Widening The Gap: The Political History of Medicare Advantage and its Implications for Medicare-For-All
Samantha Habel Department of Political Science May 6, 2020
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ACKNOWLEDGEMENTS
I’d like to thank Professor Burke for putting up with me nearly every semester for the last three years, and taking time out of sabbatical to advise me on this project. Thanks to Mom and Dad for putting up with my ranting, and Andy for always claiming to be the smart twin. And to Hannah, for stressing about the T-word with me for the last year.
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Table of Contents
Chapter 1: Introduction ...... 4
Chapter 2: The History of Medicare’s Private/Public Partnership ...... 6
Chapter 3: The Medicare Modernization Act ...... 13
Chapter 4: Implementation ...... 26
Chapter 5: Conclusion……………………………………………………………………………36
3 Introduction
In 1965, the creators of the Medicare program had a clear goal in mind: creating a universal health care system for seniors that would be the same for each enrollee regardless of income. But one small policy in the program, intended to be a transitional tool, has become entrenched and has stratified Medicare. That policy, Medicare Advantage (MA), is a marketplace of private insurance plans that seniors can opt to enroll in, often for a small premium, as an alternative to traditional Medicare. Unlike Medicare, these plans can offer an array of benefits such as coverage for dentistry, eyeglasses, and other specialized care services that traditional
Medicare does not cover. These plans have become wildly popular, growing to cover over one- third of the Medicare population in 2018.1
At the same time, Medicare has become the template in 2020 for the future of the
American healthcare system. Championed by Senator Bernie Sanders (I-VT), Medicare for All has become a popular policy choice among Democrats, and it would provide universal coverage for all Americans with no direct costs. However, Democrats do not agree on one major piece of the Medicare for All puzzle: whether or not to eliminate private insurance entirely. Sanders wants to abolish private insurance, and he has expressed that private insurance cannot possibly exist in a universal coverage model: “There is a reason why the United States is the only major country on earth that allows private insurance companies to profit off of health care. The function of private health insurance is not to provide quality care to all, it is to make as much
1 Gretchen Jacobson, Anthony Damico, and Tricia Neuman, “A Dozen Facts About Medicare Advantage,” Kaiser Family Foundation, November 13, 2018, https://www.kff.org/medicare/issue-brief/a-dozen-facts-about-medicare- advantage/.
4 money as possible for the private insurance companies, working with the drug companies.”2 But some Democrats don’t see this as the right move, opting to retain private insurance in a universal health care system and integrate the two systems. Another party notable, Senator Kamala Harris
(D-CA), has endorsed the latter approach, stating, “"I am supportive of a Medicare for All policy, and under a Medicare for All policy, private insurance would certainly exist for supplemental coverage.”3 Support for retaining private insurance comes from multiple political angles, with many politicians worried about health insurance employees losing their jobs and the fact that few nations with universal health systems eliminate private insurance.4
The relationship between Medicare Advantage and traditional Medicare can show us some of the implications of what a vision of private insurance in a government health care program could look like, and what some of the difficulties could be in eliminating private insurance and strictly having a Medicare for All system. This thesis will examine that relationship: Chapter Two will investigate the history of private insurance presence in Medicare,
Chapter Three will explore the policy that formalized Medicare Advantage in 2003, and Chapter
Four will examine the implementation and growth of the program. Finally, Chapter Five will explore the implications of Medicare Advantage’s existence for a potential Medicare for All system.
2 Reed Abelson and Margot Sanger-Katz, “Medicare for All Would Abolish Private Insurance. ‘There’s No Precedent in American History.,’” The New York Times, March 23, 2019, https://www.nytimes.com/2019/03/23/health/private-health-insurance-medicare-for-all-bernie-sanders.html. 3 Tami Luhby, “Fact Check: Kamala Harris Says Private Insurance Will Exist under ‘Medicare for All.’ True?,” CNN (blog), June 28, 2019, https://www.cnn.com/2019/06/28/politics/harris-medicare-for-all-supplemental- insurance/index.html. 4 Reed Abelson and Margot Sanger-Katz, “Medicare for All Would Abolish Private Insurance. ‘There’s No Precedent in American History.,’” The New York Times, March 23, 2019, https://www.nytimes.com/2019/03/23/health/private-health-insurance-medicare-for-all-bernie-sanders.html.
5 Chapter 2: The History of Medicare’s Public/Private Relationship
Since its inception in 1965, Medicare’s history is a study in expansion. The program’s umbrella has continued to grow wider and wider, covering more medical services and many different programs within the greater Medicare system. Medicare’s legislative and programmatic history is marked by continued growth and bipartisanship until the 1990s, when attempts at cutbacks and privatization took hold in the Republican party and translated to hybridized compromises in the Clinton Administration. This chapter explores that legislative history and the attempts to introduce privatized forms of Medicare coverage into the traditional program.
Medicare 101
In Medicare’s original design, Americans over 65 are compulsorily enrolled in a government run health insurance program. Unlike an insurance plan that someone may receive from their job, Medicare does not approve specific hospitals and doctors for a patient to access with their insurance, unlike a traditional provider network. Providers are instead compensated a fee for each service they perform for a patient, whether that be a test, an annual physical, a surgery, etc. These fees are set for each individual service based on an average relative price of each service recommended by doctors and adjusted based on geographic and administrative factors for some services, and based on hospital classifications of patients by similar characteristics of care and treatment costs.56 This varies from other kinds of health insurance
5 Juiliette Cubanski et al., “A Primer on Medicare: Key Facts About the Medicare Program and the People It Covers,” Kaiser Family Foundation (blog), March 20, 2015, https://www.kff.org/report-section/a-primer-on- medicare-how-does-medicare-pay-providers-in-traditional-medicare/. 6 Simcha B. Rimler, Brian D. Gale, and Deborah L. Reede, “Diagnosis-Related Groups and Hospital Inpatient Federal Reimbursement,” RadioGraphics 35, no. 6 (October 2015): 1825–34, https://doi.org/10.1148/rg.2015150043.
6 payment systems such as capitation, in which insurers receive a payment per enrollee regardless of whether they utilize care. It is important to note that much of the actual bureaucratic work involved processing provider payments for Medicare are contracted out through private insurance companies, intertwining much of the relationship between private insurance and government insurance.7
Medicare does not cover all services. Starting in 1965, Medicare Part A covered hospital care, skilled nursing care, hospice care, and at home health care, while Medicare Part B covered doctor’s visits, X-rays and tests, psychiatric care, and some outpatient services.8 When passed in
1965, the legislation was intended to create an insurance program for the elderly that was the same for every patient regardless of income. Some original advocates and creators of the
Medicare program saw it as the most politically feasible wedge to begin to create and expand a universal health care system for all Americans.9 Because Medicare Part A and Part B do not cover all services, an industry of supplemental insurance called Medigap grew in which people could purchase small insurance plans that cover some additional costs like Medicare co- payments and foreign travel, but not benefits like prescription drugs, hearing aids, or eyeglasses.10 These Medigap plans have a monthly premium which makes them inaccessible to low-income seniors. Some low-income seniors may be eligible to be covered by Medicaid, the government run health care program for low-income Americans, and this program also pays the fees associated with Medicare Part B for these dual eligible seniors.
7 Steven Brill, “Bitter Pill: Why Medical Bills Are Killing Us,” Time Magazine, February 23, 2013. 8 Jonathan Oberlander, The Political Life of Medicare, American Politics and Political Economy (Chicago: University of Chicago Press, 2003). 9 Oberlander, “The Political Life of Medicare,” 32. 10 “What Is Medicare Supplemental Insurance? (Medigap),” Medicare.Gov (blog), n.d., https://www.medicare.gov/supplements-other-insurance/whats-medicare-supplement-insurance-medigap.
