Health insurance reform creates a fair market for seniors’ business, using competitive bidding to reduce subsidies to private insurance companies and allow the market to set Medicare Advantage payments rates, with bonuses for insurance plans that provide real benefits to enrollees. Reducing these overpayments saves all Medicare beneficiaries and all taxpayers money, while still allowing Medicare Advantage enrollment to grow and plans to stay where they are. Recent opposition to competitive bidding by some Republican Senators flies in the face of both their belief in free markets and their previous endorsement of competitive bidding legislation.

Medicare Advantage Subsidizes Private Insurance Companies 

Medicare Advantage is run by private insurance companies. Medicare Advantage plans are run by private insurers who receive a monthly payment from Medicare to provide covered health benefits to Medicare-eligible individuals who choose to opt out of traditional fee-for-service Medicare program and receive their Medicare benefits from a private insurer. As of January 2009, 23 percent of Medicare beneficiaries were enrolled in a Medicare Advantage plan. [Congressional Research Service,3/3/2009] 

Medicare Advantage costs more than traditional Medicare.The Medicare Payment Advisory Commission (MedPAC) found that this year, payments to private Medicare Advantage plans are 14 percent higher than the cost of insuring a beneficiary in traditional Medicare. [MedPAC, 3/2009] That is an increase from 2008, when private insurers received a 13 percent overpayment.Payments to Medicare Advantage plans are projected to cost $110 billion this year. MedPAC estimates that Medicare pays $12 billion more to provide covered benefits through Medicare Advantage than it would cost to cover them in traditional Medicare and notes, “The Congressional Budget Office estimates the additional 10-year cost at more than $150 billion.” [MedPAC, 6/2009] 

·Medicare Advantage has increased Medicare spending.The Government Accountability Office (GAO) found that, “Although health plans were originally envisioned in the 1980s as a potential source of Medicare savings, such plans have generally increased program spending.”[GAO, 2/2008] 

·Medicare Advantage overpayments reduce Medicare solvency.The Centers for Medicare and Medicaid Services (CMS) estimates that overpayments to Medicare Advantage plans advance the date at which the Medicare Trust Fund will be insolvent by 17 months. [Center on Budget and Policy Priorities, 9/14/2009] 

·Medicare Advantage can’t deliver for seniors without “massive government subsidies.”As Barbara Kennelly, President and CEO of the National Committee to Preserve Social Security and Medicare, recently wrote, “For decades the insurance industry has told Congress it could provide better health care for seniors while saving Medicare money. However, it has never happened…Privatized Medicare cannot deliver on its promise because without massive government subsidies to boost profits, the industry inevitably loses interest in providing coverage for America’s elderly.” [HuffingtonPost.com, 9/28/2009] 

Medicare payments to private plans subsidize administrative costs and profits.The GAO found that, on average, Medicare Advantage plans allocate approximately 87 percent of the payments they receive from Medicare to the medical expenses of beneficiaries, about nine percent to non-medical expenses, including administration, marketing and sales, and about four percent of the payment goes directly to the insurance company’s profit margin. [GAO,2/2008] 

·In one year, private Medicare Advantage plans reaped over $1 billion in extra profits.In a recent report, the GAO found that private insurers that participate in Medicare Advantage spent less on beneficiaries than they projected in 2005, creating a windfall profit for these plans of over $1 billion. [GAO, 6/24/2008] These additional profits were on top of the $35 billion in revenues these plans generated in the same year. GAO explained that the accuracy of Medicare Advantage plans’ projections is important, because it is these projections that determine Medicare payments and affect the amount of additional benefits beneficiaries receive beyond those that are provided under traditional Medicare. Medicare Advantage plans are supposed to use the additional payments they receive from the government to provide their beneficiaries extra benefits; instead, too much of this money is going, not to seniors, but to big insurance company profits. 

