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Private Medicare Plans Drive Up Health Care Costs by Offering Insufficient Coverage

Sy Mukherjee
Think Progress / News Report
Published: Monday 4 February 2013
When those healthier seniors encounter a medical problem that’s too extensive for their private coverage, they switch over to the more generous traditional Medicare program in order to take advantage of its more expansive benefits.
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Two separate reports by the Centers for Medicare and Medicaid Services (CMS) and Health Affairs builds upon earlier research to conclude that private insurance plans under the Medicare Advantage program drive up Medicare spending. Ultimately, those private plans raise health care costs by encouraging seniors to cherry pick their health plans respective to their health, Kaiser Health News reports.

Private insurance plans under Medicare Advantage are often able to attract healthier Medicare beneficiaries by offering cheap — but bare-bones — health plans. When those healthier seniors encounter a medical problem that’s too extensive for their private coverage, they switch over to the more generous traditional Medicare program in order to take advantage of its more expansive benefits. That in turn, raises spending in the traditional Medicare pool:

A study released Thursday, by Gerald Riley, a researcher at the Centers for Medicare & Medicaid Services (CMS), adds to those concerns. The study looked at more than 240,000 people who dropped out of Medicare Advantage plans in 2007, and compared them with beneficiaries who remained in traditional Medicare the entire time. In the six months after leaving the private plans, the former Medicare Advantage patients used an average of $1,021 in medical services each month, while the patients in the control group cost Medicare $710 a month, the study found.

Another study in the December issue of the journal Health Affairs found thatpeople “disenrolling were much more likely than other beneficiaries to report health declines.” Those researchers, led by J. Michael McWilliams, a Harvard Medical School professor, surmised that beneficiaries who developed serious ailments might leave the plans to get unfettered access to physicians and treatments through traditional Medicare, but neither that study nor Riley’s determined what motivated the changes. [...]

McWilliams’ study, along with other analyses in the same issue of Health Affairs, found that generally, Medicare has succeeded in reducing cherry-picking by Medicare Advantage plans by changes in how the program worked, including restrictions in the time periods that people could switch from a private plan back to traditional Medicare. In 2006, Medicare tried to crack down on switches by limiting them to once a year rather than monthly.

While the Health Affairs study notes that there have been some protective measures instituted to prevent this cherry-picking, it still occurs in considerable volume. The findings underscore the reality that adverse selection remains a costly problem in private insurance markets.

While some critics might claim that reductions to Medicare Advantage payments under Obamacare could encourage seniors to continue disenrolling from private Medicare Advantage plans, that hasn’t borne out in reality. In fact, since Obamacare’s cuts to overpayments in Medicare Advantage began to be phased in, enrollment in the program is up while premiums are down.

Furthermore, increased enrollment into traditional Medicare might actually be a desirable outcome — the traditional Medicare program costs less per capita than the private Advantage program. And as these recent studies show, Advantage plans tend to fall short — and cost more — once beneficiaries get sick. As Center for Medicare Advocacy executive director Judith Stein put it, “Private Medicare Advantage plans work for people when they are relatively well, but fall short of traditional Medicare when they are sick or disabled.”

ABOUT Sy Mukherjee

Sy Mukherjee is a Health Reporter-Blogger for Raised in sunny Orange County, CA, Sy is an avid fan of basketball, football, the arts, and cooking. During college, Sy served as an appointed member of the 2012 New Hampshire Democratic Party’s Platform Committee and previously interned at CAP for the Faith and Progressive Policy team. He received a B.A. from Dartmouth College in June 2012, double majoring in government and religious studies.

..I've turned sixty-five so I

..I've turned sixty-five so I signed up for medicare......and medicare part "B"
.When I was 62 I dis-located my shoulder.....the hospital bills came to about $4,000.00. the prescriptions were a little less than $75.00. Last year I cut off the tip of my thumb and the hospital amputated it , just up to ( or past it -) the nail - so I do not have the very tip and my finger nail. covered by comp....+-and the prescriptions - ( yes I was re-imbursed) came to $50.00 ( approx)...So for the last three years prescription costs were $125.00
. . .I received my first bill for medicare part "B" $ notations as to what it covers of the duration... A couple of months later I get a second bill....same amount only explaining it was a quarterly bill ( so it comes to approx$100.0 a month)... I did not pay it as I told them when I signed up I do not pay blank bills without any accounting......
. . . From what $5.00 a month to $100.00 I said no thank you.......
I remember how AARP told everyone it was the best they could do at that time...., never said it was a good - or even decent deal. I cancelled my AARP that very day.
..Blame whoever you want - I hear all thes stories about senior citizens unable to pay for their prescriptions........
..Our government wants to protect the businesses.... Big Pharma ?? Immigrant reform ?? Cuts ?? Cuts ??

Boris Badenov's picture

What happens when your

What happens when your coverage is denied again I missed that one.
Only with the Corporate Medicare plans would they entertain death panels.
Their excuses are the Multi Tiered Health plans.
One for the Rich and denial plans for the disenfranchised!
There the ones with the Death Panels!
Only a single user Government Health Care System would work.

Whenever I compared the

Whenever I compared the private Medicare plans with the government direct payment plan, I discovered that the private plans take a large portion of the payment to pay the corporate bosses hefty packages taken from direct health care. Yet, millions of people are scammed into these plans under the eyes of our government. Why? Isn't this highway robbery from the healthcare system condoned by our "beloved" leaders?

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