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HMOs Get Huge Medicare Overpayments

One reason AFSCME and many other Medicare advocates opposed the new Medicare law is its preferential treatment for private health plans over the traditional program. In response to constant cries from private plans about their inability to make a decent profit from Medicare patients (the reason they dropped over two million seniors from coverage in the last five years), the new law gives HMOs a big boost in their reimbursement rates. It also establishes a generous slush fund for HMOs — just in case the higher rates still aren't high enough to keep HMOs in the Medicare market.

SEVEN PERCENT MORE. In 2005, Medicare private plans will be paid seven percent more per person than it would cost the traditional Medicare program to treat the same individual. The higher rates will cost Medicare approximately $3 billion in the one year alone.

Because HMOs and similar managed care plans tend to attract a healthier senior population than original Medicare, many health care experts think reimbursement rates should be risk-adjusted to reflect a coverage group that uses fewer services. But the new rates for private plans don't reflect these lower costs. As a result, private plans will get overpayments amounting to an additional 3.47 percent in 2005 — another $1.7 billion. Over a 10-year period, total overpayments could build to more than $83 billion.

In light of this information, the Medicare Rights Center (MRC) — an advocacy group based in New York City — recently considered what else $83 billion could buy for the Medicare program. "It could eliminate the 24-month waiting period for nearly a million people with disabilities waiting for Medicare," MRC says. "Or, it could help fill in the 'donut hole' that will force people with the new Part D drug benefit to pay over $3,600 out-of-pocket every year before getting comprehensive drug coverage."

BETTER WAYS. According to MRC (and AFSCME agrees), there are much better ways to invest billions of dollars than to lavish them on private insurance companies and prop up a Medicare privatization model that dissatisfies consumers, fails to contain costs and disguises confusion as "choice."

Vicki Gottlich, of the Center for Medicare Advocacy (CMA) in Washington, D.C., says the overpayments have to be considered in the context of President Bush's original plan to offer drug coverage only to beneficiaries who join managed care plans. He didn't succeed in that effort to give private plans a competitive advantage, she says, but if HMOs end up displacing traditional Medicare, the effect will be the same.

"Congress is giving so much money to HMOs, it's really achieving President Bush's policy in a very underhanded way," she says.

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