Previously,
I described the little noticed Congressional actions which lay a foundation for the privatization of Medicare. Today I will describe the major components of that foundation: a variety of health plans run primarily by insurance companies, but also by some other health industry entities.
The announced goal of the privatizers is to create a nationwide network of these plans. Their implicit goal is to enroll all Medicare beneficiaries in such plans. The goal they stated in
1995 and again
in 1999 is to then adopt a voucher (they later changed the name to "premium support" to make it more acceptable) plan, providing each Medicare beneficiary with a fixed credit to be applied to the purchase of any plan available in their geographic region. The traditional Medicare fee-for-service (FFS) system would still exist, but it would be required to compete directly with private plans.
Medicare beneficiaries have good reason to choose private plans today. Designed in the mid-1960s, Medicare offers benefits similar to those offered by private insurance plans at the time and has changed little as medical practice has changed. Only acute care services are covered; most vision exams and glasses are excluded, as are hearing exams and aids, dental care, most preventive services, and custodial care, both at home and in nursing facilities. Since 2006, prescription drugs have been covered to some extent.
Traditional Medicare also requires substantial cost-sharing for the services it does provide. In 2006, beneficiaries paid a $952 deductible for their first 60 days of hospitalization and more for additional days. They paid an $88.50 premium for Part B physician service benefits, a $124 deductible for physician services and 20% of the physician's charges after that.
Beneficiaries could purchase supplemental insurance (Medigap) to pay some or most of these expenses, but Medigap's cost has increased rapidly during the past several years. Medicare Advantage (the name given private plans contracting with Medicare and paid by it to provide all Medicare services to the beneficiaries who join them) plans, in exchange for a fixed monthly premium from beneficiaries, provide additional services and charge much less in co-pays and deductibles.
But even with payments exceeding the cost of FFS beneficiaries (described in the first of these diaries), private plans were unavailable in many areas of the country. The capitation rate (the amount of the monthly payment per beneficiary) in a given locale was an important factor in this outcome, but other factors were significant as well.
For example, much of the lack of such plans in rural areas could be explained by the dearth of population in such areas. There were few, if any, physicians to be organized into a provider network, and there may have been insufficient Medicare beneficiaries to compose a sound risk pool. Or there may not have been an established managed care tradition and infrastructure in an area. Lacking these, companies tended not to try to start Medicare plans from scratch. With the HMO backlash going strong when the "Balanced Budget Act of 1997" (BBA) passed, both physicians and beneficiaries were likely to avoid such arrangements. And companies were likely to foresee major costs if they tried to create such an infrastructure. In addition, unlike private insurance plans, Medicare private plans had to be marketed to individuals not companies with many potential enrollees. This was a significant expense in itself.
The framers of the BBA responded to such impediments by creating several kinds of private plan in addition to the standard HMO. The "Medicare Prescription Drug, Improvement and Modernization Act of 2003" (MMA) added a few more. By 2006, the MMA's increased plan payments and the greater variety of plans that it authorized led to a substantial increase in the geographic availability of plans and a significant increase in enrollment. Enrollment at 6.9 million reached its highest level since the passage of the BBA (P. 158) Virtually all areas, except parts of Alaska and New England, had access to some kind of private plan (now called "Medicare Advantage" or MA plans).
An examination of the kinds of plans authorized by the BBA and MMA, however, prompts one to ask about the relative balance between privatization for the sake of ideological conviction and privatization for the sake of cost and quality control in the MA program.
In 1997, the BBA authorized traditional HMOs that had been contracting on a risk basis since 1982. To appeal to a broader population, create alternatives more suited to areas without HMO infrastructures and mirror developments in the private insurance market, it authorized preferred provider organizations (PPO), private fee-for-service organizations, and a medical savings account (MSA) demonstration project.
The HMO option was slightly modified to give companies the option of introducing a point of service (POS) alternative providing some coverage for self-referred out-of-network providers. The PPO option allowed plans that permit members to receive services from a non-network provider at a greater out-of-pocket cost. The PFFS option authorized private insurers to compete directly with FFS Medicare. They were allowed to pay fee-for-service rates to all legally authorized providers if they covered at least Medicare authorized services and products. The MSA option, limited to 390,000 beneficiaries, was an attempt to imitate the "consumer-directed" medical options that many conservatives advocated for the private insurance market. On behalf of a beneficiary, Medicare would purchase a high deductible insurance policy and contribute to a medical savings account to cover part of the deductible.
