New York Times Calls For Elimination of Subsidies to Medicare Advantage Plans

Back in 2007, while campaigning in Iowa, I noted that Barack Obama criticized the extra money paid to care for patients in Medicare Advantage Plans compared to the regular Medicare Program. Obama cited the program at other times while campaigning when asked to name wasteful government programs which he would eliminate.

The government pays private insurance companies which run Medicare Advantage plans more than it costs to care for Medicare patients in the government Medicare program. Last year I also noted that the American Medical Association called for the elimination of these plans.

The New York Times has an editorial on Medicare Advantage plans today:

Medicare currently pays the private plans — now called the Medicare Advantage program — 13 percent more on average than the same services would cost in the traditional fee-for-service program. Some of the added payments are used to provide extra benefits for enrollees, like reduced cost-sharing or reduced premiums for such extra benefits as vision and dental care.

The added value averages more than $1,100 a year per patient. Not surprisingly, that makes them attractive to individuals and employers seeking coverage for retirees. It has fueled an explosive growth in enrollments. Almost a quarter of all Medicare beneficiaries, more than 10 million people, are enrolled in private plans.

The managed-care plans still arguably do a better job than traditional Medicare at coordinating care and eliminating duplicative services. Unfortunately, the fastest growth has occurred in private-fee-for-service plans, which do very little to coordinate care. They simply piggyback on the traditional Medicare program, relying on the same doctors and hospitals while using their subsidies to offer cost savings or extra benefits to enrollees.

As these plans have proliferated, Medicare’s costs to cover the subsidies have risen — with the taxpayers and the beneficiaries in traditional Medicare picking up the tab. The many competing plans have also increased Medicare’s bureaucratic burden and costs. And there is no sign that these plans provide better quality of care. Congress started this year to reduce the unjustified subsidies. But a lot more needs to be done. President-elect Barack Obama called during the campaign for eliminating the excessive subsidies and paying private plans only what it would cost to treat the same patients under traditional Medicare.

That would anger millions of enrollees as well as the insurance companies that use the subsidies to attract hordes of new customers. But it is only fair to treat all Medicare beneficiaries equally. Eliminating the subsidies could provide savings to help finance broader health care reform.

While some of the money goes towards extra benefits, most of it goes towards increasing profits for insurance companies at the taxpayers’ expense.

As the editorial notes, insurance companies as well as some enrollees, might be angered by elimination of these plans. Another group which would be angered by the elimination of these plans are insurance agents who are well paid for signing people up for these plans. The financial benefits paid to Medicare Advantage plans leads many to pay by the head for new enrollees while they look the other way when laws are broken. Some of the problems with fraud in the sales of Medicare Advantage plans were previously discussed here and here.

The attitude of insurance agents can be seen in the responses to some of my previous posts on Medicare Advantage plans, such as here. The post was linked on a board used by insurance sales people, leading many to attempt to defend their practices. While those responding are probably not the ones engaged in the more fraudulent practices noted in the other reports, it is alarming that the insurance agents did demonstrate considerable ignorance as to how Medicare really works, leading them to present incorrect information when selling these plans.

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  1. 1
    Christopher says:

    It’s my understanding the Medicare Advantage Plan’s main benefit is, it eliminates the 20% of regular and customary charges not covered by Medicare.

    My grandmother has this plan and for a 92 year old woman on SSI, this is very important.

    20% of a $40,000 in-patient hospital stay is $8,000. Not exactly pocket change.

  2. 2
    Ron Chusid says:


    It depends upon the plan. Some Medicare Advantage plans take care of the 20% copay, but others do not. I have even had many patients signed up for plans (without even realizing they were signing up for a plan different from the main Medicare program) which had higher copays and deductibles than the main Medicare plan.

    There is not a 20% copay for a hospital stay. There is a flat deductible for hospitalizations of $1024, which is obviously far less than 20% of the hospital stay. Insurance agents use this scare of paying 20% of everything to sell the plans–see the comments in the thread I linked to. There are also secondary insurance plans which will pay the Medicare copays and deductibles without being in a Medicare Advantage plan. Some MA plans will pay this deductible and others do not.

    This doesn’t mean that it is necessarily bad your grandmother is in a Medicare Advantage plan. It depends upon the plan. If people shop around they very well can find good deals, but there are also many plans which provide little coverage. The ones which provide more coverage will cost more.

    On the other hand, without the extra subsidies being used to increase insurance company profits, it would be possible to have better benefits and decreased out of pocket expenses for everyone on Medicare.

  3. 3
    Bilby says:

    I have a feeling that if cutting anything at all was proposed by the Bush administration there would be general wailing and tearing of hair in the lefty blogosphere because mean old Bush wants to take health care away from seniors.

  4. 4
    Ron Chusid says:


    No, the liberal blogosphere would be happy about eliminating a poor program enacted by Bush. This would not be taking away health care from seniors. It would be taking away extra money paid to the insurance companies in order to have more money to spend on health care for seniors.

  5. 5
    Denise Holmes says:

    As a person on Medicare I can tell you that Medicare pays 80% on hospital bills AFTER the part A deductible ($1,024) and the remaining 20% is the patient’s responsibility.

    I’ve been on my husband’s group health plan (work) for years but now he’s laid off and to afford COBRA for him I went onto a local NON-PROFIT medical advantage program for my coverage (combined with medicare). I am now paying $180 per month for my health insurance and I still have some co-pays and I pay a small % on my expensive medicines.

    Medicare was never meant to be 100% coverage (nothing does these days anyway). But when the average heart attack costs over $100,000 in medical care it’s scary to those of us on fixed incomes….

  6. 6
    Ron Chusid says:


    There is not a 20% copayment on Part A services. There will be a 20% copayment for Part B services (which is frequently covered by secondary insurance for people on Medicare as opposed to Medicare Advantage Plans). Once the $1024 is paid for hospital services, there are no further charges for hospital services unless the hospitalization lasts over sixty days. The Part B exepnses will be for items such as physician charges. While 20% of this can add up, they will be nothing compared to paying 20% of a hopsitalization. Also note that this is 20% of what Medicare approves, which is well below actual charges.

    ” I went onto a local NON-PROFIT medical advantage program for my coverage (combined with medicare).”

    If by “medical advantage” you mean Medicare Advantage, this is also incorrect. Medicare Advantage plans replace the usual Medicare coverage–they are not combined with it. Secondary insurance plans are frequently combined with Medicare to cover what Medicare does not cover.

    Either way, it is much safer to have either a secondary insurance or be in a Medicare Advantage plan as opposed to having Medicare alone. Medicare will pay the vast majority of medical expenses, but this could still leave a significant bill.

    While this probably wouldn’t apply in Denise’s case, it should also be noted that many people with low incomes qualify to receive Medicaid in addition to Medicare. Medicaid will then cover the expenses not covered by Medicare (or in reality the medical providers are forced to write off most of this) so these expenses do not apply to everyone.

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