Gosh, Could Obamacare Be Working? (Part 2)

by Jonathan Cohn | September 15, 2011

Republicans made a lot of arguments against the Affordable Care Act. But perhaps none were as effective, or as seemingly plausible, as their contention that their new law would cripple Medicare Advantage.

New evidence suggests -- surprise! -- that the argument was wrong.

Medicare Advantage is the program that gives seniors the option of enrolling in private insurance rather than the traditional, government-run program. The government pays the insurers a flat fee, per enrollee; in return, the insurers provide coverage, sometimes including benefits that traditional Medicare does not. Overall, about one in four seniors belongs to such plans.

The policy rationale for Medicare Advantage is two-fold: To give seniors more options and to introduce some private-sector competition. The idea is that private insurers might be able to be more innovative or offer certain combinations of services that some seniors would prefer. But, for much of its history, the program (formerly known as Medicare-plus-choice) was also a form of corporate welfare. Non-partisan studies, by the likes of the Medicare Payment Advisory Commission, suggested that the government was paying the insurers too much.

The architects of the Affordable Care Act decided, quite sensibly, to reduce those extra subsidies and use the money to offset part of the law’s cost. That’s when the Republicans, and their allies, pounced. Taking money away from the insurers, they claimed, would force insurers to charge more, limit their offerings, or pull out of the market altogether.

It was a reasonable proposition; that’s more or less what happened back in the late 1990s, the first time government reduced the overpayments. (I argued, and still believe, such a trade-off would be worthwhile.) But new information, just released from the administration, suggests those predictions haven’t come true.

On the contrary, the Department of Health and Human Services announced on Thursday that premiums for the plans are down and enrollment is up, well above the official projections. As the Kaiser Family Foundation has reported, this is actually the second year in a row premiums have declined. (According to HHS, premiums in 2012 will be 11.5 percent below what they were in 2010.) Meanwhile, all Medicare beneficiaries can now get preventative care without co-payments. And their exposure to prescription drug bills have declined, because the new health law is closing the infamous “donut hole” in coverage.

So, in short, Medicare Advantage plans are becoming cheaper, slightly more people are enrolling in them, and everybody on Medicare -- even seniors  in the traditional government-run program -- has better coverage than they did before.

It’s just one set of data, undoubtedly reflecting a variety of factors. Health costs are rising slower than anticipated this year, because the slow economy has everybody more money-conscious and seeking fewer sources. Insurers may be coveting new quality bonus payments, which the Affordable Care Act makes available. 

It's only one year of data. The insurance market goes through cycles. Insurers may be offering more benefits at lower premiums right now to increase enrollment; a few years from now, they might do the opposite. There have also been signs of insurer consolidation, although whether that's a good or bad thing depends on the circumstances.

But whatever the future holds, and whatever the full explanation for this latest revelation, this much seems clear: Medicare Advantage is still standing. And while further analysis may reveal otherwise -- if it does, I'll update this post -- for the moment I'd count that as one more sign that Obamacare is working.

Update: Igor Volsky notes some recent reports suggesting the insurers' committed to Medicare Advantage remains strong:

Executives from firms that participate in Advantage recently told the Kaiser Family Foundation that even with the cuts, “the amount of money that flows to Medicare plans is significant. A single Medicare enrollee draws about $910 a month for private plans, according to Barlcays Capital analyst Joshua Raskin. Plans expect to earn about $41 a month per member, after paying medical expenses. That’s more than double the average earnings from commercially insured members, according to Raskin’s analysis.” The analyst said “he expects plans to continue to remain profitable and grow, despite the cuts, albeit more slowly than they would have without the health law.”

In other words, insurers are still making good money from this program. That suggests Obama and his allies were right to reduce the overpayments -- and that, maybe, we should reduce them even more.

Source URL: http://www.newrepublic.com//blog/jonathan-cohn/94992/hhs-medicare-advantage-data-premiums-enrollment-republican