These options failed in their objectives of increasing enrollment, expanding the variety of private plans, and providing private plan options in unserved, primarily rural, areas. Enrollment peaked in 1999, with 6.4 million (17%) beneficiaries; then it fell to 4.6 million (12%) in 2003.(p. 158) Most of this decline was the result of plans leaving the program. In 2001, there was one POS and one PPO plan in the nation; one company offered a PFFS option starting in mid-2000 in 25 states, most without other private plan options. No MSA plans were offered. Finally, in 2001, only 94 rural counties had a private plan option with a total enrollment of 93,000.
Given this disappointing record, one might think that policy-makers would abandon their attempts to create a private plan network as an alternative to FFS Medicare. One would be wrong. As detailed in my previous diary, increased costs did not derail the attempted construction of such a network; neither did failure to establish the network itself.
The MMA increased the kinds of plans authorized and again changed payment arrangements. Chapter 3 The Act retained local HMO, PPO and PFFS plans. It also made MSAs a permanent part of the program. In an effort to create a kind of plan that would serve rural areas, it also created regional PPO plans.
Regional PPOs would serve one or more of 26 CMS defined regions. In general, such plans must ensure access to a network of providers. But, in an attempt to attract them to rural areas, CMS regulations allow these PPOs to meet network adequacy requirements if they pay non-network providers Medicare FFS rates and charge beneficiaries no more than in-network rates. Thus, in its desire to expand some kind of private plan, Congress authorized managed care plans that did not manage care. Congress also increased the potential attractiveness of such plans by requiring them to offer a "stop-loss" (an overall cap on beneficiary out-of-pocket liability), a feature unavailable in FFS Medicare or in other private plans.
Congress conferred additional purely financial advantages on regional PPOs in its zeal to extend private plans throughout the entire nation. The most important of these is a $10 billion "stabilization fund". Available between 2007 and 2013, the fund may be used for three purposes: The first regional PPO plan or plans to serve all 26 regions will receive a bonus. If no national plan is offered or if no plan is offered in a region, CMS may increase the plan payments in that region. If a regional plan intends to leave a region, there is no national plan, and that region would be left with less than two regional plans, CMS may also increase payments in that region.
This provision is an attempt to encourage the development of regional PPOs. But there are two foreseeable unintended consequences of this arrangement. The bonus payment to the first national plan or plans would be made in all 26 regions, even those with several other regional plans, thus giving the national plan significant advantages in regions that need no additional help for the establishment of a plan. Moreover, the payments to plans expecting to leave a region may lead to threats to leave a region by plans expecting to receive additional payments.
If these provisions seem evidence of ideology triumphing over fiscal conservatism, two other kinds of plan authorized by the BBA and the MMA provide more such evidence. PFFS plans are required only to offer the same services as FFS Medicare, must reimburse any provider authorized by Medicare at Medicare established rates, need not incur the expense of establishing any form of network, and are subject to no quality controls. Yet, they are paid the same capitation rates as other private plans subject to some or all of these requirements. As explained in my previous diary, these rates are substantially higher than the cost of FFS Medicare. Yet PFFS plans are required to provide no more or less service than FFS Medicare. Their "excess" payments allow them to provide additional services, thus disadvantaging traditional Medicare. Despite their slow start, these plans are now gaining popularity.
Even more evidence of the ideological basis of the MMA is the MSA plan. This option is modeled after the "consumer-directed" health savings accounts, advocated by free marketeers who believe health care costs can be controlled if and only if consumers experience the costs of medical services directly and "shop" for the best bargain. Medicare MSAs will provide high deductible insurance policies that will cover all costs (including deductibles and co-pays) for Medicare approved services once the deductible is met. They will also fund individual accounts with sums equal to the deductible minus at least $500. These accounts then become the property of the beneficiary, to be used for health care, rolled over for use in future years, and eventually to become heritable as part of the beneficiary's estate. None of these plans existed in 2006.
With the authorization of this MSA arrangement, the privatizers eliminated any doubt that they are on an ideological crusade. Under this arrangement, the limited Medicare funds that provide the strongest rationale for Medicare "reform" are given as a form of tax-free income to people who might never use them for medical expenses. I can conclude only by saying that this use of limited funds leaves me without words.