Can Private Health Plans Save Money for Medicare?

President Bush and proponents in Congress believe that private health plans can provide Medicare with better health care for less money.  Recent prescription drug legislation passed by the Senate and House rely heavily on private plans to provide drug coverage.  But according to government economists, private health plans are not expected to save the government money.  To the contrary, Medicare Trustees estimated in the 2003 annual report that reimbursements for managed care enrollees would somewhat exceed average fee-for-service costs.  The Congressional Budget Office (CBO) also estimated that under managed care plans, as proposed by the House and Senate prescription drug bills, costs to Medicare would be higher.  In addition, the CBO said that the number of seniors who would join the new private plans would not be much greater than the number of seniors who belong in private plans now.

So why the big push for private plans?  Proponents say competition among all plans, including traditional Medicare, is the key.  The House drug bill would make traditional Medicare compete with private plans in 2010.  Known as “premium support,” according to an article in The Washington Post, the government would contribute a fixed amount per beneficiary to private plans and to the traditional Medicare program instead of guaranteeing a specific level of benefits.  The CBO estimated that this style of competition would reduce premiums for some Medicare beneficiaries in private plans, but would increase the Part B premium for beneficiaries in traditional fee-for-service Medicare.  In addition, the CBO estimates that only 40% of Medicare beneficiaries live in areas where the new private Medicare Advantage plans are available.

Proponents of “premium support” compare it to the popular Federal Employees Health Benefits Program (FEHBP), but under that premium support arrangement, the amount the federal government pays toward premiums is linked to annual premium increases.  Proposals to limit the government’s FEHBP contribution to a fixed maximum have been rejected—many times.

One fact about private plans is clear—they’re in business to make a profit.  When they can’t, they don’t renew their contract with Medicare.  This month about 3.6 million seniors will learn whether their Medicare HMO will provide service next year, or whether they will have to start looking for a new private plan—again.
 
Sources:  “2003 Medicare Trustees Report,” March 2003.  “The Budget and Economic Outlook,” Congressional Budget Office, January 2003, page 86.  “Cost Estimate H.R. 1 and S.1,” Congressional Budget Office, July 22, 2003.  “Medicare Bill Has House Conservatives Grumbling,” Juliet Eilperin, The Washington Post, July 15, 2003, “Budget Cutters Target Programs for Federal Workers and Retirees,” Stephen Barr, The Washington Post, March 13, 2003.

October 2003

Legal Statement  |  Contact Us
Copyright © 2007 The Senior Citizens League  |  703-548-5568  |  909 N. Washington St. #300, Alexandria, VA 22314
All Rights Reserved