Democratic Agenda Places Medicare Advantage at Risk

Battle lines are drawn over proposals to raid the Medicare managed care program of funds to be applied to other health care needs. Democrats themselves are split.

Pete Stark, chairman of the House Ways and Means Health Subcommittee, says he’s found $5 billion to help fund federal health programs. The only problem is that the money is already budgeted for one of President Bush’s favorites — Medicare Advantage.

“I’d have no quarrel with these plans if I didn’t think they were diverting money away from consumers and other plans,” Stark told acting CMS Administrator Leslie Norwalk in mid-February as he turned up the heat on the federal payments health insurers have collected in Medicare Advantage.

Her response: 75 percent of the money Stark cites goes to provide added benefits.

That exchange marks an early round in the brewing showdown over Medicare Advantage. Democrats led by Stark have begun a fight to wrest funds from the program to pay for some key health programs while the administration and its congressional allies seek to protect a program they say benefits large numbers of low-income beneficiaries.

Medicare Advantage overpayments

“Our view is that there’s no reason to pay extra for the Medicare Advantage program,” says Paul Precht, policy coordinator for the Medicare Rights Center. But there are also some compelling new reasons to take another look at Medicare Advantage, he adds. Lawmakers this year are going to either reauthorize the State Children’s Health Insurance Program or expand it to reach more kids.

“Either way,” says Precht, “that’s expensive. And Medicare Advantage overpayments are at the top of the list for the folks in the House as a possible source of funds.”

Add in a likely legislative reversal on the administration’s proposed 10 percent cut in provider reimbursement rates, which quickly provoked heated objections from some well organized physician and hospital groups, and the chips are stacked even higher against Medicare Advantage.

“They need to do SCHIP and a provider fix,” says longtime Washington lobbyist Dan Meyer, vice president of the Duberstein Group. “They need to pay for those things with offsets, so where do they go?”

Raiding Medicare Advantage

A logical starting place, observes Meyer, is Medicare Advantage.

“Any time the president proposes $100 billion in savings from Medicare and Medicaid, everybody up on the Hill is looking under every stone to find that amount,” says the Medicare consultant John Gorman, who runs Gorman Health Group. But many Democrats may yet think twice before supporting a raid on the program, he adds. Medicare Advantage is popular with a lot of members, and that includes a big group of voters traditionally loyal to Democratic candidates.

“The program is so much bigger now and so much more widespread that it has become a constituency issue,” says Gorman. “There are seven million beneficiaries who would have to pay more in premiums for reduced benefits. If you consider that a majority of [eligible] African-Americans and Hispanics are in Medicare Advantage, you’re talking about a direct slap at two of the Democratic Party’s most stalwart constituents.”

Ultimately, say the program’s advocates, demographics should play a big role in defeating any move to trim payments to plans.

Thirty-eight percent of beneficiaries whose incomes are below $30,000 a year and who don’t have Medicaid or employer-sponsored coverage enroll in Medicare Advantage, says Alissa Fox, vice president for legislative and regulatory policy at the Blue Cross & Blue Shield Association. And they are the people who are going to be hurt the most if lawmakers prune Medicare Advantage.

“The big reason for the discussion of an overpayment to Medicare Advantage plans is the establishment of the floor payment rate in the Benefits Improvement and Protection Act in 2000, which established a minimum payment amount for Medicare Advantage plans,” notes Gorman. Those payments apply to two thirds of the counties, most in rural and secondary urban markets represented by the Senate Finance Committee, which is likely to scotch any attempt to bring Medicare Advantage in line with traditional fee-for-service Medicare.

That doesn’t mean that the plans will go unscathed, he adds. Congress already wiped out $7 billion of the $10 billion regional PPO stabilization plan. This year, Gorman says, you can expect to see the other $3 billion axed.

Broadening access to SCHIP

The focus in Congress shouldn’t be on shifting costs to some other area in health care, says former CMS Administrator Mark McClellan, MD. Instead, it should center on ways to reform SCHIP to broaden access at a lower cost under federal waivers, much as California and Arkansas have done.

“What Medicare Advantage has done is provide a much more affordable option for people with modest means who aren’t lucky enough to have supplemental coverage,” says McClellan. And besides, he adds, there’s probably a lot less money actually available from the overpayments that Stark is referring to.

The budget neutrality payment adjustment last year is already lowering the rate of increase in Medicare Advantage payments, says McClellan, now a senior fellow at the AEI-Brookings Joint Center. One hundred percent risk adjustment for the chronically ill will further reduce any money available as payments rise to provide care for the chronically ill. Floor payments reflect the traditional support in Congress to ensure equal access to health care in rural areas. And in some areas, Medicare Advantage has to contract with expensive teaching hospitals at higher rates.

“This will all be debated,” McClellan adds, “but getting substantial savings will be much more difficult than some believe.”

Unhappy with private insurers

But anyone who would expect Congress to leave Medicare Advantage largely untouched this year is engaging in wishful thinking, counters the consultant Robert Laszewski.

Remember, he says, that the key Democratic Party chairmen steering legislation in the House this year have long been unhappy with private insurers’ role in Medicare. It would be relatively easy for them to write up new legislation on Medicare Advantage and drop it in an omnibus bill filled with items sought after by the Bush administration.

Craft it properly, he adds, and Democrats could make it virtually veto-proof.

Congress isn’t likely to kill Medicare Advantage outright, he adds: “You can cut the funding 10 percent. Programs will continue, but it will be crippled.” And a crippled Medicare Advantage program, he adds, will look a lot like Medicare+Choice after the 1997 Balanced Budget Act.

The big question for Gorman, though, is what happens to Medicare Advantage after 2009, when a new administration takes office.

“Any time you talk about changes to reimbursement you need to keep in mind that these companies are clearing a three to five percent margin,” he says. “They’re very sensitive to fluctuations. If there is a realignment of reimbursements, you should expect a major exodus of plans and beneficiaries left in the lurch.”

“If it does happen,” agrees Meyer, “my sense is that these folks are fairly astute business people and that if they can’t make money, they’ll pull out.”

The battle lines are drawn, says Gorman. With Medicare under relentless cost pressure and the budget strapped, he says “this is going to be a battleground for a long time.”

John Carroll, a freelance writer, has been a contributing editor to Managed Care for six years.