In one of his comments in the fascinating volley of comment between Ron Greiner and Allan, Ron asks Alkan to reveal his last name.

    I endorse that request.

    The habit among commenters on so many blogs to use pseudonyms strikes me as un-American, at least relative to the image of Americans I formed as a youth in Germany. (admittedly mainly from Western movies). Those Americans stood tall and would be too proud to hide behind a pseudonym.

    I believe the manager of a blog should make sure that commenters give their full name and do so accurately.

    After all, Allan, surely you must be proud enough to stand by your comments with your name.

    Uwe Reinhardt
    Reinhard@princeton.edu

    • Allan says:

      Uwe, when you wanted to talk to me personally I immediately responded to you and we have had several conversations off list. You know my first name, my last name and a portion of my curriculum vitae. It behooves you to announce and prove who you are because you have considerable prominence. But, I would have no objection if you used a pseudonym. In fact you might learn a bit by doing so because people would regard you differently and answer in a different manner.

      In general I don’t like titles because frequently they get in the way. Sometimes they are helpful. In your case they are very helpful because of your prominence and because you have influenced health care.

      If you have forgotten who I am which is doubtful I will send you a reminder and if needed a copy of all our personal correspondence. At the present time I am contemplating writing a similar book as yours (that you sent me) for my grandchildren so they learn by personal experience of their grandmother how valuable freedom is.

      Though I am not worried about my identity on this list, since on many lists my last name and address have been included, let me provide you with an example of how names and identities have been ill used in the past since you brought it up. I don’t believe in a bunch of mush nor the characterizations of John Wayne that you may have learned during your youth.

      In order to round up the Jews in Germany and elsewhere identities were used and the people rounded up and placed in concentration camps. Sometimes they pretended that all that was desired was to permit Jews to exit the countries. They too were rounded up and killed. That is what happened with my family and wife and that is why I wish to follow suit with a vanity book for my grandchildren that embraces freedom.

      • Barry Carol says:

        I’m of two minds about whether or not commenters should disclose their full name. Suppose you are a salaried doctor or nurse for a hospital system. You have considerable healthcare expertise. You decide to post some comments on a healthcare blog that reflect negatively on your employer with respect to the quality of care delivered, the management, how much the hospital charges or how aggressively it tries to collect payment from patients regardless of their ability to pay. To protect against potential retribution, including loss of your job, hiding your identify is understandable.

        On the other hand, when I first started commenting on healthcare blogs back in 2006, at first I just identified myself by my initials, BC. I was contacted by one of the healthcare policy people in Massachusetts shortly after Romneycare became law and was told that my comments would have more credibility and would be taken more seriously if I disclosed my full name. After I did so, the response was “Welcome to the conversation.” Absent the fear of retribution, my general view is that if something is worth saying, it’s worth owning up to.

        When I first started commenting, my knowledge of healthcare issues was minimal. My interest stemmed from the combination of lots of experience as a patient and my longstanding interest in markets and efficient resource allocation. I’ve never worked in the healthcare field but I’ve learned a lot since 2006 from healthcare books, blogs and Health Affairs magazine. Now retired, I had a 40 year career in the money management business as a securities analyst which, for the last eight years of my career, included covering the publicly owned managed care insurance companies and drug retailers.

        As for Allan, sometimes I agree with him and sometimes I don’t. I wonder if he would share something about his professional background. Are you a doctor or other healthcare professional? If not, what is your primary area of expertise? Just curious.

        Uwe Reinhardt is widely known as a healthcare expert and Princeton professor. Whenever I see his name, I’m always sure to read what he has to say and I appreciate his taking the time to comment here and elsewhere. I also miss the Economix Blog.

        • Allan says:

          “Just curious.”

          Curiosity killed the cat.

          Barry, your comments are in general logical and based upon what you believe is fact. I agree with you a lot and disagree less. The disagreements are more of a quantitative nature than qualitative. I haven’t used any of my experiences as fact or data so who I am is meaningless and unproductive. The best data or proof I have couldn’t be provided anyway as it is privileged.

          If you want I will gladly correspond with you off list and provide whatever you are looking for. I think I am frequently near your home town (NYC?) so I will even meet up with you and buy you a drink if you like. In that way you can you can do a TSA exam and satisfy, with understandable limits, whatever desire you have .

          Post your email address or ask Dayana Osuna at the NCPA [Dayana.osuna@ncpa.org] to send me yours and I will reply.

    • John R. Graham says:

      Thank you. It is a good proposal. Unfortunately, we are short handed and we can’t really register everyone who wants to comment.

  12. Bob Hertz says:

    There are numerous areas to respond to in this long exchange.

    Let me choose just two:

    1. Ron, if it is not too painful, let me know what drove you out of the insurance biz.

    I run across Medicare specialists who are very well off.Were you undercut on health insurance under age 65?

    2. You refer to seniors (and others) who have over $100,000 in their HSA and want a plan with higher deductibles.

    Out here in flyover country, I think that is about 5% of the market. A vast majority has no savings and wants lower deductibles.

    I do not aim to criticize you, I like your efforts.
    Buy some of your comments reflect a tiny slice of the population.

  13. Bruce Landes, MD says:

    I believe the original topic was about payment to Medicare Advantage plans.

    I can say that, in the past year I was approached by a representative of a major health plan with a “pay-for-performance” scheme that would have rewarded our physician members on a quid-pro-quo basis for reporting diagnoses on Medicare Advantage patients that would raise their risk scores and therefore increase the monthly premiums paid to the health plan by CMS for their care.

    There were a few other measures of reporting that could be construed as “measuring quality” but they were not nearly as important in effecting a payment to the physician participant.

    We declined the offer. I did not want to defend that arrangement to the OIG.

    • Dennis Byron says:

      I believe as a Medicare participating physician you are obliged to report what you clearly think to be — and what clearly appears to be — illegal activity on the part of that Part C health plan. I take it that (by quid pro quo) you mean that for every ratcheted up risk score, the physician would get a specific dollar amount from the health plan (or something with specific value).

      I also do not understand your reluctance to name names.

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