Guess Who Would Benefit From Privatizing Medicare?

by Wendell Potter on June 4th, 2012

Insurers and their buddies want private profits at our expense, not real reform.

If you think the idea of privatizing Medicare has gone away, that the health insurance industry has thrown in the towel on one of its biggest goals, there was fresh evidence last week that you would be wrong.

As I wrote more than a year ago — when Rep. Paul Ryan (R.-Wis.) unveiled his plan to replace the Medicare system with one that would essentially be run by private insurers — Democrats would be foolish to think that Ryan couldn’t get the public to support the concept.  I noted then that insurers would be investing heavily in efforts to convince people that Ryan’s plan represented the only way to save the Medicare program from insolvency.

One of the tried-and-true tactics insurers have used many times to influence public opinion is the enlistment of “third-party advocates” to disseminate industry talking points. Last week an industry friend in high places — Thomas Scully, who headed the Medicare program during much of the George W. Bush administration — weighed in on the matter. It is only a matter of time, Scully told Kaiser Health News, before politicians on both sides of the aisle endorse Ryan’s proposal of providing Medicare beneficiaries with a set amount of money every year to buy coverage from private insurers.

Scully, now senior counsel at Alston & Bird, the big law and lobbying firm that has represented some of the country’s biggest health insurers, including WellPoint and Cigna, is advocating a gradual phase-in of the Ryan plan, similar to how the recent changes in Social Security came about.

“The retirement age of Social Security is 66 now [67 for those born after 1959]. Nobody noticed because it happened one [month] at a time for 12 years,” Scully said in the interview with Kaiser Health News. “You need to do the same thing for Medicare. You need to gradually move it to a premium support model so it looks more like the Federal Employee Retirement Program. You’re not limiting spending. You’re putting it under some kind of a rational, non-open ended fee-for-service entitlement. That’s going to have to happen.”

It was during the Bush administration that insurers persuaded lawmakers to allow them to administer the new Medicare Part D prescription drug program, which Scully noted is a kind of premium-support arrangement, with taxpayer dollars going straight to private insurers. Scully was a leading advocate of that approach, which has turned out to be, as I knew it would, a major source of new income for the companies I used to work for (Humana and Cigna) and the other insurers that participate in the Part D program.

“Premium support is Part D,” Scully said. “When we designed Medicare Advantage, [the private health plan program in Medicare] it was premium support … That is a reasonable way to fix the Medicare program, phased in over the long term. …”

Yes, Scully also played a key role in designing the Medicare Advantage program, with a lot of input from the insurance industry. Like Part D, it has turned out to be a revenue bonanza for insurers and has contributed in no small way to the record profits many of them have posted in recent years.

One of the reasons for that is because the Bush administration and the industry’s Congressional pals rigged the program to all but guarantee impressive profits for private insurers.

To entice insurance firms to participate in the Medicare Advantage program, the federal government promised them a sizable bonus every year in the form of overpayments. And boy oh boy have those overpayments been sizable.

In 2009, the Medicare Payment Advisory Commission (MedPAC), which advises Congress, reported that those bonuses were costing Medicare (read: taxpayers) billions of dollars every year. It estimated that in 2009 alone, Medicare would pay private insurers 14 percent more per beneficiary than it would cost the government to cover those beneficiaries in traditional Medicare. Between 2004 and 2008, the overpayments totaled nearly $33 billion, according to MedPAC.

During the debate on health care reform, the Congressional Budget Office estimated those overpayments would total $157 billion over the coming decade. As a consequence of these overpayments, according to the Centers for Medicare and Medicaid Services (CMS), premiums for all Medicare beneficiaries, including those enrolled in traditional Medicare, are higher than they otherwise would be. Not only that, the Medicare Hospital Insurance Trust Fund will become insolvent 18 months earlier than it would otherwise because of those overpayments, according to Congressional testimony by CMS’ chief actuary. That’s why, despite intense lobbying by the insurance industry, Congress inserted a provision in the Affordable Care Act to eventually phase out those overpayments. As you can imagine, the industry is lobbying Congress hard to strip that provision out of the law.

Expect to hear many other allies of the insurance industry join Scully in telling us that privatizing Medicare has to happen, that it is the only way to make sure the program will be around for future generations. As you listen to that rhetoric, remember how their bright ideas from the past have served to enrich insurers and their shareholders at the expense of the rest of us.

Wendell is a Senior Analyst at the Center for Public Integrity where this first appeared on 6/4/2012.

{ 3 comments… read them below or add one }

Mark June 5th, 2012 at 11:33 am

So what can I do as one citizen, to spin back against the industry? does writing letters to the editor help?

Jennifer Bismack June 12th, 2012 at 11:15 am

I would love to do a video chat with you. I was diagnosed last year and understand the struggle with the costs of healthcare.

I also, am frustrated by federally & grant funded organizations & businesses that are paid to help people and do just the opposite. I am interested in doing a documentary. I have been fortunate to find a few places that are allowing me to help the public in their space. I think this is great for the hospitals that let me in because it shows people before profit. At the same time they may come aware of other services that are free or insurance covers in other areas. However, I have had no luck with getting published to promote what we do.

Tom June 27th, 2012 at 10:02 pm

While I’m sure you don’t need the validation, I completely agree with your assessment. I’ve been a lifelong conservative and I am appalled that, as a country, we have neither recognized basic health care as a right for all citizens nor have we found the soul to design a system which can bring out reasonable solutions to the health care dilemma this country faces. No one is looking out for the people of this country. There is absolutely no excuse for medical costs to increase in double digits year after year and especially not during the our current recession. Insurers have little real incentive to reign in provider costs – why would they when every dollar of increased provider cost translates into additional premiums and profits for them without any sales effort? A great business when you can grow it 10% or more every year without needing to add a single new customer.

Our current health care system is disgusting.

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