Ritter Insurance Marketing

We’ve had a number of phone calls from insurance agents on this issue and I’d like to take a few minutes to give my opinion.  Let’s start at the beginning, one of the stated objectives of the Medicare Modernization Act of 2003 was to expand Medicare Advantage, especially in rural areas where, in many cases, Medicare Beneficiaries had NO CHOICE other than to accept original Medicare.

For a Medicare Beneficiary with significant financial means, this wasn’t much of an issue, since they could purchase a Medicare Supplement policy to cover the deductibles and co-pays of Medicare, like the unlimited 20% co-insurance for Part B (Medical) claims.

Unfortunately, for those poorer rural Seniors who were above the income requirements for Medicaid (or unwilling to accept Medicaid benefits), their only option was to accept original Medicare and pay out of pocket for the co-pays (which can be unlimited).

To entice competition in rural areas, the Center for Medicare and Medicaid Services (CMS) established “floor” counties.  These “floor” counties are most often rural counties with very low Medicare reimbursements.  The creation of the “floor reimbursement rate” resulted in higher reimbursements in these rural areas (more money, since minimum reimbursements couldn’t fall below the floor).  As a result, Private plans (mainly Private Fee for Service plans) began offering choices to those Medicare Beneficiaries who had no choices before.  Many of these choices were for ZERO premium, which made them, well, affordable to lower income Seniors.

To say that this was successful is an understatment.  Over 2,250,327 (as of 6/1/08, per CMS) Medicare Beneficiaries enrolled in these PFFS plans.  Why?  Because they offered BETTER VALUE than they saw with Original Medicare.  Because the benefits are richer and because the Private plans focused their attention on rural counties (with much better reimbursement rates than in the past), these plans end up costing 119% of what Original Medicare would have cost.

So who’s getting the benefit of the 119% cost?  Mostly, the poor, rural Medicare Beneficiary is the one who benefits.  Certainly, the private plans had benefited, as well.  However, the notion that ALL of the benefit is accruing to the insurance companies is completely absurd. 

Look at the stock prices of some of the biggest participants in the Private Fee for Service business:  UnitedHealth Group, Humana, Coventry, Wellpoint, Wellcare and Universal American.  How have their stocks fared in the past 52 weeks ending 6/26/08?  You might be thinking:  Windfall profits! or Soaring Stock prices! (like, say, how the argument works with Big Oil).  If you think this, you would be WRONG! 

• UnitedHealth Group – DOWN 50.15%
• Humana – DOWN 35.44%
• Coventry – DOWN 47.31%
• Wellpoint – DOWN 40.55%
• Wellcare – DOWN 61.19%
• Universal American – DOWN 55.34%
• S&P 500 was Down 14.78% by comparison and Exxon was Up 3.36% over the same 52 week period.

Clearly, these Health Insurance companies are operating in a competitive market where they must compete by offering BETTER BENEFITS to Medicare Beneficiaries in order to attact and retain their customers.  This level of competition means narrowing margins on these products and more benefits to Medicare Beneficiaries.  (Could Adam Smith have been right???)

Now, there is a pressing need to avert a 10.6% cut in the Physician’s Medicare Fee Schedule that is scheduled to take place on July 1st, 2008.  Clearly, both Parties would like to take action to avoid this cut from happening.  However, House Bill 6331 (which was passed overwhelmingly by the House) takes the bulk of the funding OUT OF MEDICARE ADVANTAGE (to the tune of $13 Billion). 

Senators Grassley and Baucus were working on a compromise since a bill in the Senate (similar to House Bill 6331) failed 6 times (Bush has also threatened to veto this bill).  Now, the Democrats (led by Harry Reid) have taken compromise off the table and are looking to vote on House Bill 6331.  Given the looming July 1st deadline, they feel they can bully Republicans into caving (like the House Republicans did) under the guise that the Republicans are pandering to the “Special Interest” lobby of “Big Health Insurance”.

If the choice were simply between Doctor cuts or Medicare Advantage cuts, this would be a tricky issue.  However, there is a third option, the Grassley/Baucus compromise which, while taking some cuts from Medicare Advantage, still leaves enough funding to keep PFFS viable.

Given a VETO PROOF majority, Bush may sign House Bill 6331 (or have his veto overridden) which would, effectively end PFFS.

Assuming House Bill 6331 goes into law, Private Insurance Companies will eventually (say, January 1st, 2010 or January 1st 2011) pull out of the system and many of those 2.25 million Medicare Beneficiaries will lose their plans, or, at a minimum, will see their premiums increase and their benefits cut.

So, who stand to lose the most if Democrats can make House Bill 6331 law?

Answer:  The Poor and Middle Class rural senior citizen!  This is ironic when you consider that these are the very constituents who these Democrats feign to support and protect.

Certainly, I would encourage insurance agents who sold these plans as a way to help their clients to call their Senators to get behind the Grassley/Baucus compromise effort.  However, EVEN MORE THAN THAT, call your clients in PFFS plans and let them know as well to call their representative and tell them to VOTE AGAINST House Bill 6331 and SUPPORT the Grassley/Baucus compromise which would save the PFFS plans and avert the Physician’s fee cuts.

One man’s opinion,

Craig Ritter

PS  One final irony, it should be noted that the Democratic Governor of Pennsylvania, Ed Rendell, and the Democratic Governor of West Virginia, Joe Manchin, thought enough of PFFS plans to use these plans for their States’ Retirees!