Rein in Medicare Subsidies

Time for the White House to stand up to private insurers on Medicare Advantage costs
President Obama with insurance industry executives and members of his administration on Nov. 15 Photograph by Brendan Smialowski/AFP via Getty Images

Health insurance companies have started a campaign to protect the government payments they get for operating private Medicare plans. Anybody who wants to see the U.S. tame its bloated and inefficient health-care system—and keep the Affordable Care Act affordable—should hope they fail.

The program at issue here is Medicare Advantage, which pays private insurers to provide Medicare health benefits. The program started in 1982 with a reasonable premise: If private insurers could operate more cheaply than the federal government, both taxpayers and enrollees would win. Unfortunately, Congress eventually bowed to pressure from insurers to increase rates. By 2009, Medicare Advantage payments per enrollee were 14 percent higher than traditional Medicare.

The Affordable Care Act was designed to cut those subsidies, starting in 2012 and ramping up over time, to bring Medicare Advantage payments roughly in line with the cost of the regular program and save an estimated $136 billion over 10 years. Now insurers are waging a public campaign to keep the payments where they are, warning that people will lose some of the additional benefits, such as dental and vision care, that make Medicare Advantage plans more attractive—and more expensive for taxpayers.

The Medicare Advantage program was supposed to save money; instead, it costs more than traditional Medicare. Now the huge savings from rolling back those extra payments are needed to help pay the cost of expanding insurance under Obama­care (by which insurance companies benefit). Given Obamacare’s botched rollout, insurers may have calculated that the administration doesn’t want any more headaches, especially in an election year. But the federal government, more than ever, needs to impose a dose of frugality on the health-care sector, even at a political cost. If the White House decides this fight isn’t worth having, future administrations will have an even harder time making further cuts in Medicare down the road—reductions that both Democrats and Republicans agree are necessary.


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