The next health care battle: cutting Medicare Advantage

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With the wildfire over so-called “death panels” still smoldering, President Barack Obama faces what could become another emotion-charged obstacle to his vision of overhauling health care ? his plan to trim the federal subsidy for a program called “Medicare Advantage.”

The program pays insurance companies a hefty premium above traditional Medicare reimbursements for enrolling senior citizens in managed care. But whether the higher payments are worth the cost is a matter of dispute.

Obama and many congressional Democrats see Advantage as a wasteful bonanza averaging about $17 billion a year for the companies, which critics say provide few benefits beyond regular Medicare.

And cutting out the extra pay is crucial to financing the whole health care overhaul under the Democrats’ plans.

The companies and their supporters say they earn the extra payments by providing seniors with significant additional benefits, including freedom from government red tape. And many Medicare recipients ? who may pay nothing for the “extras” ? seem to agree. Almost a quarter of all Medicare beneficiaries are now enrolled in “Advantage” programs.

But what lifts the disagreement over Medicare Advantage above the many other points of contention in health care is its potential for spreading fear and outrage among Medicare recipients as a whole, much like public outcry after Republicans accused Democrats of trying to create “death panels” to cut off care for severely ill seniors.

Though scaling back “Advantage” payments would have no effect on the sizable majority of regular Medicare users, it does create an opening for opponents to make the blanket allegation that Obama wants to cut back on Medicare benefits ? as some Republicans are already beginning to say.

Obama and his supporters acknowledge the risk.

“This will not be painless, said Robert Berenson, a physician and health care policy analyst at the liberal-leaning Urban Institute.

The White House is counting on convincing seniors, with their powerful lobbying presence in Washington, that in order to fix the overall health care system, they have to cut the fat out of one part of it.

For the last few years, Medicare Advantage has been a sheltered corner of the national health plan. When congressional Republicans first began expanding private insurance Medicare options in 1997, advocates argued that the plans would actually deliver services more efficiently, and hence less expensively, than Medicare’s traditional fee-for-service reimbursement.

But the spending on Advantage plans grew over time, with critics arguing Republican majorities were deliberately over-funding it to make the private plans more attractive to seniors than traditional Medicare.

As a result, the private plans now cost the government about 14 percent more per person than does regular Medicare, according to a recent analysis by the Medicare Payment Advisory Commission, which recommends reimbursement rates to Congress.

“Payment increases have been so large that plans no longer need to be efficient to attract enrollees,” MedPAC executive director Mark E. Miller told Congress in June 2008.

Today, the sheer size of the private program ? serving about 10.2 million seniors out of more than 45 million Medicare users in all ? offers an opportunity for savings that the Office of Management and Budget puts at $177 billion over 10 years. That is an inviting figure to an administration looking for ways to expand access to health care for millions of Americans.

Obama joined the Advantage critics in 2007 as a candidate on the stump in Iowa, when he began to criticize the arrangement as an example of waste that hurts the Medicare program as a whole.

Now, his plan is to reduce the payments to Advantage so that it receives little or no federal subsidy.

As part of their health care talks, lawmakers have suggested reducing the rates through competitive bidding or by fiat ?perhaps setting payments for the private plans at levels not to exceed those of traditional Medicare.

“We should not be subsidizing insurance companies to provide Medicare benefits that cost 14 percent more,” said Kenneth Baer, of the president’s Office of Management and Budget, “especially when we can reform this system and save approximately $177 billion over the next 10 years.”

For their part, some members of the senior citizens lobby like the idea of trimming Advantage payments.

“We think having choices and competition within Medicare is important,” says AARP’s Jordan McNerney, “but they should not add to the cost of the program.”

Though the organization isn’t backing any particular health care bill at the moment, McNerney says, “We are in support of cutting back the subsidies to private insurers over time so they compete on a level playing field with traditional Medicare.”

But the insurers who provide the Advantage plans see it differently. And so do many seniors who have enrolled in it.

In late July, for example, Maurice Engleman, 82, of Palm Springs, Calif., made the rounds on Capitol Hill, presenting himself as living testimony to the benefits of Medicare Advantage.

Last year, Engleman was hit with devastating one-two punches. He was diagnosed with tongue cancer shortly after his wife of 59 years died.

His Medicare Advantage managed care firm, Desert Oasis Healthcare, assigned a nurse to guide him through a thicket of doctor visits and hospitalizations, including what turned out to be 30 radiation treatments.

“There wasn’t an appointment to she didn’t come meet me. She’d phone me prior to them to make sure I would be there,” Engleman said. “Physically and emotionally, I felt completely supported. I really don’t think I would have made it without this continuum of care.”

Engleman, who said he now is cancer-free, acknowledged the additional expense of Medicare Advantage ? to taxpayers, not to him ? compared to traditional fee-for-service Medicare, but argued that it was cost effective in the long run. “It might cost $1,000 more, but if I didn’t have to go to the hospital, that might save Medicare $5,000,” he said.

He said he was flown to Washington at Desert Oasis Healthcare’s expense and in a single day he and three other members of the firm’s contingent managed personal visits with California Democratic Sen. Barbara Boxer, Republican Rep. Mary Bono Mack, who represents Palm Springs, along with Michigan Democratic Rep. Bart Stupak.

Mack and Stupak are members of the Energy and Commerce Committee, which is helping to craft health care overhaul legislation.

In addition, Engleman’s group met with top aides to California Democratic Sen. Dianne Feinstein and California congressmen David Dreier, Adam Schiff and Henry Waxman, the chair of the Energy and Commerce Committee.

But Engleman had more than a sympathetic story to tell. Since 1999, Richard Merkin, CEO of Desert Oasis’ parent company, Heritage Provider Network, has contributed more than $350,000 to state and federal candidates and campaign committees.

In the current election cycle, he’s donated more than $50,000, including $30,000 to the Republican Congressional Campaign Committee and $10,000 to the Democratic Congressional Campaign Committee, according to the Center for Responsive Politics.

Desert Oasis spokeswoman Janet Janjigian said she set up the meetings through her consulting firm and that the contributions had “no impact” on her ability to secure the appointments.

Despite the rising controversy, the Advantage plans seem headed for significant change. The trick will be to structure a reimbursement plan for private insurers that preserves potential for a fair profit, said Len Nichols, a health care economist at the New America Foundation.

“There’s a legitimate discussion to be had about the smartest way to pay them,” said Nichols, who advocates forcing providers to bid for seniors’ business and paying them bonuses for achieving quality of care goals.

“Make them more competitive. Make them earn the money instead of just handing it to them,” Nichols said.

(c) 2009, Tribune Co. Source: McClatchy-Tribune Information Services.