The healthcare reform plans of the leading Democratic Presidential candidates are similar. They all entrust the organization of healthcare delivery to private insurance companies. They all require community rating, prohibiting insurance plans from rejecting applicants or charging different premiums based on factors such as medical condition, age and occupation. And they all call for some form of government agency to negotiate prices and benefits with insurance companies and to supervise the sale of the plans. Apparently, benefits can vary among plans, but their actuarial value at each level of coverage must be equivalent. That is, a plan may offer different combinations of benefits, premiums and co-pays, but the total value of the package must be equal. Edwards and Clinton propose a public plan to compete with the private plans.
These features are quite similar to the Medicare Advantage (MA) plans sold to a small minority of Medicare beneficiaries. MA plans are organized and administered by private insurance companies. The plans must accept every Medicare beneficiary who applies and must charge all beneficiaries the same premium. The federal Center for Medicare and Medicaid Services supervises. Plans may offer different combinations of benefits, premium levels and co-pays, but they must be actuarialy equivalent. Traditional fee-for-service Medicare competes with the MA plans.
The MA program has been fraught with problems. On the average, MA plans are 12% more expensive than traditional Medicare. According to the Congressional Budget Office (CBO) about 18% of beneficiaries were members of an MA plan in 2006 and 2007. The CBO projects enrollment to increase to 21% in 2008 and 26% in 2017. By CBO's calculations, payments exceeding the cost of traditional Medicare will amount to $54 billion between 2009 and 2012 and $149 billion between 2009 and 2017. These large "excess" payments for a program covering between 8 million beneficiaries (in 2006) and as much as 12 million (by 2017) do not bode well for a universal health insurance program covering the entire US population not covered by Medicare or programs such as Medicaid and SCHIP. (The plans imply that these programs would remain, but they are not clear about this.)
The Center for Medicare Rights (PDF), other advocates and three Congressional hearings have documented a pattern of aggressive, deceptive and fraudulent marketing practices employed to sell the lucrative MA plans to Medicare beneficiaries. In the first place, providing such plans is very profitable. For example, the largest Medicare Advantage provider, Humana, received about $11.5 billion or about 55% of its revenue] from the program.
Secondly, the plans are not standardized. Plans must provide benefits that are at least actuarialy equivalent to the benefits of original Medicare, but, as noted above, they need not be the same as those of original Medicare. Nor must they be the same as those of any other plan. Thus, each plan may cover different drugs, if it covers drugs at all. Plans may impose different co-pays or co-insurance--perhaps charging more for some kinds of hospital stays than original Medicare. The co-pays for such services as ambulances, durable medical equipment, medically necessary home or custodial care, and many of the kinds of medical services people do not consider until they need them can vary tremendously.
In past iterations of the Medicare Advantage program, companies constructed designs that provided the most generous coverage for services used by most people (e.g., physical exams) and less generous coverage for services used by sick people (e.g., durable medical equipment), thus discouraging sick, costly people from enrolling. Data do not exist to evaluate the extent to which this is true of Medicare Advantage plans.
Third, there is a brief period (November 15-December 31) each year during which existing Medicare beneficiaries can choose a plan or change plans. This reality makes it rational for insurance companies to hire legions of temporary agents to sell their products during these periods. Moreover, these agents are not prohibited from selling different products offered by the same company at once, They may offer several Medicare Advantage plans, each with a different set of benefits and charges, several stand-alone drug plans, each with its own structure, a range of the familiar Medicare supplement policies, and other products as well. Thus, beneficiaries an be confronted with a bewildering array of choices. Making things worse, the agents are paid differing commissions for selling different products. The sale of a full Medicare Advantage plan, might earn the agent $500. She might receive $80 for selling a stand-alone drug plan.
These factors have combined to produce a situation in which many beneficiaries have purchased plans that have been more expensive than they expected, that have not provided benefits they expected, that have not been accepted by their providers or that were otherwise inappropriate for them.
Finally, CMS has mostly failed in imposing regulation on this "Goldrush" environment.
In summary, the Medicare Advantage program is one example of a government subsidized, privately administered health care plan serving a large and diverse segment of the population. It is probably the single governmental program that bears at least some similarity to the healthcare reform plans advocated by the leading Democratic candidates. As such, it suggests that much careful thought must be devoted to establishing a robust regulatory framework to constrain the capitalistic "animal spirits" of the insurance companies.
To this observer, at least, it would appear that insurance companies might very well find a privatized universal healthcare attractive. But they are likely to fight effective regulation to the death. We can hope that whoever is the Democratic nominee will detail how s/he proposes to prevent Americans from being presented with a set of health insurance choices that are incomprehensible until they are needed.