Medicare Advantage could lose some luster

Daniel Malloy

Nov. 1, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- WASHINGTON -- Twice a week, Mildred Pfeifer, 75, goes to Healthtrax Fitness and Wellness in Bethel Park to do physical therapy for her arthritis in the pool.

The therapy is covered through a Silver Sneakers program, part of her Medicare Advantage plan with Highmark. Ms. Pfeifer couldn't afford it otherwise.

Extras like fitness classes, preventive care and dental coverage are why seniors are flocking to private Medicare Advantage plans instead of traditional Medicare. In the Pittsburgh area, according to data compiled by the Kaiser Family Foundation, 56 percent of Medicare beneficiaries are enrolled in advantage plans -- a higher percentage than any other metro area in the country.

The federal government pays private insurers to administer advantage plans, but it's paying them 14 percent more, on average, than it does for Medicare. Those subsidies could be cut in congressional health care reform legislation to help fund a historic expansion of health insurance coverage.

But bringing advantage spending back in line with traditional Medicare could mean increases in premiums or a decrease in services -- and given the popularity of the programs, that's perilous political territory.

"I know a lot of us up here would be upset if that Silver Sneakers is cut out," Ms. Pfeifer said.

Medicare Advantage began in the 1970s, when seniors gained the option to enroll in a private health maintenance organization plan rather than the traditional Medicare fee-for-service model. HMO plans offer more in terms of health management, but only within a preselected "network" of physicians, while fee-for-service plans provide comprehensive acute care.

The federal government funded the private plans at 95 percent, on average, of what it was paying for Medicare.

The system allowed people who enjoyed their current health insurance company to stick with it in retirement. Medicare Advantage tends to be used by middle-class seniors, as those with the highest incomes often have health benefits included in their pensions and low-income seniors are covered by Medicaid. Premiums are comparable among Medicare and Medicare Advantage plans.

Medicare Advantage hit a turning point in 1997 when Congress passed the Balanced Budget Act, which increased the private-plan options. Over the next several years, Congress increased payments and expanded the range of advantage plans -- which now include fee-for-service plans and hybrid plans called Preferred Provider Organizations.

"There was a policy objective of expanding the role of private plans," said Tricia Neuman, of the Kaiser Family Foundation, who has studied the issue. "That seemed to have greater policy salience [for Congress] than saving money for Medicare."

The result has been an explosion of seniors using advantage plans. According to Kaiser, the number of Medicare beneficiaries in private plans nearly doubled from 2003 to 2009. As of March, 10.2 million people -- 22 percent of all Medicare recipients -- were enrolled in advantage plans.

As enrollment has grown, so have government reimbursements for the private plans. Instead of saving money for Medicare, advantage plans now are more expensive for the government.

"The broader policy question is whether or not Medicare can afford to sustain a program that loses money, erodes the hospital insurance trust fund and increases premiums for all beneficiaries in the current fiscal environment," Ms. Neuman said.

Health care reform proposals in the House of Representatives and Senate include cuts for Medicare Advantage plans as part of overall trims to Medicare spending. Medicare cuts are a critical pillar to support health insurance subsidies for millions.

The merged House bill, which was unveiled Thursday by Speaker Nancy Pelosi, D-Calif., and could be voted on this week, reduces advantage payments to be in line with Medicare payments by 2013, with bonuses handed out for improved quality in plans. The Congressional Budget Office determined that those cuts would save $170 billion over the next 10 years.

The Senate Finance Committee bill, which is in the process of being altered by Majority Leader Harry Reid, D-Nev., before it hits the floor, restructures advantage payments to more regional-based formulas and also offers bonuses for quality.

Timothy Lightner, the director of senior markets sales at Highmark, Western Pennsylvania's dominant health insurer, warned that such cuts could hurt beneficiaries.

"We can deal with those reductions in one of three ways: increase premiums, increase cost-sharing, reduce benefits. Or, it's a combination of those factors," Mr. Lightner said.

"I think there will be some frustration, and I think that's something that should be taken into account by our legislators who represent beneficiaries."

Indeed, several of Pennsylvania's lawmakers expressed concerns about possible detriments to their constituents.

"If we're going to do that," Rep. Jason Altmire, D-McCandless, said of Medicare Advantage program cuts, "we have to do that in a way that's not going to impact beneficiaries."

The managed care plans also have been shown to be effective. A Johns Hopkins University study released in September by the Alliance of Community Health Plans showed that in the Medicare Advantage plans it examined, hospital readmissions were 27 percent lower than in traditional Medicare plans.

"Science says it's effective to keep seniors active," said Rep. Tim Murphy, R-Upper St. Clair, referring to Silver Sneakers. "Why would we cut funding to something that works?"

Both of Pennsylvania's senators -- Democrats Bob Casey Jr. and Arlen Specter -- said they would oppose funding cuts that would hurt seniors. Mr. Casey said he is working to get language into the bill to shield current Medicare Advantage users from cuts.

Keeping current benefit levels, Mr. Casey said, is crucial to keeping one of the central promises Democrats and President Barack Obama have made regarding the bill.

"If we've said you can keep the benefits you have, we've got to be able to show that in the bill," Mr. Casey said.

It remains unclear whether insurance companies would follow through with significant program cuts or fee hikes if the federal government trims subsidies.

"Often when reductions in Medicare payments are on the table, affected industries raise concerns about what it will mean for people," Ms. Neuman said. "[But] it is quite possible that plans could operate more efficiently and continue to offer coverage to people on Medicare without pulling out or without severely cutting benefits."

That's what Rep. Mike Doyle, D-Forest Hills, a proponent of cuts, argues.

"Especially in the Pittsburgh area, with Highmark having predominately most of the customers there, they sit on about [$3.1 billion] worth of reserves in their plan and my hope is they want to use some of those reserves to mitigate any impacts from [funding cuts]," Mr. Doyle said, referring to the company's surplus, which has been controversial.

"But clearly we can't sustain a program that was designed to save the taxpayers money to one that's costing the taxpayers almost 20 percent more than the traditional fee-for-service Medicare."

Yet for a glimpse into Highmark's reaction to funding cuts, one need look no further than the letters the company recently sent to its customers describing premium increases for 2010.

Mr. Lightner said that his company is increasing premiums because of funding cuts Medicare announced in April -- cuts that are far more modest than the ones being proposed in Congress.

Ms. Pfeifer and her husband, Chuck, each will see their Highmark SecurityBlue premiums go up $43 per month next year. Herb Brankley, 78, of Penn Hills, will be paying $38 more a month to Highmark for his SecurityBlue coverage.

"I see that almost as blackmail," Mr. Brankley said. "These people are making a ton of money."

Highmark is a nonprofit company, but its $3.1 billion in reserves -- which the company reported at the start of the year -- is the reason some propose that the company can swallow cuts without passing them along to customers.

But even if his rates continue to rise, Mr. Brankley said he is in favor of health care reform for the sake of the millions of Americans who now lack health insurance.

"If it means sacrificing a little bit on my side so that some of these people can at least get some coverage," Mr. Brankley said, "then I'm all for that."

Newstex ID: KRTB-0159-39411850