7 Private Insurance Presence in the Original Design
In the original design of the Medicare program, the Johnson Administration wanted to avoid disrupting the employer insurance system that already existed while transitioning seniors into Medicare. Up to that point, many employers sponsored health care plans as a part of retirement packages for employees. To make this transition easier, the Administration offered a compromise: health maintenance organizations (HMOs) were established that would still be tied to an employer, but would offer Medicare benefits to eligible retired employees, and were paid for by the same joint contribution model on which employer-sponsored insurance is based, or companies would submit bills directly to Medicare’s billing center.11 These kinds of joint employer-Medicare programs offered benefits that were part of the original employer plans but may not be covered by Medicare.12 These programs were not held to strict regulations. The
Nixon Administration passed the Social Security Amendments of 1972, which more generally expanded Medicare eligibility to those under 65 with long-term disabilities and end-stage renal disease. It also specifically addressed the lack of HMO regulation by establishing Professional
Standards Review Organizations (PSROs) which were responsible for oversight of these HMOs as well as programs to encourage enrollment in HMOs. This legislation also authorized the
Medicare program to begin to conduct demonstration programs to explore alternate ways of delivering Medicare benefits to patients.13 Nixon himself was interested in changing the way that government health care could be delivered, seeking ways to insure especially low-income
11 Robert A. Berenson and Bryan E. Dowd, “Medicare Advantage Plans At A Crossroads—Yet Again: The Experience with Private-Plan Contracting Shows That Assuring Stable Plan Choices and Extra Benefits Requires Extra Money.,” Health Affairs 27, no. Suppl1 (January 2008): w29–40, https://doi.org/10.1377/hlthaff.28.1.w29. 12 Robert A. Berenson and Bryan E. Dowd, “Medicare Advantage Plans At A Crossroads—Yet Again: The Experience with Private-Plan Contracting Shows That Assuring Stable Plan Choices and Extra Benefits Requires Extra Money.,” Health Affairs 27, no. Suppl1 (January 2008): w29–40, https://doi.org/10.1377/hlthaff.28.1.w29. 13 “Medicare Timeline,” Kaiser Family Foundation, March 24, 2015, https://www.kff.org/medicare/timeline/medicare-timeline/.
8 people. He even proposed a Medicaid buy-in option, but also sought to use the private sector to deliver coverage.14 This may explain some of Nixon’s push for demonstration projects. Many of these original demonstration projects were aimed at seeing whether Medicare HMOs would be able to work if they were given a prospective capitation per patient as opposed to a retrospective payment system, as it had been functioning until that point.15
Private Medicare Plans and the GOP’s Eyes on the Prize
The next major change to the way that private insurance fed into Medicare happened during the Carter Administration. The Social Security Disability Act and its Baucus Amendment, named for Senator Max Baucus, passed in 1980, sought to regulate Medigap insurance plans, and brought these plans under federal oversight.16 These were distinct from the original Medicare
HMOs, which acted as an alternative to traditional Medicare.
In 1982, Medicare HMO enrollment represented only two percent of all Medicare enrollees. The same year, the Reagan Administration passed the Tax Equity and Fiscal
Responsibility Act (TEFRA). This legislation, amongst other changes to traditional Medicare, created a new system in which Medicare would pay the private insurance companies a risk-based prospective payment model which would become the model that later private insurance programs use in Medicare + Choice and Medicare Advantage.17 This was distinct from the original way that the Medicare HMOs functioned, as the original HMOs either operated on a cost per capita
14 Shanoor Seervai and David Blumenthal, “Lessons on Universal Coverage from an Unexpected Advocate: Richard Nixon,” Commonwealth Fun (blog), November 2, 2017, https://www.commonwealthfund.org/blog/2017/lessons- universal-coverage-unexpected-advocate-richard-nixon. 15 T. W. Galblum and S. Trieger, “Demonstrations of Alternative Delivery Systems under Medicare and Medicaid,” Health Care Financing Review 3, no. 3 (March 1982): 1–11. 16 “Medicare Timeline.” 17 “Medicare Timeline.”
9 basis paid jointly by the employer and beneficiary or by submitting bills directly to Medicare.18
Under TEFRA, an insurance company would bid for a certain capitated cost per enrollee. If the company's payments to providers were less than its costs, it could create additional benefits per enrollee.19 Instead of a retrospective payment, insurance companies received a capitation based on the counties they served, given the age, sex, and welfare status of the Medicare-age population in the county.20 This was the last major piece of legislation that directly addressed the use of private insurance in delivering Medicare benefits before the creation of Medicare +
Choice.
There were attempts made at privatizing the Medicare system that also laid part of the groundwork for what would later become Medicare Advantage. After the failed efforts of the
Clinton Administration to enact sweeping health care reform, Republicans saw the looming issue in healthcare as Medicare’s possible imminent demise: similar to their common refrain on Social
Security reform, Republicans warned that unless major change to the program occurred the
Medicare trust fund would run out and the program wouldn't be able to be sustained into the 21st
Century. Instead of trying to cut the program’s funding or benefits, Republicans wanted to attempt to fundamentally alter the program’s structure. In 1995, the Republican-held House of
Representatives led by Newt Gingrich attempted to create a private Medicare marketplace to replace the traditional system entirely. Gingrich and his fellow Republicans proposed through the
Medicare Preservation Act to use managed care strategies and private insurance as a way to cut overall government spending without cutting the benefits that seniors were already receiving
18 Berenson and Dowd, “Medicare Advantage Plans At A Crossroads—Yet Again.” 19 Berenson and Dowd. 20 J. William Thomas et al., “Increasing Medicare Enrollment in HMOs: The Need for Capitation Rates Adjusted for Health Status,” Inquiry 20, no. 3 (Fall 1983): 227–39.
10 under Medicare parts A and B.21 In the minds of many health policy analysts at the time, it was not unreasonable for Republicans to sound the alarm bell on Medicare’s future. With the baby boomer generation reaching Medicare eligibility age, the program would have to absorb an unprecedented number of beneficiaries, leaving it vulnerable if unchanged. Due to the Baby
Boomer’s generational aging, the number of enrollees in the program was set to nearly double between 1995 and 2010.22 But it is important to note that this is not the first time that Medicare had come close to a crisis point: the program had gone multiple times through a cycle of growing, coming close to running out of money, and then receiving a political fix. While the
Baby Boomers represented a larger challenge, it was not an unexpected nor an unfamiliar problem for the program.23
What sets this “Medicare Crisis” apart from previous cycles of crisis is the particular moment it came to a head. This point in 1995 marks a major change in the politics surrounding
Medicare. This clash in 1995 over the future of Medicare represents one of the earliest partisan divisions in Medicare politics, as the program had received overwhelmingly bipartisan support since its enactment in 1965, and had seen expansions of benefits under both Democratic and
Republican administrations. But the overall partisan division of the 1990s and Gingrich’s desire to cut entitlements and cut Medicare spending gave the new proposal a partisan bent, especially after the failure of Clinton’s 1994 health care plan. When the 1995 Medicare reform plan was announced, both sides of the aisle accused the other of forsaking the health and wellness of seniors for their own political agendas. Democrats accused Republicans and Gingrich of selling out to health care interests, and Senator Ted Kennedy (D-MA) said of the plan, “the Republican
21 J. William Thomas et al., “Increasing Medicare Enrollment in HMOs: The Need for Capitation Rates Adjusted for Health Status,” Inquiry 20, no. 3 (Fall 1983): 227–39.The Political Life of Medicare. 22 Oberlander, “The Political Life of Medicare,” 74. 23 Oberlander, “The Political Life of Medicare,” 74-75.
