(Warning from Craig: This may make your head hurt, but if you really want to understand this issue, read on!)
Here we go! First of all, here is the actual report for you geeks like me who want to look at it! gao_report2
Here is an AP story about the GAO report with comments by Pete Stark. Here is an excerpt quote: “This puts to bed this idea the plans are offering tremendous extra benefits with the overpayments,” said Stark, a frequent critic of the program. “The overpayments are going to profits.”
The overpayments are the $15 Billion “giveaway” which Obama talks about cutting. Total profit in 2006 was $3.35 Billion, $1.35 Billion higher than projected. I wonder what happens if you cut $15 Billion from an industry which in total made $3.35 Billion. Let me think about that one, hmmmm.
Further, Stark doesn’t even understand the report! If you go to page 8, you’ll see that $1.28 of the $1.35 Billion in higher profits went to HMO’s. YES, I said HMO’s. NOT PFFS!! The PFFS plans, who are the main culprits in driving up the cost of Medicare Advantage, were in their infancy in 2006.
If you look further, you’ll see that the reason why the HMO’s were more profitable, their Medical Expenses were lower than projected! I suppose that this means that there was less fraud, abuse, better management and better outcomes which meant that the members spent LESS on health care at the Doctor’s office, in the Hospital, lab tests, etc. Well, gosh, isn’t this a good thing?? Oh, I forgot, “Profit bad, Companies bad, Capitalism bad. . .Government good!”
In any case, you can’t conclude much from this report since the MA market is totally different going into 2009 versus 2006. There were only 5.4 million MA members in 2006, now there are a shade over 10 million. PFFS was 635,000 according to this report and as of November 2008 it is 2,225,000. After reading this, I might conclude that HMO’s were successful in reducing Medical costs, which is their job, and, therefore, earned higher profits as a result. . .but that’s just me.
So let’s talk about this $15 Billion (actually $10 Billion in 2008) that the politicians keep bringing up. What is it and who’s getting it??
The entire basis of the “overpayment quote” is the June 2008 report from MEDPAC which says that MA plans in total are paid 13% more than FFS (short for Fee for Service AKA, Original Medicare) spending. This has been WIDELY reported. What you will NEVER SEE REPORTED is directly above the line on page 153 of the report which talks about the 113% of FFS, the report ALSO says this, “These numbers [referring to the bid versus FFS] suggest that HMOs can provide the same services for less [emphasis added] than FFS [aka, Original Medicare], while other plan types tend to charge more [than Original Medicare].” See bullet points 5 and 6 on the page which is numbered #153 of the report.
The difference between the Bid/FFS (which is 101%, recall HMO is only 99%) and the Payment/FFS (which is 113%, the number Obama uses) is called the REBATE. If you read bullet the last sentence of bullet #3 on page 153 (link above), you’ll see that, “The plan must then return the rebate to its enrollees in the form of supplemental benefits, lower cost sharing, or lower premiums.” So, 12% of the 13% excess payment (meaning 92% of the total excess payment), BY LAW MUST be returned to the Medicare Beneficiary! The 1% of the 13% (meaning 8% of the total excess payment) is the inefficiency of the Medicare Advantage system which is, ironically, probably returned to the Treasury in the form of taxes (Corporate taxes, Federal Income Taxes on the employee’s and insurance agent’s earnings, Payroll Taxes, etc.) Pete Stark can spin this 2006 report on higher than expected profits all he wants. It’s just an unfortunate FACT that 92% of the excess payment IS GOING to the Seniors (who vote).
At the end of the day, if Pete Stark gets his wish and dismantles Medicare Advantage, 10 million Medicare Beneficiaries are going to wonder what hit them when they are forced back onto Original Medicare and lose their $1,000/year in extra benefits! The Medicare Advantage industry, of course, lose as well (and all those laid off workers will stop paying taxes and start collecting unemployment!)
Is it fair that 10 million Medicare Advantage members are getting better benefits than Original Medicare members? That’s certainly a fair debate to have. But let’s be honest about who are the ones who are benefiting from this government largess. It’s the 10 million Medicare Advantage members who are enjoying the overwhelming majority of the “excess payments”.