AARP Wants Medicare Reform to Include 'Parity'

By Monisha Bansal | July 7, 2008 | 8:23 PM EDT

( - With Medicare reform back on the congressional agenda this month, a leading senior citizens' group said Wednesday lawmakers must address what it says are disparities between traditional Medicare and Medicare Advantage, the plan run through private insurance companies.

Supporters of the plan, however, say that making the changes that critics are calling for would reduce benefits and raise costs to beneficiaries.

Addressing a briefing at the Center for American Progress in Washington, D.C., on Wednesday, William Novelli, CEO of AARP, called the current state of Medicare Advantage "fiscally irresponsible."

Critics say the government is spending more on Medicare Advantage plans than on traditional Medicare patients, calling this an unfair "subsidy."

"At AARP we see Medicare as part of a much bigger picture," Novelli said. "We see the bigger picture as the need for comprehensive healthcare reform in this country.

"There is a substantial opportunity now to enact significant reforms in that program [Medicare] that serves 43 million Americans," he added.

Congressional Democrats have said they will look into changes made to Medicare Advantage in 2003 as part of the same legislation that created a prescription drug benefit. The law included financial incentives for private insurance companies to offer Medicare benefits to more individuals.

Novelli said new reforms must include "protecting Medicare beneficiaries from higher premiums, helping low-income beneficiaries pay for their prescription drugs and other out-of-pocket expenses and provide healthcare to millions of uninsured children through SCHIP."

The State Children's Health Insurance Program targets low-income families who do not qualify for Medicaid.

"We believe that it is critical that the final package that is developed on the Hill holds the line on premiums for Medicare beneficiaries," he stressed. "Moving to level the playing field between traditional Medicare and Medicare Advantage has got to be a key part of the final proposal."

Novelli said the current system is "unfair to the majority of beneficiaries who participate in the traditional program. We need to have parity between the different parts of the Medicare program."

The American Medical Association has been critical of some of the proposed changes to Medicare, especially plans to cut physician payments by 10 percent.

"At the same time that the government plans to cut Medicare payments to physicians, it is increasing payments to private health plans administering Medicare Advantage," the group said in a recent statement.

"The government now pays Medicare Advantage plans on average 12 percent more than it spends on patients enrolled in traditional Medicare. This government subsidy must be eliminated," the group said.

"Physicians are outraged that on one hand the government is putting seniors' health care at risk by slashing Medicare payments to doctors, and on the other hand paying hefty subsidies to the insurance industry," the AMA said.

"This $65 billion insurance industry subsidy must end - and the savings should be used to stop Medicare cuts to doctors caring for America's seniors," the AMA added.

"Unless we act, overpayments to Medicare Advantage plans would total about $54 billion over the next five years," Novelli said, calling the increased costs of Medicare Advantage over traditional Medicare "overpayments."

Ronald Williams, chairman of the health insurance company Aetna, and Troyen Brennan, the company's chief medical officer, disputed the critics' arguments in an op-ed published in the Washington Post on Tuesday.

"At Aetna, we believe we can demonstrate that we provide these services at less cost than government can offer on its own," they wrote. "In fact, we are showing in demonstration projects that our clinical programs can improve quality and reduce costs for Medicare beneficiaries as well as lower costs for the government."

Williams and Brennan added that private insurance companies working with Medicare Advantage are not overpaid.

"In 2005, the major for-profit health plans averaged about a six percent profit margin after taxes. This is less than many other for-profit sectors in health care; less than the margins at many not-for-profit health-care institutions; and far less than the numbers recently bandied about," they wrote.

"Extra payments to Medicare Advantage plans produce extra benefits that are not available through traditional Medicare," the Heritage Foundation said in a policy statement.

"These extra benefits are the result of congressional policy that sought to expand the availability of plans and plan types and to ensure that 75 percent of the savings from competitive bidding would be directed to enhanced benefits or lower premiums for beneficiaries," it said.

"Cutting payments to Medicare Advantage plans would reduce benefits and raise costs to their beneficiaries," Heritage added. "For example, two-thirds of Medicare Advantage HMOs do not charge beneficiaries extra to receive the new prescription drug benefit. If Medicare Advantage were not an option for them, seniors would have to pay more for coverage of their medicines."

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