Medicare Advantage, the new system of competing private health
plans created under the Medicare Modernization Act of 2003, is a
success. More seniors are getting a wider variety of health plan
options with better benefits, lower cost-sharing and more
affordable health care coverage, and access to specialized programs
that provide care coordination and care management if they suffer
chronic or debilitating illnesses.
Moreover, by enrolling in Medicare Advantage plans, seniors are
able to purchase an integrated health plan with richer benefits and
prescription drug coverage while paying only one premium and one
set of co-payments. For many seniors, this option is far superior
to staying in traditional Medicare and paying a second premium for
another health plan to supplement Medicare benefits.
Medicare Part C, the Medicare Advantage Program, accounts for
only 14 percent of total Medicare spending. Nonetheless, House
Ways and Means Committee Chairman Charles Rangel (D-NY) reportedly
is contemplating budget legislation that would cut payments to
Medicare's private health plans by an estimated $50 billion over
five years while adding $50 billion to the State Children's Health
Insurance Program (SCHIP) and imposing a 45 cent tax increase on a
pack of cigarettes. The Senate Finance Committee is also preparing
legislation that would target the Medicare Advantage plans. The
President should veto any legislation that undercuts either
consumer choice or competition in Medicare Advantage.
Some congressional leaders say that Medicare is paying too much
to Medicare Advantage plans, and they want to cut funding for this
option and thus reduce the number of plans that serve Medicare
beneficiaries. Representative Pete Stark (D-CA), Chairman of the
House Ways and Means Subcommittee on Health, says that "Medicare
overpayments fatten company profits, even as many seniors face
higher costs in private plans than they would in traditional
Overpayments to Medicare Advantage exist only if one assumes
that Medicare's administrative pricing and price controls
constitute a legitimate basis of payment. In fact, payment in
traditional Medicare is largely insulated from the conditions of
supply and demand, and Medicare routinely underpays and sometimes
overpays for medical services. Most Members of Congress do not
demonstrate confidence in their own payment formulas, as evidenced
by their routine refusals to accept their own handiwork on
Moreover, the charge of "overpayment" does not consider the
value of the benefits offered by Medicare Advantage. In fact, the
estimated 4 percent profit margins of Medicare Advantage plans are
considerably below the profit margins for most major industries.
According to an analysis of Medicare Advantage plans by the
Government Accountability Office (GAO), some seniors in some plans
would indeed face higher costs for certain categories of
benefits, but overall, the cost-sharing for enrollees in Medicare
Advantage would be 42 percent of the estimated cost-sharing by
enrollees in traditional Medicare.
Medicare Advantage registers a high degree of patient
satisfaction and is particularly attractive to low-income and
minority seniors, who disproportionately enroll in these health
plans. Of course, if seniors are dissatisfied with a Medicare
Advantage plan, they retain the right to choose traditional
Medicare as an alternative. Meanwhile, Medicare Advantage plans
have a solid record of performance. For example:
- The health plans are popular. In 2008, approximately 9
million Medicare beneficiaries, roughly one out of every five
Medicare enrollees, were enrolled in Medicare Advantage plans. The
heaviest concentration of enrollment is in urban areas, but rural
enrollment is growing rapidly. Medicare Advantage plans are now
available in every region of the United States, including in rural
areas where private plans have not been widely available. Thus far,
the total enrollment in Medicare Advantage plans has surpassed
Medicare's previous private plan enrollment.
- The health plans are varied. Health plan options include
health maintenance organizations (HMOs); local and regional
preferred provider organizations (PPOs); private fee-for-service
(PFFS) plans; and, as of 2007, medical savings account (MSA) plans.
There are also "special needs plans" (SNPs), which serve special
Medicare populations with chronic illnesses and disabilities. While
the largest concentration of senior and disabled citizens is found
in local coordinated care plans (both HMOs and PPOs), PFFS plans
and regional PPOs experienced the fastest growth during the past
two years. A large and growing number of seniors clearly like these
options even though many liberals in Congress do not.
- The health plans offer better benefits. In the
traditional Medicare program, Congress and the Centers for Medicare
and Medicaid Services (CMS), which is under congressional
authorization, basically define the benefits that seniors can get
and the circumstances under which they can get them. Medicare
Advantage offers seniors the most robust set of benefit options
outside of traditional Medicare. The health plans cover all of the
traditional Medicare benefits and much more. Seniors can choose
among plans with higher premiums and lower cost-sharing or with
lower premiums and high-cost sharing. Beyond prescription drug
coverage, they often cover preventive care services and provide
coordinated care or care management regimens for enrollees with
chronic conditions. Seniors also have access to a wide variety of
specific benefits not covered by traditional Medicare. These
include routine physical examinations, additional hospitalization
and skilled nursing facility stays, routine eye and hearing
examinations, eye glasses, and hearing aids.
- The health plans offer superior value for health care
dollars. Seniors enrolled in Medicare Advantage are
progressively getting better value for their health care dollars.
