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Critical Condition

NRO’s health-care blog.

Cutting Medicare Benefits Will Not Protect Taxpayers



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The ruling faction has convinced the media that the health-care take-over will actually reduce the deficit. It’s all nonsense of course: Spending will be much greater than reported by the majority’s media enablers, and the people are not fooled. Almost three quarters of Americans believe that the health-care take-over will increase the deficit (question #26).

While much of the “savings” promoted by the deficit chicken-hawks are delusional (waste, fraud, abuse, and no longer “fixing” doctors’ Medicare Part B reimbursement), one is very real: Cutting actual Medicare benefits by reducing seniors’ choices of Medicare Advantage plans. Traditional Medicare Part A (hospital) and Part B (outpatient) benefits are run by Soviet-style price-fixing bureaucrats (without a gulag, of course). The Centers for Medicare & Medicaid Services in Baltimore runs a network of regional contractors, which process claims from hospitals and doctors.

Medicare Advantage plans, on the other hand, bear the actuarial risk of paying the medical claims of beneficiaries who choose them. They co-ordinate care and negotiate with provider networks.

The ruling faction claims that Medicare Advantage plans cost about $12 billion more than if their beneficiaries were enrolled in the government’s traditional Medicare monopoly. In a very narrow sense, this is true. However, Medicare Advantage addresses another problem: The cost-shift (or “hidden tax”) that Medicare imposes on private insurers, because Medicare does not pay providers for the full cost of care. Providers shift these costs to private insurers, which results in increased premiums for employer-based and individual health plans. This costs about $49 billion a year: four times greater than the “extra” payments to Medicare Advantage.

Seniors will find it increasingly difficult to get access to care via the traditional Medicare monopoly: Providers are dropping out. Crushing Medicare Advantage will make this worse, faster, while increasing the cost shift to privately insured Americans.

— John R. Graham is director of Health Care Studies at the Pacific Research Institute.



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