Talking Health

PRIVATIZATION OF MEDICARE 

When President Obama announced his budget plans at the end of February, you can bet that private health insurers were panicking. He said he’s going to cut overpayment to Medicare Advantage plans, run by private insurance companies, in which more than 10 million seniors are enrolled.

In order to do this, the president has proposed that insurers use a competitive bidding system to determine Medicare Advantage plan payments. The government would then determine how much to pay these plans based on the average of their bids.

Why is Obama making these cuts? Because these private Medicare plans are costing the government three times more than what they pay for the same types of services under the traditional Medicare plan. And they don’t seem to be offering anything more than regular Medicare does, either. Many research reports have determined that most Medicare Advantage plans merely mirror regular Medicare benefits, without offering much to justify their extra costs. 

The effects of Obama’s announcement were immediate–on the day of his speech, health insurance stocks took a serious dive, falling more than 8 percent by that afternoon. That’s because private health insurance companies make huge amounts of money from Medicare. United Health Group, for example, receives 23 percent of its revenue from its Medicare advantage plans. 

So why did we look towards private Medicare plans in the first place?

In an article from the Commonwealth Fund, the author states more or less how the creators of Medicare did intend to make Medicare the seed for a more universal program. But over the years, republican administrations fought against the idea of socialized health care, implementing changes to make Medicare more privatized. Their arguments were generally under the guise of consumer choice–that if private insurance companies were allowed to get involved, Medicare beneficiaries would have more options for coverage. 

How were the seeds sown to add private plans to the Medicare? In 1988, the government made overhauls to the system by setting a fee scale of Medicare payments to physicians, in the name of cutting costs, as Medicare’s budget had doubled every four years since its inception in 1965. In 1997, in another effort to curtail costs, private insurance companies were allowed in under the Balanced Budget Act during a period of Republican congressional control. In 2003, George W. Bush signed the Medicare Modernization Act, which introduced Part D, a prescription drug plan that gave beneficiaries the option to use a private insurer for their drug benefits.

Obama’s plan rescinds these attempts at privatization, working back towards what Medicare was originally intended to be. The insurance companies are not likely to take this lying down. What are the insurance industry, the AMA and the Republican Party’s responses to these proposed changes?