President-Elect Obama, Sen. Reid Focus on Scaling Back Medicare Advantage Program

Democrats, led by President-elect Barack Obama and Senate Majority Leader Harry Reid (Nev.), have signaled their intent to "scale back" the Medicare Advantage program, The Hill reports. Obama on Sunday on ABC News' "This Week" identified MA as an example of "programs that don't work," adding that the program "doesn't necessarily make people on Medicare healthier." Reid said, "Since Bush's Medicare bill went into effect, insurance companies, HMOs and other managed care entities have made $15 billion to purposely destroy Medicare."

According to The Hill, congressional Democrats have pledged to cut $50 billion in federal subsidies to the MA program, which offers private health insurance plans to more than 10 million of the 45 million Medicare beneficiaries. MA cost the government 13% more per beneficiary on average than the regular Medicare plan in 2008, according to the Medicare Payment Advisory Commission. Reid wants to reduce subsidies to "bring the payments more closely in line" with the cost of each beneficiary on traditional Medicare, a Reid spokesperson wrote in an e-mail.

Democrats say $15 billion of the annual $94 billion in subsidies granted to MA plans are the result of "overpayments." The Hill reports that Democrats since 2003 have been attempting to "undo lucrative subsidies" enacted by Bush and Republicans to MA plans, including last year passing a $14 billion cut to the program over the next five years.

According to The Hill, Democrats are "driven not only by their general mistrust regarding private-sector management of social welfare programs but by their thirst for tangible budgetary savings to offset the cost of a health care reform package that could weigh in at close to $1 trillion."

Insurer Response
America's Health Insurance Plans said subsidies that Democrats want to cut from the program help purchase prescription drug coverage, vision care and chiropractic services for which traditional Medicare does not pay. MA enrollees also often pay lower out-of-pocket costs, according to The Hill. In addition, MA plans are "disproportionately popular in rural areas and among racial and ethnic minorities," The Hill reports.

Robert Zirkelbach, a spokesperson for AHIP, said, "Cuts to the Medicare Advantage program would have a devastating effect on seniors who rely on the additional benefits and services these plans provide." He added, "Seniors would face reduced benefits, limited health care choices and higher out-of-pocket costs if Congress chose to cut" the program.

The Hill reports that cutting substantial federal subsidies to the program "could alienate a powerful industry with a major stake in the future of the U.S. health care system." The insurance industry has said it would oppose Obama's proposal to initiate a publicly funded insurance plan that would compete with private insurers (Young, The Hill, 1/14).