Next big health-care rift looms over a small slice of Medicare

WASHINGTON — With the wildfire over so-called "death panels" still smoldering, President Obama faces another emotion-charged obstacle to his vision of overhauling health care — his plan to trim the federal subsidy for a program called "Medicare Advantage."

The program pays insurance companies a hefty premium above traditional Medicare reimbursements for enrolling senior citizens in managed care. Obama and many congressional Democrats see Advantage as a wasteful bonanza averaging about $17 billion a year for the companies, and critics say it provides few benefits beyond regular Medicare.

And cutting out the extra pay is crucial to financing the overall health-care legislation under the Democrats' plans.

The companies and their backers say they earn the extra payments by providing significant additional benefits, including freedom from government red tape. And many recipients — who may pay nothing for the "extras" — seem to agree. Almost one-quarter of all Medicare beneficiaries are enrolled in Advantage programs.

But what lifts the disagreement over Medicare Advantage above the many other points of contention in health care is its potential for spreading fear and outrage among Medicare recipients as a whole, much like public outcry after Republicans wrongly accused Democrats of trying to create "death panels" to cut off care for severely ill seniors.

Another open door

While scaling back Advantage payments would have no effect on the sizable majority of regular Medicare users, it does create an opening for opponents to make the blanket allegation that Obama wants to cut back on Medicare benefits — as some Republicans already are saying.

Obama and his supporters acknowledge the risk.

"This will not be painless," said Robert Berenson, a physician and health-care-policy analyst at the liberal-leaning Urban Institute.

Advantage has been a sheltered corner of Medicare for the past few years. When congressional Republicans first began expanding private-insurance Medicare options in 1997, advocates argued that the plans would deliver services more efficiently, and hence less expensively, than Medicare's traditional fee-for-service reimbursement.

But spending on Advantage plans grew, with critics arguing Republican majorities deliberately were over-funding it to make the private plans more attractive to seniors than traditional Medicare.

As a result, the private plans now cost the government about 14 percent more per person than does regular Medicare, according to the Medicare Payment Advisory Commission, which recommends reimbursement rates.

Chance at big savings

Today, the sheer size of the private program — serving about 10.2 million seniors out of more than 45 million Medicare users in all — offers an opportunity to save $177 billion over 10 years, according to the Office of Management and Budget (OMB). That is an inviting figure to an administration looking for ways to expand access to health care for millions of Americans.

Obama joined the Advantage critics in 2007, when he began to criticize the arrangement as an example of waste in Medicare. His plan now is to reduce payments to Advantage so that it receives little or no federal subsidy.

Lawmakers have suggested reducing rates through competitive bidding or by fiat — perhaps setting payments for private plans at levels not to exceed those of traditional Medicare.

"We should not be subsidizing insurance companies to provide Medicare benefits that cost 14 percent more," the OMB's Kenneth Baer said.

For their part, some members of the senior-citizens lobby like the idea of trimming Advantage payments.

"We think having choices and competition within Medicare is important," AARP's Jordan McNerney said, "but they should not add to the cost of the program."

But insurers who sell Advantage plans and many enrollees see it differently.

In late July, for example, Maurice Engleman, 82, of Palm Springs, Calif., made the rounds on Capitol Hill, presenting himself as living testimony to the benefits of Medicare Advantage.

Engleman was diagnosed with tongue cancer last year, soon after his wife of 59 years died.

His Advantage managed-care firm, Desert Oasis Healthcare, assigned a nurse to guide him through a thicket of doctor visits and hospitalizations, including 30 radiation treatments.

Engleman, who said he now is cancer-free, acknowledged the additional expense of Medicare Advantage — to taxpayers, not to him — but argued it was cost effective. "It might cost $1,000 more," he said, "but if I didn't have to go to the hospital, that might save Medicare $5,000."

A caveat to Engleman's Capitol Hill tour: He was flown to Washington at Desert Oasis Healthcare's expense, and he and three other members of the firm's contingent met with California Democratic Sen. Barbara Boxer, Republican Rep. Mary Bono Mack, who represents Palm Springs, and Michigan Democratic Rep. Bart Stupak.

Mack and Stupak are members of the Energy and Commerce Committee, which is helping to craft health-care legislation.

Since 1999, Richard Merkin, CEO of Desert Oasis' parent company, Heritage Provider Network, has contributed more than $350,000 to state and federal candidates and campaign committees.

In the current cycle, he's donated more than $50,000, including $30,000 to the Republican Congressional Campaign Committee and $10,000 to the Democratic Congressional Campaign Committee, according to the Center for Responsive Politics.

Desert Oasis spokeswoman Janet Janjigian said she set up the meetings through her consulting firm and that the contributions had "no impact" on her ability to secure the appointments.

Despite the rising controversy, the Advantage plans seem headed for significant change. The trick will be to structure a reimbursement plan for private insurers that preserves potential for a fair profit, said Len Nichols, a health-care economist at the New America Foundation.

"There's a legitimate discussion to be had about the smartest way to pay them," said Nichols, who advocates forcing providers to bid for seniors' business and paying them bonuses for achieving quality-of-care goals.

"Make them more competitive," Nichols said. "Make them earn the money instead of just handing it to them."