11 Medicare plan may be heaven for the health insurance industry, but it is hell on senior citizens.”24 Republicans claimed that Democrats were just trying to scare seniors for political clout, and in reality the program was a doomed “dinosaur” that would crash and become insolvent if it wasn't overhauled.25 This stark partisan divide over Medicare would become pervasive after 2000, and Gingrich’s leadership of the Republican party set the stage for the upcoming agendas of sweeping privatization.
24 Oberlander, “The Political Life of Medicare,” 3. 25 Oberlander, “The Political Life of Medicare,” 3.
12 Chapter 3: The Medicare Modernization Act
The advent of the Medicare Advantage program came as part of a larger package that focused generally on creating a prescription drug benefit. The years between 1997 and 2003 marked the biggest changes to the Medicare private market since 1982. Republicans managed to pass an unpopular program that fundamentally altered the administration of Medicare behind a
Trojan Horse of helping seniors save money on their prescriptions.26
The Clinton Years: Agenda Setting for Prescription Drugs
The agenda for modern Medicare reform began to be set during the Clinton
Administration. After failing to pass a major health care reform package in 1994, the
Administration made changes to the Medicare program that pushed the program closer to a privatized system. At this point, less than twenty percent of Medicare enrollees were enrolled in private Medicare HMOs.27 The managed care plans that existed in The 1997 Balanced Budget
Act adjusted the Medicare reimbursement formula that reduced payments to managed care plans as well as creating Medicare Part C (also known as the Medicare+ Choice program). This program allowed seniors to sign up for health maintenance organizations and point-of-sale plans to deliver the benefits that seniors would normally receive through Medicare Parts A and B, as well as some extra benefits not covered by traditional Medicare. These private plans included
26 Andrew Kelly, “Boutique to Booming: Medicare Managed Care and the Private Path to Policy Change,” Journal of Health Politics, Policy and Law, 41, no. 3 (June 1, 2016): 315–54, https://doi.org/10.1215/03616878-3523934. 27 Gretchen Jacobson, Anthony Damico, and Tricia Neuman, “A Dozen Facts About Medicare Advantage,” Kaiser Family Foundation, November 13, 2018, https://www.kff.org/medicare/issue-brief/a-dozen-facts-about-medicare- advantage/.
13 provider-sponsored plans, medical savings accounts, commercial fee-for-service plans, and many more managed care plans that had been previously utilized in pilot programs.28
Much of the framing of Medicare issues during the 1990s that the government was relying on an antiquated system by still utilizing fee-for-service plans that could be subject to overuse. Many politicians and health policy experts were concerned about the future of
Medicare, and particularly Republicans harped on the fact that the program had the potential to run out of money and become insolvent.29 Creating a private marketplace system was a way to innovate while moving people off of an old system.30 The BBA also attempted to curb Medicare spending by cutting $115 billion dollars of program funding over five years.31 The Clinton
Administration continued to focus on healthcare, leaning more towards privatization and market- based solutions, catering mostly to moderate Democrats.
In 1998, members of Congress convened the National Bipartisan Commission on the
Future of Medicare, which was tasked with considering what to do about the at-risk Medicare trust fund and how to innovate Medicare for the 21st century. The Clinton Administration had proposed a “managed competition” way of reforming the health care system in 1994, and entertained the possibility of private insurers being a solution to solve growing health care costs.
The commission was composed of 17 people from Congress, the Clinton Administration, and private sector representatives, and the committee met together for nearly a year. Members debated Medicare privatization as well as less popular ideas like raising the Medicare age from
28 Jonathan Oberlander, The Political Life of Medicare, American Politics and Political Economy (Chicago: University of Chicago Press, 2003), 177. 29 Oberlander, 3. 30 Oberlander, 105. 31 Oberlander, 178.
14 65 to 67.32 The committee was chaired by Louisiana Democratic Senator John Breaux, a conservative Democrat who had previously pushed for Medicare privatization, and support for this kind of reform was largely bipartisan, with institutions like the Heritage Foundation and the
Brookings Institution throwing intellectual weight behind the idea.33 The final plan to come out of the commission included a private Medicare marketplace where enrollees could opt in to private Medicare plans with extended benefits. However, Breaux’s final plan did not get the votes to be approved by the commission because Clinton appointees on the committee insisted that a universal prescription drug benefit be added to the proposal.34 In the summer of 1999,
Clinton himself came out against the privatization aspect of the Breaux plan and moved distinctly leftward in his healthcare politics, possibly to shore up support during a tough stretch in his presidency.35 This breaking point in negotiations shifted attention away from market-based solutions and toward Medicare prescription drug benefits as the primary focus of health care reform.
The final years of the Clinton Administration saw a large budget surplus, and in his 1999
State of the Union address, Clinton proposed using much of this budget surplus to reform
Medicare and cover prescription drugs as a part of traditional Medicare benefits. In a departure from his 1993 health care plan, Clinton proposed using private insurers and pharmacy benefit managers to deliver these prescription drug benefits unlike traditional fee-for-service Medicare benefits.36 At the same time, multiple Democrats in the House of Representatives and Senate,
32 Adriel Bettelheim, “Q&A: The Last Time America Tried to Fix Medicare,” Politico, September 12, 2018, https://www.politico.com/agenda/story/2018/09/12/medicare-bipartisan-commission-hoagland-lemieux-000693. 33 Oberlander, 186. 34 Oberlander, 188-189. 35 Bettelheim, “Q&A: The Last Time America Tried to Fix Medicare.” 36 Thomas R. Oliver, Philip R. Lee, and Helene L. Lipton, “A Political History of Medicare and Prescription Drug Coverage,” The Milbank Quarterly 82, no. 2 (2004): 283–354, https://doi.org/10.1111/j.0887- 378X.2004.00311.x.https://doi.org/10.1111/j.0887-378X.2004.00311.xOliver, Lee, and Lipton.
15 including Ted Kennedy, Pete Stark, and Ted Allen, had introduced various plans to cover prescriptions under Medicare and reduce drug prices, and Clinton’s address helped bring prescription drug coverage to the top of the agenda for the impending presidential election.37
Prescription drugs had become more important to the wallets of seniors. Spending on prescription drugs was growing rapidly. During the 1990s, drug spending grew at an annual rate as high as seventeen percent. Americans were utilizing more prescription drugs overall as well as choosing newer and more expensive drugs.38 Prescription drug costs began to represent more of the overall health care expenditures in the country, growing from 12 to 20 percent of average health care spending per person between 1996 and 2003, and the average yearly cost of prescription drugs nearly doubled.39 In 2001, nearly 25 percent of seniors spent more than $100 monthly on prescription drugs, and nearly half of seniors without any prescription drug coverage spent more than $100 on drugs every month.40 Coverage also varied significantly amongst seniors; studies showed that among some states like Michigan, nearly half of seniors had employer-sponsored prescription drug coverage, whereas in states like California that kind of employer-sponsored coverage was much less likely.41
The focus on Medicare continued from the Clinton Administration into the new millennium. Because the budget surplus was still large, both candidates in the 2000 election were
37 Robert Pear, “Clinton’s Plan to Have Medicare Cover Drugs Means a Big Debate Ahead in Congress,” The New York Times, January 24, 1999, https://www.nytimes.com/1999/01/24/us/clinton-s-plan-to-have-medicare-cover- drugs-means-a-big-debate-ahead-in-congress.html.https://www.nytimes.com/1999/01/24/us/clinton-s-plan-to-have- medicare-cover-drugs-means-a-big-debate-ahead-in-congress.htmlPear. 38 LaFleur Joanne, Fish Leslie, and Diana I. Brixner, “Trends in Pharmaceutical Expenditures: The Impact on Drug Benefit Design,” American Health & Drug Benefits 1, no. 4 (May 2008): 29–34. 39 Samuel H. Zuvekas and Joel W. Cohen, “Prescription Drugs And The Changing Concentration Of Health Care Expenditures,” Health Affairs 26, no. 1 (January 2007): 249–57, https://doi.org/10.1377/hlthaff.26.1.249. 40 Dana Gelb Safran et al., “Prescription Drug Coverage and Seniors: How Well Are States Closing the Gap?,” Health Affairs (Project Hope) Suppl Web Exclusives (December 2002): W253-268, https://doi.org/10.1377/hlthaff.w2.253. 41 Safran et al.
