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The same 2003 law that gave seniors Medicare prescription drug benefits also dramatically expanded their options to join private health plans. The idea was that private plans would spend Medicare dollars more efficiently and save taxpayers' money.
But as NPR's Julie Rovner reports, those savings haven't materialized, and now some lawmakers are calling for cuts.
JULIE ROVNER: Mark McClellan, who recently stepped down as head of the Medicare program, is a big believer in the power of private managed care plans to improve both the health of Medicare's patients and its long-term finances. He says these so-called Medicare Advantage plans are working.
Dr. MARK McCLELLAN (Administrator, Centers for Medicare and Medicaid Services): They are achieving higher rates of use of preventive services, improving compliance to prevent complications of chronic diseases, keeping beneficiaries healthier.
ROVNER: Private health insurance plans had been part of Medicare since the 1970s, and payments the government makes to those plans have varied. At one point, plans were paid 95 percent of what the average patient cost in tradional government-run Medicare. The theory was that if the plans really were more efficient, they should be able to provide quality care for less money.
Really efficient plans would even have money leftover to provide extra benefits, like coverage of eyeglasses or hearing aids that regular Medicare didn't cover. Republicans who wrote the 2003 Medicare law hoped to get more insurance companies to offer those private plans, so they boosted the payments. Congressional Budget Office director Peter Orszag reported the result to the House Budget Committee yesterday.
Mr. PETER ORSZAG (Director, Congressional Budget Office): The Medicare's payments for beneficiaries enrolled in Medicare Advantage Plans are higher on average than what the program would spend if those beneficiaries were in the traditional fee for service program.
ROVNER: In fact, the cost for those private plans averaged 12 percent higher. Put another way, the nearly one in five Medicare patient who were enrolled in of those private insurance plans each cost taxpayers an extra thousand dollars a year. And Mark Miller, executive director of the Medicare Payment Advisory Commission, reminded lawmakers that not all of that extra money goes to the patients.
Mr. MARK MILLER (Executive Director, Medicare Payment Advisory Commission): Part of those dollars go to admin, marketing and profit.
ROVNER: At the same time, said Patricia Neuman of the Kaiser Family Foundation, while the private plans' main selling point is that they save beneficiaries' money, that's not always the case either.
Ms. PATRICIA NEUMAN (Kaiser Family Foundation): Some Medicare Advantage Plans impose daily hospital co-pays, daily co-pays for home health visits, and daily co-payments for the first several days in a skilled nursing facility, unlike traditional Medicare.
ROVNER: Meanwhile, said budget director Orszag, Medicare could save money, a lot of money, if Congress simply reduce private-plan payments back to the same amount that government spend on the average patient in traditional Medicare.
Mr. ORSZAG: That policy would reduce spending by $54 billion over the next five years, and $150 billion over the next 10 years.
ROVNER: Democrats are already eyeing those billions of dollars. Instead of giving it to private health insurance companies, they'd like to spend it to expand the State Children's Health Insurance Program.
But Republicans like Paul Ryan of Wisconsin say that would be a mistake.
Representative PAUL RYAN (Republican, Wisconsin): And given that this is the Budget Committee, I think we ought to, at least, entertain the notion that if we're going to create savings in some program, we ought to actually save the money. Taking from one entitlement just to expand another one will not address any budgetary concerns.
ROVNER: Democrats are also running into resistance from the insurance industry, which likes its profits, and from President Bush. The children's health bill and the Medicare cuts expected to pay for it, are likely to come up next month.
Julie Rovner, NPR News, Washington.