Back to the wonkshop

Sigh. Despite the fecklessness of it all, I shall again take up the banner of health policy as is my mission.

One reason conservatives, or whatever those people ought to be called, are actually mad at the White House Occupant is that he supposedly betrayed God's command to send old and poor people out into the woods to die by championing the Medicare prescription drug benefit. You may have heard that the 2003 Medicare reform package actually provided a windfall to the drug companies by forbidding Medicare to bargain with them over price and farming out the drug benefit to private companies. True enough, but you may not know that it also squanders your money in another way.

Since 1983, Medicare has included an option to enroll in managed care programs. The way these plans work is that Medicare pays insurance companies a fixed amount for each enrollee, which is supposed to be a bit less than the average cost per Medicare beneficiary. The idea is that the plans could provide the care for less by limiting choice of providers, paying their provider panel members a bit less in return for a guaranteed level of business. They would also, obviously, "manage" their care, assuring that cost effective procedures were used. People would join these plans because they could offer a bit more to the consumer -- such as prescription drug coverage -- while keeping their costs down. In the middle was their profit.

The problem with this idea is that, (and if you've been reading Stayin' Alive for a whiel you guessed it), it's mostly the younger, healthier beneficiaries who sign up, because of targeted marketing, and because peope who need less care are less bothered by the limited choice of physicians. As a result of this "cherry picking," the people enrolled in managed care plans actually would cost Medicare less if they were in the standard fee-for-service program, while the fee-for-service program (which still serves the large majority of beneficiaries) is stuck with the older, sicker, and more expensive beneficiaries. In other words, the plans waste taxpayer money and siphon it into the profits of insurance companies and the salaries of their executives.

So, what did the Medicare Modernization Act do about this problem? Again, you should have guessed by now: it raised the reimbursement rate for Medicare Managed Care plans. Now we overpay for enrollees in these plans by 11% -- that's $4.6 billion of your money every year, almost enough to kill people in Iraq for two weeks.

You don't have to take my word for, Families USA has the lowdown here. (PDF)