16 given the opportunity to expand benefits. Both Al Gore and George Bush pushed for a Medicare prescription drug benefit, but while Gore proposed a voluntary benefit for low-income beneficiaries, Bush wanted to utilize private insurers to deliver a benefit, similar to Clinton.42
Health care and prescription drug reform became one of the major themes of the election, with
Medicare reform serving as the third most common congressional advertisement topic of the
2000 election cycle.43 As part of his campaign proposals, Bush put forward a plan that would offer extended benefits under Medicare, such as vision and dental plans, that would be offered either as part of traditional fee-for-service Medicare or through provider networks. Every plan would include a prescription drug benefit.44
The Early Bush Years: Private Plans and Deficit Growth
Once in office, Bush’s initial policy achievement was not related directly to health care, but would have major implications for the scope of the impending Medicare reform. The 2001
Bush tax cuts would serve to deeply exacerbate the federal deficit, eliminating the budget surplus that the Clinton administration had proposed to use for a Medicare drug benefit. The tax cuts reduced revenues by $74 billion in 2001 while the economy took a downturn, and that revenue collections were not as high as expected.45 Just months after the passage of the Bush tax cuts passed, the 9/11 terrorist attacks occurred and significant spending went to defense and
42 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.” 43 Morgan and Campbell, The Delegated Welfare State. 44 Medicare and Prescription Drug Reform (CSPAN, 2000), https://www.c-span.org/video/?159070-1/medicare- prescription-drug-reform. 45 Richard Kogan and Robert Greenstein, “The Disappearing 2001 Surplus: Tax Cuts, Budget Increases, and the Economy” (Center on Budget and Policy Priorities, August 28, 2001), https://www.cbpp.org/archives/8-22- 01bud3.htm.https://www.cbpp.org/archives/8-22-01bud3.htmKogan and Greenstein.
17 homeland security programs.46 These priorities both placed Medicare reform on the back burner and gave it a tougher budgetary constraint, but Bush’s shaky start to his presidency changed after
9/11 and his popularity skyrocketed, placing him in a unique position to propose and pass legislation with the American people behind him.47
Bush’s initial health care reform plan came in 2002. The administration proposed using block grants to help states subsidize low-income Medicare patients and catastrophic care, as well as using pharmacy benefit managers to help beneficiaries get discounts on prescription drugs.
This plan went virtually nowhere. A federal district court judge ruled that the Bush administration and the Center for Medicare & Medicaid Services did not have the legal authority to execute the discount drug plan without congressional action.48 Then in May of 2001, Senator
Jim Jeffords (VT) defected from the Republican Party, causing the G.O.P to lose its majority in the Senate, making further action on a bill more difficult .49 The public also rejected Bush’s plan for a privately administered plan, with bipartisan public support firmly landing behind a prescription drug benefit administered by traditional Medicare rather than through private means.50
Bush’s plan never came to fruition, and in May of 2002 Congress decided to pick up the mantle on prescription drug reform. House Republicans and Senate Democrats introduced
46 Anita Dancs, “Homeland Security Spending since 9/11,” Costs of War (Providence: Watson Institute of International and Public Affairs at Brown University, June 13, 2011), https://watson.brown.edu/costsofwar/costs/economic/budget/dhs.https://watson.brown.edu/costsofwar/costs/economi c/budget/dhsDancs. 47 “Presidential Approval Ratings -- George W. Bush,” Gallup, n.d., https://news.gallup.com/poll/116500/presidential-approval-ratings-george-bush.aspx. 48 Robert Pear and Elisabeth Bumiller, “THE PRESIDENT’S PROPOSALS: ON THE ROAD; Doubts Are Emerging as Bush Pushes His Medicare Plan,” The New York Times, January 30, 2003, sec. A. 49 David Stout, “Senator From Vermont Says He Is Leaving G.O.P.,” The New York Times, May 23, 2001, https://www.nytimes.com/2001/05/23/politics/senator-from-vermont-says-he-is-leaving-gop.html. 50 Thomas R. Oliver, Philip R. Lee, and Helene L. Lipton, “A Political History of Medicare and Prescription Drug Coverage,” The Milbank Quarterly 82, no. 2 (2004): 283–354, https://doi.org/10.1111/j.0887-378X.2004.00311.x.
18 competing plans to take on the rising cost of prescriptions for seniors. Both of these plans were created under constraint: Congress failed to pass a budget resolution for the previous year, so any plan had to work within the 350 billion dollar fund for Medicare reform.51 The House plan stayed within those budgetary constraints, but the Senate plan had a price tag of nearly 600 billion dollars. The following month, the House plan managed to pass during a late-night vote, but neither plan saw further movement with a Democratic majority in the Senate and a
Republican-led House.52
The tide changed for Republicans after the 2002 midterm elections when they won back the Senate and retained their House majority, and had an opportunity to finally implement some of the party’s privatization goals. This win for Republicans ran counter to trends often seen in first term presidencies where the presidential party tends to lose seats in Congress in the midterms as opposed to gaining them, and this gave Bush another chance to pass major legislation in his first term.53 In February of 2003, Bush introduced a new framework for a prescription drug benefit that relied heavily on private insurers to deliver the benefit, but punted the legwork to Congress.54 Part of this framework was a requirement for seniors to join HMOs, which Speaker of the House Dennis Hastert called “inhumane.”55 Without House Republicans on board the plan floundered. By the next month Bush had a much bigger problem on his plate:
51 Thomas R. Oliver, Philip R. Lee, and Helene L. Lipton, “A Political History of Medicare and Prescription Drug Coverage,” The Milbank Quarterly 82, no. 2 (2004): 283–354, https://doi.org/10.1111/j.0887-378X.2004.00311.x. 52 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.” 53 Adam Naguorney, “THE 2002 ELECTIONS: THE OVERVIEW; G.O.P. RETAKES CONTROL OF THE SENATE IN A SHOW OF PRESIDENTIAL INFLUENCE; PATAKI, JEB BUSH AND LAUTENBERG WIN,” The New York Times, November 6, 2002, sec. A. 54 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.” This framework essentially set aside $400 billion for discount cards for low-income patients and additional “catastrophic” coverage for prescription drug costs above $5500 per year. It also heavily focused on incentivizing beneficiaries to leave traditional Medicare for private plans. 55 Oliver, Lee, and Lipton.
