Are "Medicare Advantage" cuts Medicare cuts?

How to fix health policy.
Dec. 4 2009 12:52 PM

Ask Doctor Kildare, Part 1

Introducing an occasional series answering real questions from fake people about the Senate floor debate on Obamacare.

TV Guide cover featuring Dr. Kildare.

Click here for a guide to following the health care reform story online.

Dear Dr. Kildare,

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The Obama administration and Senate Democrats maintain that health reform's $491 billion in Medicare cuts don't entail benefit cuts to senior citizens. Republicans maintain that it does, citing as Exhibit A projected cuts in the privately-managed Medicare Advantage program. Sen Orrin Hatch, R.-Utah, has introduced an amendment, being debated on the Senate floor right now, to cancel these cuts. Who's right?

Aged and Confused.

Dear Aged and Confused,

There's no dispute that health reform entails $118 billionin cuts to the Medicare Advantage program, and that making these cuts will reduce benefits available to Medicare Advantage participants. But Medicare Advantage participants, who represent about 23 percent of all Medicare recipients, typically receive benefits over and above what's mandated for Medicare recipients who don't participate in Medicare Advantage. According to the White House, private insurers receive on average 14 percent more per enrollee for Medicare Advantage than the federal government would spend in the regular Medicare program. In some places, private insurers receive 20 percent more.

The original idea of Medicare Advantage, which was created in the 2003 bill creating a Medicare drug benefit, was that the private sector could administer Medicare more cheaply than the government. This did not prove to be the case. It was initially the case for the private health maintenance organizations from which Medicare Advantage is descended. These were established in the 1970s, and by law payments to these private HMO were set at 95 percentof ordinary Medicare payments. But Congress gradually raised payments to encourage greater participation in rural areas. Politics eventually dictated in 1997 that Congress raise payments in urban areas, too, and in the 2003 law payments were raised still further for Medicare Advantage, which includes HMOs, Preferred Provider Organizations, Medical Savings Accounts, and a variety of other types of health insurance plans.

The government's Medicare Payment Advisory Commission concluded in a June 2009 report, "Paying more than [the federal government] is unfair to taxpayers and beneficiaries not enrolled in [Medicare Advantage] plans who subsidize those payments." My recomendation, therefore, is to ignore Sen. Hatch's self-righteous posturing. You'll still be aged, but you'll stop being confused.

James Kildare, M.D.

Timothy Noah is a former Slate staffer. His  book about income inequality is The Great Divergence.

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