Medicare Advantage needs to change::

By Saul Friedman

Mar. 23, 2009 (McClatchy-Tribune News Service delivered by Newstex) -- Tom B., of Lynbrook, N.Y., personifies one of the more important reasons why health care reformers are prepared to wage a battle this year to strengthen traditional Medicare at the expense of the increasingly popular, private Medicare Advantage plans. In a moment, Tom's story.

The impending battle is full of ironies because the reformers, the Obama administration and Democrats in Congress, will be taking on not only the insurance companies, the drug industry and most Republicans, but also millions of older Americans who subscribe to private Medicare Advantage plans and don't want to give them up.

Medicare beneficiaries who don't have health insurance from employers or another source may take traditional Medicare and buy separate Medigap and Part D drug policies. Or they may buy a Medicare Advantage policy, which provides comprehensive benefits, including drugs.

Nearly 10 million of the 40 million Medicare beneficiaries have chosen Medicare Advantage plans, most of them HMOs (health maintenance organizations) or PPOs (preferred provider organizations). They usually pay a premium in addition to the $96.40 monthly Part B premium.

Most MA subscribers tend to be younger and healthier beneficiaries who don't need much medical attention, and they are opposed to giving up their MA coverage in favor of traditional Medicare. One angry reader told me, "I'm satisfied with what I have, and so are many of us. Why should I be forced to take Medicare and have to buy separate policies? I can't afford that."

It is true the MA plans are cheaper, especially for those who need only routine medical care. But that's because these plans get $15 billion a year in federal subsidies that could be used by traditional Medicare. Obama's budget estimates cutting or ending the subsidies could save up to $176 billion over 10 years.

Despite the federal money, MA may not be a bargain, as the plans require subscribers to use doctors, labs, hospitals and other facilities in the MA's network, with which the insurer has contracts. If the best facility or surgeon for a patient's condition is not in the network, the insurer can and often does second-guess and even refuse to pay for services it believes are unnecessary or can be performed by in-network doctors. Because of such MA plan restrictions, some of the best hospitals in the nation, such as Baltimore's Johns Hopkins, do not accept MA plans.

All Medicare contracts with MA plans last a year, and the insurer can cancel or change coverage at the end of the year if, for example, subscribers suffer illnesses that are too costly. That's what happened to Tom B. And, as my mail and columns have reflected, his is not an unusual story.

Because his coverage changed with the new year, Tom, 65, a former computer technician who has had two kidney transplants over the past eight years (one from his wife, Anne), quit his PPO and switched to traditional Medicare and a Medigap policy for 2009. He switched to Medicare, he wrote, when his PPO plan suddenly changed its policy "to not cover the 20 percent" co-payment on drugs it had been covering.

"As my meds can cost about $1,000 to $2,000 a month," he wrote, "this would cost me $200 to $400. ... Under the new rules, renal dialysis will have a 10 percent co-pay in 2009. As dialysis can run from $100,000 to $300,000 a year, this would expose a transplanted person to a possible cost of up to $30,000 a year."

He added: "By doing this, the PPO weeds out the high-cost patients. That's cherry picking." (If you're interested in the larger issue of transplants, Tom is an officer of the Long Island Transplant Recipients International Organization at litrio.org.)

Under Medicare-Medigap, coverage is predictable, as Tom wrote: "Drugs taken by a transplanted person can be covered under Part B. This is paid 80 percent by Medicare, with the other 20 percent covered by Medigap." The same is true for outpatient dialysis. The current manual, "Medicare and You, 2009," shows the increased charges for most MA plans.

Unlike Medicare and Medigap policies, which pay for services rendered, MA plans are paid a monthly fee per patient (about $800), whether their services are used or not. If the patient stays healthy, the MA plan profits. If too many patients get seriously ill, the MA loses. Thus, while traditional Medicare pays whatever the approved cost, the MA, as Tom says, may "weed out" more costly patients by canceling or changing coverage.

Besides costing taxpayers 17 percent more per patient than Medicare, according to a Government Accountability Office report in December, patients in MA plans, in addition to their premiums, must shell out co-payments each time they visit a doctor, lab or specialist or buy drugs. These can add up and are not reimbursed.

Last month, Bloomberg News reported that Humana (NYSE:HUM) , Health Net (NYSE:HNT) and other providers of MA and Part D drug policies "are jacking up prices." Humana, which attracted beneficiaries with low prices when the plans were first offered a few years ago, has more than doubled its average premiums, according to Bloomberg. UnitedHealth, one of the largest insurers, is not raising all its premiums, Bloomberg reported, but it's dropping plans that cover the chronically ill, like Tom, as unprofitable.

Medicare HMOs made their debut 20 years ago when congressional conservatives began an effort to privatize Medicare, offering private plans as choices for Medicare subscribers. In the 2003 Medicare bill that created the Part D benefit, Congress gave insurers a subsidy, then amounting to $150 billion over 10 years for Medicare Advantage.

Last year, the Democratic Congress began cutting the subsidy. This year, new budget director Peter Orszag wants to end it and require the insurers to compete with Medicare on even terms, which could put the MA insurers out of the Medicare business. Senate Democratic Leader Harry Reid of Nevada, has told The Hill newspaper, "Medicare Advantage is gone."

His staff said Reid didn't mean it literally, the paper reported. But many of those 10 million subscribers and the insurance industry might have other plans.

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(Saul Friedman writes Gray Matters, a personal finance column directed at older Americans, for Newsday. He can be reached at saulfriedman@comcast.net.)

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