Based on an analysis of additional health benefits, including drug,
hospital, and physician services, as well as premium savings in the
Medicare Advantage system, officials at the CMS estimate that
Medicare beneficiaries are, on average, getting additional benefits
in the program worth more than $90 per month, or $1,100 per year. Recent
CMS estimates of the additional value provided by Medicare
Advantage plans are in accord with previous independent private
Disparate Impact of Medicare Advantage
Almost half (47 percent) of Medicare beneficiaries have incomes
below 200 percent of the federal poverty level (FPL): $20,420 for
an individual and $27,380 for a couple. The ethnic, income, and
racial distribution is also noteworthy; more than 70 percent of
African American and Hispanic beneficiaries have incomes below 200
percent of FPL, compared to 28 percent of white beneficiaries.
Empirical analysis shows that low-income and minority
beneficiaries have disproportionately enrolled in Medicare
Advantage plans, taking advantage of the lower cost-sharing and
richer benefits. According to a 2007 CMS report, 57
percent of Medicare beneficiaries have incomes between $10,000 and
$30,000 annually, compared to 46 percent of beneficiaries in
traditional Medicare. Also, 27 percent of Medicare Advantage
enrollees are minorities, compared to 20 percent of enrollees in
The growing popularity of Medicare Advantage among low-income
beneficiaries is not surprising. Historically, upper-income
retirees have been concentrated in employer-based plans or could
afford the premiums for Medigap, an insurance program that covers
costs not covered by Medicare, including coinsurance and
A Better Policy
Instead of cutting payments to Medicare Advantage, Congress
should re-target larger Medicare subsidies to lower-income persons
and smaller subsidies to upper-income families. There is a growing
bipartisan understanding that this is a reasonable approach to
Medicare and other entitlement programs.
The President has applied this principle in legislation
submitted to comply with the "trigger" in current law that requires
adjustments in Medicare funding to reduce an excessive dependence
on general revenues. Among his proposals is the application of
the existing rules governing premium payments in Medicare Part B,
the part of the program that pays physicians, to Medicare Part D,
the prescription drug program.
For Medicare Part B, most seniors currently pay a standard
premium equal to 25 percent of the total premium, or $93.50 per
month in 2007 dollars. But individuals with annual incomes of
$80,000 (or couples with a combined income of $160,000) would pay a
higher premium according to a progressive scale related to their
income. Part B rules should be applied to Part D, and Congress
should also reform the costly Medigap program. In either case,
upper-income persons would pay proportionately more, and
lower-income persons would pay proportionately less. The
President's proposal is progressive; targeting Medicare Advantage
Medicare Advantage is a success. The health plans are popular
and provide a variety of options, better benefits, and more
affordable care. They have proven especially attractive to
low-income and minority beneficiaries. Members of Congress should
consider the overall record of Medicare Advantage and disregard
criticisms that are grounded in a narrow ideological hostility to
private health insurance.
Individual freedom, including personal choice of different
health plans and benefit options, is not negotiable. Unfortunately,
many in Congress want to expand government control over health care
financing and delivery while contracting private insurance and
denying or curtailing the patient's right to pick a better plan. If
Congress attempts to limit either personal choice or plan
competition in Medicare Advantage, the President should not
hesitate to veto any such measure.
Robert E. Moffit, Ph.D., is Director
of the Center for Health Policy Studies at The Heritage
Kaiser Family Foundation, Medicare: A
Primer, March 2007, p. 1.
Armstrong, "Political Playbooks Open as Parties Ponder Medicare
Trigger Legislation," CQ Today, February 25, 2008.
Cited in Robert Pear, "Private Medicare Plans'
Cost Questioned," The New York Times, February 28, 2008.
Under the current congressional physician
payment update formula, physicians would face a 10 percent pay
reduction, which many in Congress vow to "fix."
Government Accountability Office, Medicare Advantage: Increased
Spending Relative to Medicare Fee for Service May Not Always Reduce
Beneficiary Out of Pocket Costs, GAO-08-359, February 2008, p.
Hon. Kerry Weems, Acting Administrator, Centers for Medicare and
Medicaid Services, testimony before the House Ways and Means
Subcommittee on Health, February 28, 2008.
for example, Mark Merlis, "The Value of Extra Benefits Offered by
Medicare Advantage Plans in 2006," Henry J. Kaiser Family
Foundation Issue Brief, January 2008.
Kaiser Family Foundation, Medicare: A
Primer, p. 3. The income citations here are in 2007
Kaiser Family Foundation, Medicare: A
Primer, p. 4.
See Adam Atherly and Kenneth Thorpe, "The
Value of Medicare Advantage to Low Income and Minority Medicare
Beneficiaries," Emory University, Rollins School for Public Health,
September 20, 2005.
Centers for Medicare and Medicaid Services,
"Medicare Advantage," 2007.
Medicare Payment Advisory Commission, A
Data Book: Health Care Spending and the Medicare Program, June
2007, p.62, at www.medpac.gov.
The growing pressure of rapidly rising
entitlement costs will force Americans to make a choice. "We can
reduce the growth of expected benefits for everybody, or we can
trim them more for people who rely on the programs less. We believe
that it is preferable to reduce benefits through means testing for
those who do not need them in order to ensure the economic security
of those who do." Stuart M. Butler and Maya MacGuineas, "Rethinking
Social Insurance," The Heritage Foundation and the New America
Foundation, February 19, 2008, p. 6.
Robert E. Moffit, "The President's Medicare
Budget: A First Step Toward Entitlement Reform," Heritage
Foundation WebMemo No. 1797, February 5, 2008.