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Medicare Compliance & Reimbursement

MEDICARE:

Privatization--Medicare's Next Evolutionary Step?

Published on Thu Feb 02, 2006

Managed care may have another chance at success.

Part D may have turned traditional Medicare coverage upside-down--but its implications reach far beyond prescription drug coverage. Part D may be just one more step the Medicare Modernization Act is taking toward transforming fee-for-service Medicare Advantage coverage into a veritable privatized health plan.

Payment incentives for private plans, declining supplemental coverage, complicated plan options under the traditional Medicare program, and ongoing MMA policy changes all suggest that Medicare coverage is already well on its way to privatization, suggests Jeanne Lambrew, associate professor of health policy at George Washington University and Center for American Progress senior fellow, in a recent panel discussion. More than twice as many private plans--specifically, 360--participate in Medicare today than in 2003, says Lambert.

Payment rates could account for some of the upsurge. Medicare typically pays plans more than the actual cost of care, notes Lambrew. Payments to private plans were 4 percent more than average FFS payments in 2003 and 7 percent more today, she points out.

Privatization Threatens Medicare's 'Level Playing Field'

Medicare Advantage brought with it higher payments and more flexibility, says Lambrew. These changes, combined with the addition of Part D and reductions in retiree benefits, Medigap and other supplemental coverage, could together draw the market away from traditional Medicare and steer it toward Medicare private plans, predicts Lambrew. "I think both the incentives and the [MMA] passed in 2003, the experience in the last three years since the law has been passed, plus this kind of concern that seniors have about how will they get their benefits covered in the next five years, may really cause higher than expected enrollment in private plans in the future," she adds.

But rather than a universal shift toward privatized coverage, MMA policy instead could potentially divide the beneficiary population into a two-tiered system, warns panelist Marilyn Moon, vice president and director of the American Institutes for Research's health program. Traditional Medicare was a success because it put all individuals on a "level playing field," she notes. Privatization, on the other hand, could make managed care and private plans increasingly less affordable to low-income individuals. Instead, private coverage is more likely to attract high-income benes who want the "cream of the crop of physicians and hospitals," she says.

Then again, the shift may be less a "privatization" of Medicare per se, but more of a chance for managed care plans to "rise from the ashes," suggests panelist Charles N. "Chip" Kahn III, the Federation of American Hospitals' president. The government still steers the ship as the "aggregator of risk," he says. "[G]overnment remains in a very heavy way the total regulator of this market, to protect the consumer, as well as protecting the treasury," he adds.

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