19 in May of 2003, the U.S. military invaded Iraq and Medicare reform was temporarily placed on the back burner.56
In the summer, the prescription drug benefit saw a bipartisan revival in the Senate. Max
Baucus (D-MT) and Chuck Grassley (R-IA), the chairs of the Senate Finance Committee, introduced a centrist plan that made its way through the committee vote. The plan stipulated that the government would define standardized drug benefit program that would need to be adhered to by private insurers delivering the benefit.57 Unlike traditional fee-for-service Medicare, these private insurers would be able to deliver drug benefits and specialized care coverage through preferred provider networks and each region would have a public “fallback” plan, much like a public option.58 Freshman Senator Lindsey Graham called the plan a step toward “privatization of Medicare,”59 reflecting the administration’s overarching goal of privatization of healthcare and working slowly back toward the Clinton attempts at Medicare markets. At the end of June, the Senate passed the plan. During that same month, House Republicans, unhappy with how much the Senate plan would spend on the benefit, introduced their own version of the bill.60 Vice
President Cheney had to strong-arm some of the more moderate members to get the vote through, but only after a last-minute provision added health savings accounts to the bill.61
56 David Sanger and John Burns, “THREATS AND RESPONSES: THE WHITE HOUSE; BUSH ORDERS START OF WAR ON IRAQ; MISSILES APPARENTLY MISS HUSSEIN,” The New York Times, March 20, 2003, https://www.nytimes.com/2003/03/20/world/threats-responses-white-house-bush-orders-start-war-iraq- missiles-apparently.html. 57 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.” 58 Robert Pear and Robin Toner, “Senate Panel Adds Drug Benefits in Medicare Overhaul,” The New York Times, June 13, 2003, https://www.nytimes.com/2003/06/13/us/senate-panel-adds-drug-benefits-in-medicare- overhaul.html#. 59 Pear and Toner. 60 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.” The House and Senate plans were similar in many ways, but the biggest difference was a scaled catastrophic coverage model in which the government would cover any annual costs above a certain limit, and people with higher incomes would receive greater coverage. 61 Oliver, Lee, and Lipton.
20 Crafting MMA: The Good, the Bad, the (Mostly) Ugly
Negotiations to square the two versions of the bill lasted through November. Chuck
Grassley (R-IA) and Craig Thomas (R-WY) were the chairs of the conference committee, and the two clashed often throughout the process. At one point, Grassley’s staff boycotted the negotiations because the bill did sufficiently fund rural health care programs and Thomas’s staff went rogue and introduced new proposals without committee collaboration.
Grassley was a key figure in the bill’s favorable treatment of Medicare Part C plans: insurance industry lobbyists wrote key parts of the bill that would serve to benefit insurers in rural areas, which was a concern among some Republicans.62 Eventually, House Speaker Hastert and Majority Leader Bill Frist (R-TN) had to intervene to make sure a final agreement on a bill could be reached. Hastert and Frist hold primary responsibility on creating what would become the final version of the broader Medicare reform plan. This version of the bill used private providers to administer drug benefits, but also served to alter Medicare+ Choice (Part C) to both include prescription drug coverage in existing private plans and change reimbursement models for existing private plans.63 This reflected Bush’s campaign emphasis on giving provider networks a greater role in Medicare, and even the even earlier proposals by Senator Breaux’s commission that sought to move toward the private market.64 Spending on the bill was a friction point in both chambers: the budget surplus that Clinton had proposed using for Medicare reform had vanished due to Bush’s tax cuts, and war spending was further exploding the budget deficit.
Some right-wing members of the House opposed the bill based on how much was planning on
62 Jonathan Oberlander, “Through the Looking Glass: The Politics of the Medicare Prescription Drug, Improvement, and Modernization Act,” Journal of Health Politics, Policy and Law 32, no. 2 (April 2007): 187–219, https://doi.org/10.1215/03616878-2006-036. 63 Oberlander. 64 Medicare and Prescription Drug Reform., Oberlander, The Political Life of Medicare
21 being spent, while senators from rural states opposed the bill on the grounds that rural areas were still not receiving enough spending assistance and subsidization.65
On November Fifteenth, 2003, the conference committee finally came to an agreement on the bill. Named the Medicare Modernization Act, the bill’s provisions would fundamentally change the function of Medicare. Medicare+ Choice would be renamed Medicare
Advantage, and the reimbursement model for private insurance plans from Medicare+ Choice would be altered to attract more private plans into the market. A complex payment system was put in place for Medicare Advantage plans that essentially guaranteed that MA plans would receive higher subsidies than fee-for-service Medicare, and this caused reimbursement rates for
MA plans to grow anywhere from ten percent to forty percent.66 To appease rural Republican senators who had opposed the bill, MA included regional preferred provider organization plans, which could span over multiple counties and were designed to make serving rural counties less expensive for insurance companies, thus incentivizing them to expand into markets they may not have previously wanted to serve.67 Additionally, MA would also include Special Needs Plans that would be designed to serve dual-eligible seniors who utilized both Medicare and Medicaid coverage.68 These provisions in MMA marked a major change in the administration of Medicare: payments for private plans, for the first time, would be higher per-enrollee than traditional fee- for-service Medicare.
65 Oliver, Lee, and Lipton. 66 Thomas G. Mcguire, Joseph P. Newhouse, and Anna D. Sinaiko, “An Economic History of Medicare Part C,” Milbank Quarterly 89, no. 2 (June 2011): 289–332, https://doi.org/10.1111/j.1468-0009.2011.00629.x. 67 Mcguire, Newhouse, and Sinaiko. 68 Mcguire, Newhouse, and Sinaiko.
22
By using private insurers to administer these benefits, the bill directly defied the goals of
Democrats since the 1990s to utilize pharmacy benefit managers to deliver benefits.69 The bill also required most beneficiaries to either enroll in stand-alone prescription drug coverage, named
Medicare Part D, for beneficiaries in traditional fee-for-service Medicare. An additional twenty- one billion dollars was set aside to increase fee-for-service payments in rural areas, appeasing
Senate Republicans. The bill also had more targeted provisions for Medicare reform related to drug coverage for dual eligibles and non-negotiation clauses that would block the government from negotiating Part D drug prices.70
Two days after the draft was released, AARP, which had been quietly lobbying
Republicans during the entire negotiation period, announced its support for the bill.71 AARP’s endorsement of the bill made a tougher political case for Democrats to oppose the bill without
69 Oliver, Lee, and Lipton. 70 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.” 71 Morgan and Campbell, The Delegated Welfare State.
23 appearing to be opposed to the interests of seniors.72 At the same time, labor groups, conservative interest groups, and prominent congressmen pulled their support for the bill after originally supporting earlier iterations of the plan. Tom Daschle (D-SD) and Ted Kennedy (D-
MA) pulled their support for the bill after introducing early versions of the prescription drug benefits and then being excluded from final negotiations for the bill.73 Democrats had lost one of their major components of their prescription benefits, which would include a government-run prescription drug benefit; there is not public prescription drug option in MMA.74 John McCain
(R-AZ) threatened not to vote for the bill over the government non-negotiation clause. Speaker
Hastert understood that waiting to hold a vote until after the Thanksgiving recess would be a death sentence for the plan, so he went ahead with the vote despite vocal opposition.75 To pass such a sweeping entitlement expansion did not sit right with more conservative members of
Congress, but some Republicans saw the passage of MMA as an opportunity to become the party of Medicare and the party of seniors, changing its path from attempted destruction of the program in the 1990s.76
On November Third, 2003, at 3:00 a.m., the House held its vote on the Medicare
Modernization Act. The vote looked to be a failure, but in an unprecedented move Speaker
Hastert held the vote open for multiple hours to change votes, strong-arm Republican House members, and force a passage of the bill. At 5:51 a.m., the vote closed at 220-215, with 16
Democrats voting for the bill and 25 Republicans voting against the bill.77 The Senate voted on
72 Oberlander, “Through the Looking Glass.” 73 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.” 74 Oberlander, “Through the Looking Glass.” 75 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.” 76 Oberlander, “Through the Looking Glass.” 77 Oliver, Lee, and Lipton.
