The Medicare Advantage disadvantage

Aside from social issues, maybe no government policy arena more starkly depicts the chasm between the political right and the political left than health care.

It’s particularly evident with the prescriptions for changes to Medicare.

Medicare, as all of us more mature types know, provides health care for Americans 65 years of age and older, and also for the disabled. It was signed into law in 1965 by President Lyndon Johnson, who had pushed for its enactment.

Basic Medicare is not free, nor does it cover all health care costs.

Social Security recipients, up to now, have been required to sign up for Medicare Part A, which covers hospitalization. Money is withheld every month from Social Security recipients’ checks to pay Part A premiums.

Part B of Medicare pays 80 percent of recipients’ costs for doctors and related providers. To cover the remaining 20 percent of doctor costs, many Medicare recipients also buy private Medigap coverage to handle those gaps plus other coverage.

Prescription drugs are covered by Medicare Part D policies.

There are innumerable differences among private policies, including coverage, deductibles, co-pays and other factors.

Two-thirds of Medicare recipients carry Basic Medicare coverage. The other third elect Medicare Advantage, which combines into a single policy the coverages of both Part A and Part B, and sometimes Part D. Medicare Advantage policies are the Part C portion of Medicare.

Medicare Advantage policies are private insurance rather than government insurance. They offer both advantages and disadvantages.

Because Medicare Advantage is private insurance, conservatives would like to make it more attractive than Basic Medicare to American senior citizens. Early this month, President Trump signed an executive order to do just that.

Among the attractions of Medicare Advantage policies is the fact that its premiums are usually less expensive than Part A plus add-ons to Basic Medicare. 

But Medicare Advantage plans cover people only for services from providers in a plan’s provider network, and usually cover only services in an enrollee’s home market. Seniors with Basic Medicare are covered for care anywhere in the U.S. from participating Medicare providers.

Medicare Advantage plans are also permitted to offer coverage denied to Basic Medicare, such as limited dental, hearing and vision coverage. President Trump’s executive order allows those plans more flexibility and boosts the use of telehealth.

Medicare Advantage is often favored by healthy seniors with comfortable incomes. 

It also benefits insurance companies.

The Kaiser Family Foundation found that private insurers make gross profits of more than $1,600 per Medicare Advantage customer, nearly double their margin from individual and employer plans.

Trump’s recent executive order no longer requires Social Security recipients to also enroll in Medicare Part A. By so doing, it frees up seniors who have Health Savings Accounts (HSAs) to use those accounts for private hospitalization costs.

Bottom line: Trump’s order is aimed at encouraging Medicare recipients to switch from Basic Medicare policies into Medicare Advantage policies.

For rural America, however, it can be a problem.

That’s because in some rural areas, Medicare Advantage policies are not available. And as Basic Medicare premiums potentially rise due to the new regulations, rural residents will have no alternative but to pay the higher premium cost.

In contrast to conservatives’ push to shift Medicare recipients toward private coverage, most congressional Democrats hope to increase government involvement in health care. A number of Democratic members of Congress, and several Democratic presidential candidates, favor so-called Medicare for All. 

Not all Democrats are on board with that recommendation. But a plan announced in mid-September by Nancy Pelosi, Democratic Speaker of the House, by contrast, is likely to attract the support of most Democrats, and maybe some Republicans as well.

Pelosi’s plan aims to reduce Medicare prescription drug prices by allowing Medicare to negotiate prices for seniors and some others.

Under the proposal, Medicare would bargain the price of between 25 and 250 of the costliest drugs. Insulin is on the list. Stiff penalties would be levied on drugmakers that refuse to negotiate, and manufacturers whose price increases exceed inflation would have to pay rebates to Medicare.

Copays of Part D drug plans would be limited to $2,000 a year. The negotiated drug prices would also be available to employer health plans.

When Part D was created by Congress in 2003 to provide Medicare drug coverage, price negotiations were forbidden. Pelosi’s plan would remove that ban.

The rebate provision, and the out-of-pocket limit of $2,000, are similar to requirements proposed in the Senate by Iowa Republican Sen. Chuck Grassley and Oregon Democratic Sen. Ron Wyden.

But Republican Sen. John Cornyn of Texas said the proposal “has absolutely no chance — zero, zip, nada.”

And some House Republicans, of course, call it “socialism.”

The sharp contrast between Trump’s proposal and Pelosi’s plan probably indicates that agreement between the parties is not achievable. But polls show most American seniors demand health care cost relief, particularly on prescription drugs. 

It’s hard for those who call for the market to set prices to support the current drug price situation, with the same drugs manufactured by the same pharmaceutical companies costing a small fraction of the going U.S. price in other nations.

The market’s obviously not doing its job under those conditions.

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