Seniors Will Bear Costs of Medicare Advantage Cuts

Published November 10, 2010


The cost of ObamaCare will be quite high for some people. By 2017, thousands of people in Dallas, Houston, and San Antonio will lose more than $5,000 a year in health care, according to a study by Robert Book at the Heritage Foundation and James Capretta at the Ethics and Public Policy Center. For some New York City dwellers, the figure will exceed $6,000 a year. Unfortunate residents of Ascension, Louisiana will pay more than $9,000 in lost benefits.

Who are these people? Are they the rich and the comfortable—the folks presidential candidate Barack Obama told us could afford to pay for health care reform? Are they people who have excessively profited during a recession that’s caused hardships for so many? Are they the ones who gained the most from the Bush tax cuts?

No. Not at all.

The people who will lose the most in Obama’s health care reform are the enrollees in Medicare Advantage plans, health plans operated by private insurers (Cigna, Aetna, United Health, etc.) that provide extra benefits to the elderly and the disabled on top of standard Medicare coverage. The price they will pay for health care reform will be a double whammy: Less spending on Medicare coupled with reduced subsidies for their Medicare Advantage plans.

In many areas of the country, Medicare Advantage enrollees will lose about one-third of their health insurance benefits.

Puzzling Hostility

Many low-income seniors find a decent Medigap plan unaffordable. For these retirees (about one in every four Medicare beneficiaries) Medicare Advantage plans have been a godsend. The seniors have been able to enroll in comprehensive health plans that resemble the coverage many non-seniors have—often with no extra premium.

The hostility of the White House and many congressional Democrats toward these health plans is hard to explain. Ostensibly they do everything President Obama says he wants to accomplish with health care reform.

They provide subsidized coverage to low- and moderate-income people who could otherwise not afford it. They have no preexisting condition limitations, and some plans actually specialize in attracting and caring for patients with multiple illnesses. They provide an annual choice of plans.

Some complain the government has been paying Medicare Advantage plans about 13 percent more than what would have been spent under conventional Medicare. But these “overpayments” allow members to get about $825 in extra benefits each year, including lower out-of-pocket payments and better coverage for drugs, preventive care, and chronic disease care.

On measures of quality and efficiency, the plans also score well. According to a study published in June by America’s Health Insurance Plans (a trade group that represents Medicare Advantage insurers), Medicare Advantage enrollees had 33 percent more doctor visits (presumably representing more primary care), yet experienced 18 percent fewer hospital days and 10 percent fewer hospital admissions than conventional Medicare patients. They had 27 percent fewer emergency-room visits, 13 percent fewer avoidable admissions, and 42 percent fewer readmissions.

Possible Improvements to Medicare Advantage

This is not to say Medicare Advantage programs could not be improved. Currently almost all the enrollees are in HMOs. Very few have a health savings account. And there is no practical way for the chronically ill to manage their own budgets. By contrast, the Medicaid disabled—as part of pilot programs that have been in force for a decade—can hire and fire the people who provide them with services, and can use any money they save to purchase other medical care.

According to a report published in April by the administration’s own Medicare Actuary, about 7.4 million people who would have been enrolled in Medicare Advantage plans in 2017 will lose their coverage completely. These cuts are financing lavish subsidies for health insurance for young people at about the same income level as the seniors who are being penalized.

It won’t be an even tradeoff of taxpayer money. Many of the seniors losing their health plans will enroll in taxpayer-funded Medicaid, in addition to Medicare.

The rest will be on the steps of Capitol Hill in the near future asking to have their benefits reinstated.

John Goodman ([email protected]) is president, CEO, and Kellye Wright Fellow of the National Center for Policy Analysis.