24 November twenty-fifth, 2003, with a vote of 54-44, with eleven Democrats in favor, nine
Republicans voting against the bill, and two Democrats, Joe Lieberman (CT) and John Kerry
(MA), not voting.78 On December Eighth, 2003, President Bush signed the Medicare
Modernization Act into law, marking the most significant change in the Medicare program since its inception in 1965.79
78 “H.R. 1 (108th): Medicare Prescription Drug, Improvement, and Modernization Act of 2003,” GovTrack, accessed October 12, 2019, https://www.govtrack.us/congress/votes/108-2003/s459. 79 Oliver, Lee, and Lipton, “A Political History of Medicare and Prescription Drug Coverage.”
25 Chapter 4: Implementation
Since its creation in 2003, Medicare Advantage has seen a consistent and strong upward trend in growth, with more and more seniors opting into the privately administered program. The original implementation of the program was successful in allowing growth of the program, and the further changes meant to slow the growth of the program actually stimulated its further growth and takeover of Medicare enrollees. MA’s resilience despite attempts to cut it down are due mostly to the ways that Medicare Advantage plans were funded, and how that payment model continued to exacerbate the differences between traditional Medicare and private plans, while entrenching Medicare Advantage not as the independent, private alternative to Medicare that Republicans had hoped to craft but instead as a program increasingly reliant on government support to deliver its promises.
Risk Adjustment 101
Much of the lasting impact of the implementation of Medicare Advantage came from the changes to how the plans in the program were given subsidies from the government. Private
Medicare plans in early versions of Medicare managed care and Medicare+ Choice were given a sum of money per enrollee, but this sum was adjusted as part of a health insurance tool called risk adjustment. Because insurance companies have to pay out more for patients who have poorer health and more expensive chronic conditions to treat, they tend to seek out healthier and less expensive patients to cover. The phenomenon of insurers choosing healthier patients to cover is known by health economists as adverse selection.80 Risk adjustment is a system
80 John Bertko, “What Risk Adjustment Does -- The Perspective Of A Health Insurance Actuary Who Relies On It,” Health Affairs Blog (blog), March 29, 2016, https://www.healthaffairs.org/do/10.1377/hblog20160329.054175/full/.
26 intended to counter the effects of adverse selection. In order to offset the cost of more expensive patients and allow insurance companies to be able to cover patients with chronic conditions, subsidies are paid out based on different factors to insurance companies. The goal is to pay insurers that insure riskier patients more than those who chose to insure healthier patients.81
Medicare managed care plans, before the MMA was passed, relied on a subsidy model that used demographic factors such as age, race, and welfare status to determine how much plans in specific counties would be paid out. This underweighted factors such as the preponderance of clinical health problems such as heart disease and diabetes in a given county.82 As a result,
Medicare managed care plans and Medicare+ Choice plans disproportionately insured healthier patients and left the unhealthiest seniors out of the managed care markets.
Risk Adjustment and MMA
The implementation of the Medicare Modernization Act changed this model, and it is one of the more consequential parts of the implementation process. The Center for Medicare and
Medicaid Services instituted a model they referred to as the Hierarchical Condition Categories: instead of just using age, race, and income to determine payments, the model counted health data of the most common conditions amongst seniors in addition to the demographic factors used in the previous model.83 This model was a more accurate reflection of the people in individual counties and the regional need for different care.84 Even for plans that would receive lower
81 “What Is Risk Adjustment?,” The American Academy of Professional Coders, AAPC (blog), n.d., https://www.aapc.com/risk-adjustment/risk-adjustment.aspx. 82 J. Michael McWilliams, John Hsu, and Joseph P. Newhouse, “New Risk-Adjustment System Was Associated With Reduced Favorable Selection In Medicare Advantage,” Health Affairs 31, no. 12 (December 2012): 2630–40, https://doi.org/10.1377/hlthaff.2011.1344. 83 McWilliams, Hsu, and Newhouse. 84 Brian Biles et al., “The Cost of Privatization: Extra Payments to Medicare Advantage Plans – Updated and Revised,” The Commonwealth Fund 23, no. 970 (November 2006),
27 payments due to this adjusted model, the loss would not be overwhelming: CMS phased in the adjusted model over time, giving insurance companies an adjustment cushion.85 This increased the average subsidies of Medicare Advantage plans significantly, and set the private Medicare market on a path that would create a gap between money spent on traditional Medicare and
Medicare Advantage enrollees. By receiving more generous subsidies, plans in the MA marketplace had the ability to reconfigure benefits and provider networks to allow for not only more generous plans but plans that catered better to patients with poorer health conditions.
An additional change also affected these payments to Medicare Advantage.
Disproportionate Share (DSH) Payments, not restricted to Medicare, were payments made to hospitals that treated disproportionate shares of patients who are uninsured or low-income.86 This was a form of risk adjustment for hospitals, providing a subsidy for hospitals that tend to treat more poor patients. For non-Medicare DSH payments, hospitals were directly subsidized by the government, but the insurers who offered MA plans negotiated directly with hospitals, so DSH payments for MA patients were submitted to insurance companies who then had the power to pass on as much or as little of the subsidy on to hospitals, which essentially counted as an additional payment to insurance companies with MA plans.87
These changes in the payment system would set MA plans on a path toward success even in the face of cuts to program spending. Because of this subsidy model, the government had to dole out more money per patient to Medicare Advantage plans than traditional Fee-For-Service
https://www.commonwealthfund.org/sites/default/files/documents/___media_files_publications_issue_brief_2006_n ov_the_cost_of_privatization__extra_payments_to_medicare_advantage_plans__updated_and_revised_biles_costpri vatizationextrapaymaplans_970_ib_pdf.pdf. 85 Biles et al. 86 Juiliette Cubanski et al., “What Are the Implications of Repealing the Affordable Care Act for Medicare Spending and Beneficiaries?,” Kaiser Family Foundation (blog), December 13, 2016, https://www.kff.org/health- reform/issue-brief/what-are-the-implications-of-repealing-the-affordable-care-act-for-medicare-spending-and- beneficiaries/. 87 Biles et al., “The Cost of Privatization: Extra Payments to Medicare Advantage Plans – Updated and Revised.”
28 Medicare.88 MA spending per patient has continued to be higher than FFS since 2006, the year of the program’s official implementation, until today.89 While it is possible to quantify the payments to Medicare Advantage plans compared to those to FFS spending, it is difficult to create an entirely accurate picture of the relationship between the two programs. This is due to a
concept called “coding intensity: because Medicare Advantage plans are paid partially based on health characteristics of the residents of their counties, they have incentive to report severe diagnosis codes in order to receive higher payments. In 2010, the Center for Medicare and
Medicaid service began adjusting payments to offset this coding intensity, but some research has shown that even after adjusting, coding intensity still has an outsize impact on payments.90
88 Biles et al. 89 Yash Patel and Stuart Guterman, “The Evolution of Private Plans in Medicare,” Commonwealth Fund, December 8, 2017, https://www.commonwealthfund.org/publications/issue-briefs/2017/dec/evolution-private-plans-medicare. 90 “Medicare Payment Policy,” Report to the Congress (Medicare Payment Advisory Committee, March 15, 2017), http://medpac.gov/docs/default-source/reports/mar17_entirereport.pdf.
29 In fact, Medicare Advantage plans were often overcompensated per patient under this model, receiving far more than what it cost to cover patients enrolled in the program leading some to worry that the future of traditional Medicare was in danger as MA attracted more and more enrollees through extra benefits, which seemed to fit former House Speaker Newt Gingrich’s vision of having traditional Medicare “wither on the vine.”91
Medicare Improvements for Patients and Providers Act
In 2008, the first piece of legislation to change Medicare Advantage went into effect despite a presidential veto. The Bush Administration and Republicans were willing to have these additional payments to MA in order to see their private sector vision of Medicare succeed.92 Two years after MMA’s implementation, Democrats saw MA as a program that was sucking resources away from traditional Medicare and could be redistributed when necessary, and when a statutory rule called for a ten percent cut in fees paid to physicians under Medicare at the end of
2008, Democrats chose to make cuts to MA to prevent those reductions in physician fees from taking place.93 The bill, known as the Medicare Improvement for Patients and Providers Act, also featured assistance geared toward low-income seniors and reduced co-payments for mental health visits and other assistance, also using the savings from Medicare Advantage cuts.94 The bill passed, but President Bush vetoed it, asserting that the cuts to MA would lead to unfair cuts
91 Robert A. Berenson and Bryan E. Dowd, “Medicare Advantage Plans At A Crossroads—Yet Again: The Experience with Private-Plan Contracting Shows That Assuring Stable Plan Choices and Extra Benefits Requires Extra Money.,” Health Affairs 27, no. Suppl1 (January 2008): w29–40, https://doi.org/10.1377/hlthaff.28.1.w29. 92 Marsha Gold, “Medicare’s Private Plans: A Report Card On Medicare Advantage: MA Has Brought Much More Choice but Also Added Complexity, Higher Costs, No Apparent Quality Gains, and Uneven Benefits.,” Health Affairs 27, no. Suppl1 (January 2008): w41–54, https://doi.org/10.1377/hlthaff.28.1.w41. 93 Redacted, “P.L. 110-275: The Medicare Improvements for Patients and Providers Act of 2008,” CRS Report for Congress (Washington, D.C: Congressional Research Service, July 23, 2008), https://www.everycrsreport.com/reports/RL34592.html. 94 Redacted.
30 to benefits and costs to the seniors enrolled in the program’s plans.95 In a statement accompanying the veto, Bush expressed concern over what cuts to MA would cause: “For decades, we promised America's seniors we could do better, and we finally did. We should not turn the clock back to the days when our Medicare system offered outdated and inefficient benefits and imposed needless costs on its beneficiaries.”96 But some of Bush’s GOP colleagues defected against him, contending that the bill did more to help low-income seniors and the doctors that served them than cause harm to seniors on MA.97 Republican Senator Olympia
Snowe of Maine was not happy with the president’s veto and praised the bill, saying, “The bill both protects health providers and preserves vital programs on which millions of beneficiaries rely, especially low-income seniors.”98 Advertisements from the American Medical Association targeted Republicans voting against the bill, claiming they were protecting “powerful insurance companies at the expense of Medicare patients’ access to doctors.”99 The political optics of the
GOP rejecting a bipartisan bill that was supported by both the American Medical Association and the AARP, and included money to help poor seniors and doctors would have been poor for
Republicans, and more Republicans supported the veto override than in the initial vote for the bill.100 Additionally, Democrats had the military lobby on their side, because the cuts would also affect doctors who served active military members and their families under Tricare plans, further
95 Ryan Grim, “Bush Vetoes Medicare Bill,” Politico (blog), July 15, 2008, https://www.politico.com/blogs/politico- now/2008/07/bush-vetoes-medicare-bill-010286. 96 Grim. 97 David Stout, “Congress Overrides Bush’s Veto on Medicare,” The New York Times, July 16, 2008, https://www.nytimes.com/2008/07/16/washington/16medic.html?login=email&auth=login-email. 98 Stout. 99 Robert Pear, “Doctors Press Senate to Undo Medicare Cuts,” The New York Times, July 7, 2008, https://www.nytimes.com/2008/07/07/health/policy/07medicare.html?searchResultPosition=3. 100 Robert Pear, “Congress, Overriding Bush, Blocks Pay Cut for Doctors,” The New York Times, July 16, 2008, https://www.nytimes.com/2008/07/16/washington/16medicare.html.
31 placing the Republicans in a precarious political position.101 Democrats had managed to simultaneously make cuts to the Medicare program while helping seniors and keeping the political framing on their side.
The same month as the passage of MIPPA, in their platform at the party’s convention ahead of the coming presidential election, Democrats promised as part of their health care reform efforts to cut payments to Medicare Advantage on the grounds that they receive “special preference” with the goal of creating a “level playing field” for MA and traditional Medicare.102
This strategy had worked for Democrats in the debate over MIPPA, and the same rhetorical approach became part of the later debates over the Affordable Care Act.
The Affordable Care Act and Further Changes
While many parts of the Affordable Care Act faced serious partisan opposition, in the summer of 2009 Medicare became a flashpoint in the debate over health care reform. It was the summer of the “Death Panel,” as then-Governor Sarah Palin put it, where Republicans accused
President Obama and Democrats of putting seniors on the chopping block in health care reform.103 In fact, Obama’s proposals from the ACA debate included cuts of hundreds of billions of dollars in Medicare growth over the following decade.104 It seemed the roles had switched since the 1990s: Democrats were looking to cut Medicare and Republicans were looking to save it. But this does not reflect the whole story. Much of the stated goal of these cuts was to be able
101 Pear. 102 “2008 Democratic Party Platform,” The American Presidency Project, August 25, 2008, https://www.presidency.ucsb.edu/documents/2008-democratic-party-platform. 103 Andy Barr, “Palin Doubles down on ‘Death Panels,’” Politico (blog), August 13, 2009, https://www.politico.com/story/2009/08/palin-doubles-down-on-death-panels-026078. 104 Andrew Kelly, “Boutique to Booming: Medicare Managed Care and the Private Path to Policy Change,” Journal of Health Politics, Policy and Law, 41, no. 3 (June 1, 2016): 315–54, https://doi.org/10.1215/03616878-3523934.
32 to fund other areas of health care reform and to return Medicare to a place that reflected more of its original goal of a government-run health care plan that was equitable for all seniors. The crafters of the ACA identified MA as an acceptable place to cut from to find funding for other parts of the law, and attempted to justify those cuts by describing MA payments as an unnecessary set of payments that simply lined the pockets of private insurers.105 As MA was growing toward the Republican’s goal of abandoning the traditional model of Medicare, the GOP found itself in a politically perfect position: it could be the party of saving Medicare and protecting seniors while still working towards their goal of private Medicare.
When passed in 2010, the Affordable Care Act attempted to curb spending on Medicare
Advantage plans significantly. By 2009, federal payments to MA plans were fourteen percent higher per enrollee than those to traditional Medicare plans, so lawmakers cut both the subsidies for MA plans and the DSH payments that were serving as an additional cushion.106 The ACA
105 Andrew S. Kelly, “Mistaken for Dead: The Affordable Care Act and the Continued Resilience of Medicare Advantage,” The Forum 13, no. 1 (January 1, 2015), https://doi.org/10.1515/for-2015-0009. 106 Cubanski et al., “What Are the Implications of Repealing the Affordable Care Act for Medicare Spending and Beneficiaries?”
33 managed to cut MA plan payments by $200 billion dollars over 10 years.107 By 2016, payments for MA plans per enrollee were only two percent higher than traditional Medicare.108 But these cuts to spending do not tell the entire story of the ACA’s impact on Medicare Advantage.
Assuming that lower subsidies would lead to less benefits offered in plans, higher premiums, or both, the Congressional Budget Office projected in 2010 that these cuts would impact enrollment in MA plans and the total share of Medicare enrollees in MA would drop from twenty-four percent to fourteen percent. Instead, as shown in Figure 2, by 2015 the total share of enrollees in
MA grew to approximately one-third of all enrollees.109 So what explains this continued growth in enrollment?
The Center for Medicare and Medicaid Services, since the inception of MA, had a rating system to assess the quality of Medicare Advantage plans as a way to both hold insurers accountable and give consumers information about the plans they could consider on the market.
Plans were rated on a one star to five-star scale, with one star representing poor performance, three stars representing average performance, and five stars representing excellent performance.
As part of the ACA’s attempt to improve overall quality of care, lawmakers included a system of bonus payments for plans that had a rating of four stars or higher to incentivize insurers to create high quality benefits and provider networks.110 This change caused insurers to strive for these bonus payments, and by 2019 seventy-two percent of MA enrollees were enrolled in plans that
107 Jonathan Easley and Mike Lillis, “Dems Warn Up to Medicare Advantage,” The Hill (blog), February 20, 2014, https://thehill.com/policy/healthcare/198851-dems-warm-up-to-medicare-advantage. 108 Cubanski et al., “What Are the Implications of Repealing the Affordable Care Act for Medicare Spending and Beneficiaries?” 109 Garret Johnson et al., “Recent Growth In Medicare Advantage Enrollment Associated With Decreased Fee-For- Service Spending In Certain US Counties,” Health Affairs 35, no. 9 (September 2016): 1707–15, https://doi.org/10.1377/hlthaff.2015.1468. 110 Gretchen Jacobson et al., “A Dozen Facts About Medicare in 2019,” Kaiser Family Foundation (blog), June 6, 2019, https://www.kff.org/medicare/issue-brief/a-dozen-facts-about-medicare-advantage-in-2019/.
34 receive four star ratings or higher – these bonus payments, while not totally recovering the lost payment of the subsidies cut by the ACA, gave insurers an added financial cushion.111
Additionally, premiums for MA plans have generally and consistently decreased since 2010, giving seniors extra incentive to switch over from traditional Medicare to the Medicare
Advantage market.112 This may have something to do with the quality-based bonus payments: insurers could include more expansive benefits in their plans, and the increased premiums associated with these expanded plans could be offset by the bonus payments that would be given due to the higher rating. Some analysts projected that the cuts to subsidies would lead to MA enrollees to be disproportionately wealthier and healthier than before as a result of these cuts leading to likely higher premiums, but research has shown that no such trend has occurred among enrollees – growth in MA after 2010 was concentrated in poorer counties.113 As projections show the share of Medicare Advantage patients increasing to nearly half of all
Medicare enrollees in the next decade, it is likely, given no policy changes, that MA will continue to grow in enrollment despite the shrinking subsidies.114 While much of the stated goal of enacting and growing a program like Medicare Advantage was to be able to give seniors insurance options with more benefits that did not rely on the government for support, but it seems that these plans would not be possible without serious reliance on the government for support.115
111 Jacobson et al. “Redesigning the Medicare Advantage Quality Bonus Program,” Report to the Congress, Medicare and the Health Care Delivery System (MedPac, June 2019). 112 Jacobson et al., “A Dozen Facts About Medicare in 2019.” 113 McWilliams, Hsu, and Newhouse, “New Risk-Adjustment System Was Associated With Reduced Favorable Selection In Medicare Advantage.” 114 Miller. 115 Kimberly J. Morgan and Andrea Louise Campbell, The Delegated Welfare State: Medicare, Markets, and the Governance of Social Policy, Oxford Studies in Postwar American Political Development (New York: Oxford University Press, 2011).
35 Chapter 5: Conclusion
The success of Medicare Advantage and its path to taking over a huge portion of the
Medicare population is one that has implications for the current debate over the future of health care. The Democratic Party has decidedly set its eyes on Medicare-for-All as its goal for reform, which as currently proposed would give all Americans coverage at no cost for a wide range of medical benefits, including dentistry and eye care. Senator Bernie Sanders (I-VT) has championed the progressive policy and has significantly shifted the party’s rhetoric toward his mantra of “healthcare as a human right.” But Democrats cannot decide between two paths of attaining that goal: whether to retain private insurance as part of that system or whether to abolish it completely. Medicare Advantage and its history has implications for both possible paths.
Retaining private insurance in a Medicare-for-All system is logical for a system that has consistently utilized private insurers both as part of MA and for the contracting out of payment for traditional fee-for-service. But the idea of keeping optional private insurance in a M4A system may in fact abandon one of the central goals of the proposal. What Medicare Advantage has laid bare is the way that stratifying a universal program can serve to exacerbate inequality in care and resources between those who can afford the premiums and copays of a MA-like option and those who cannot. This simply does not mesh with a goal of creating an equitable health care system for all Americans if some can afford better or more expedient care. A Medicare-for-All system would have to change the benefit coverage of traditional Medicare in order to be successful, but if that system cannot cover every single benefit there will continue to be a widening gap between a government program and a private insurance option. It is also true that
Medicare Advantage enrollees generally like the plans they are enrolled in and the coverage they
36 have.116 The growing enrollment in the program and the increasing number of plans that receive
Quality Bonus Payments indicate that MA enrollees are sticking with the program and receiving quality care services, and that may be a benefit to retaining private insurance in a Medicare-for-
All system.
One significant issue of eliminating private insurance is Medicare Advantage itself– how do you transition enrollees away from private plans into public ones? It would be a difficult transition to take people from employer-sponsored insurance into a public system, but Medicare
Advantage creates a unique problem in that it has already integrated itself into Medicare. If the proposed Sanders plan is the standard, Medicare-for-All benefits would mimic the kinds of benefits offered through Medicare Advantage plans, but if M4A has a less extensive benefits package, it creates a unique problem of taking away benefits that a senior already has as a part of their Medicare plan. Overall, the problem of a Medicare for All plan is figuring out exactly how to disentangle the public and private systems that are already so intensely intertwined.
What Medicare Advantage has shown is the way that a policy can become entrenched and the gap between two policies can widen drastically. Private plans in Medicare were not designed to last, as they were originally a transitional tool, but the more time and political changes that have passed have morphed the policy into a huge share of the Medicare population, even as the most significant changes to the system have come as packages with other changes to
Medicare. In 1972, the Nixon Administration cemented the role of private insurance into
Medicare by creating regulations for the transitional private program and green lighting demonstration projects to continue to explore those private plans. Ten years later, the
116 Kimberly J. Morgan and Andrea Louise Campbell, The Delegated Welfare State: Medicare, Markets, and the Governance of Social Policy, Oxford Studies in Postwar American Political Development (New York: Oxford University Press, 2011).
37 advantageous alteration of the payment model for Medicare HMOs allowed these plans to grow the benefits package that has been one of MA’s most attractive points. Medicare Advantage’s formalization as a program in 2003 came as a small part of a policy that focused heavily on prescription drug access, with Republicans who were seeking to privatize Medicare quietly setting that path as part of the larger package. Despite attempts by Democrats to cut the program back and level the playing field between Medicare and MA, Medicare Advantage continued to grow. At each point that it was legislated on, Medicare Advantage was able to come back even stronger with expanded benefits and more attractive options. This may be a case of policy feedback: the more entrenched the program became, the more difficult the politics of rolling it back became. In the ACA, the Quality Bonus Payments that allowed the program to continue to grow despite cuts were likely a response to Democrats knowing that they could not simply cut
MA without finding a way to retain benefits. This entrenchment will make the potential task of eliminating private insurance one that is incredibly difficult to pull off, especially with Medicare
Advantage’s large and ever-growing constituency.
With Medicare for All likely to be a huge package of policies, its crafters have to be careful about the unintended consequences of integrating public and private systems all in one.
Medicare Advantage shows that trying to integrate systems may actually increase the gap between them.
38 BIBLIOGRAPHY
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