·Some Medicare Advantage plans dedicate only half of excess payments to beneficiaries.When Congress approved the current system that makes increased payments to private plans compared to traditional Medicare, policymakers intended for the excess payments to be returned to beneficiaries. For certain Medicare Advantage plans, however, MedPAC has found that only about half of this excess payment is used to deliver extra benefits to enrollees. The remainder is used to finance administrative costs, marketing and the profits of these plans. [MedPAC, 4/11/2007] 

All Medicare beneficiaries and all taxpayers subsidize private insurance companies.The Chief Actuary at CMS found that Medicare Advantage overpayments increase premiums for beneficiaries in traditional Medicare by more than $86 per year per couple. [Center on Budget and Policy Priorities, 9/14/2009] In addition to overpayments, CMS reports that Medicare Advantage plans had an improper payment rate of 10.6 percent, or $6.8 billion in 2006. [CMS, 11/17/2008] 

Under current law, some Medicare Advantage beneficiaries receive less coverage than they would under traditional Medicare.Several analyses have shown that some Medicare Advantage beneficiaries who need hospital care, home health care, and other specialty services may end up paying more out of pocket and/or receiving less coverage than under traditional Medicare. As a result, some beneficiaries who require those services can wind up significantly worse off in Medicare Advantage than they would if they were enrolled in traditional Medicare. [GAO, 2/2008] 

There is no evidence that extra payments to Medicare Advantage plans result in better quality.For all the overpayments that these private insurance plans receive, there is no evidence they provide better quality coverage to Medicare beneficiaries or improve beneficiaries’ health. On comparing Medicare Advantage to traditional Medicare, which MedPAC refers to as fee-for-service (FFS), the Commission stated, “Paying a plan more than the cost for delivering the same services under the FFS system is not an efficient use of Medicare funds, particularly in the absence of evidence that such extra payments result in better quality compared to FFS.” [MedPAC, 3/2009]

The Patient Protection and Affordable Care Act Creates a Market for Seniors’Business

The Patient Protection and Affordable Care Act creates competitive bidding to reduce substantial overpayments to private insurance companies. The Patient Protection and Affordable Care Act creates a competitive bidding structure for Medicare Advantage plans, allowing the market to set payment rates and ensuring that payments to private insurance companies reflect the actual cost of caring for seniors and saving billions of dollars. [Patient Protection and Affordable Care Act, accessed 12/1/2009]As the Wall Street Journal puts it, “The bill would force the insurers to bid competitively to run the plans, a change from current law.” [Wall Street Journal,9/24/2009]This will ensure that private insurance companies participating in Medicare bring value to all Medicare beneficiaries and taxpayers. In addition, bonus payments will be available to plans that coordinate care for enrollees and demonstrate measurable quality. [Patient Protection and Affordable Care Act, accessed 12/1/2009] 

AARP: “Up to the insurance companies” to manage reduction in overpayments, “entirely within their realm to…deliver Medicare benefits at the same level they do now.”David Sloane, AARP senior vice president for government relations, recently stated that Medicare Advantage enrollees could easily see no change in benefits under competitive bidding. In responding to subsidy reductions likely to occur under competitive bidding, Sloane said, “It’s up to the insurance companies to decide how they want to manage. We believe it’s entirely within their realm to continue to deliver Medicare benefits at the same level they do now.” [Washington Post, 9/28/2009] 

Medicare Advantage enrollment will continue to grow under competitive bidding.CBO projects that, under current law, Medicare Advantage enrollment will increase from 10.6 million in 2009 to 13.9 million in 2019. [CBO, 11/21/2009]Under the Patient Protection and Affordable Care Act, Medicare Advantage enrollment in 2019 will be reduced by 2.6 million enrollees.Testifying before the Senate Finance Committee earlier this year, the CBO Director said that “almost all” of this reduction results from Medicare beneficiaries not joining Medicare Advantage plans, and is not a result of beneficiaries leaving the plans. [CQ Transcript, 9/22/2009] Comparing these numbers to CBO’s current law enrollment estimate demonstrates that Medicare Advantage enrollment will be approximately 11.3 million 2019, a projected 6.6 percent increase over 2009 enrollment levels. 

Medicare Advantage plans will continue to be offered in existing areas under competitive bidding.CBO Director Douglas Elmendorf told the Senate Finance Committee that, “…the competitive bidding system would, in our judgment, keep the plans essentially the same place as they would be under current law…the competitive bidding process should enable these plans to continue operate (sic) where they are…” [CQ Transcript, 9/22/2009] 

Republican Senators support competitive bidding of Medicare Advantage. Eight Republican Senators have cosponsored legislation that includes a competitive bidding program for Medicare Advantage. Senators Alexander, Bunning, Burr, Chambliss, Graham, Inhofe, and Isakson are cosponsors of Senator Coburn’s Patients’ Choice Act(S. 1099). A description of the bill indicates that, “To promote competition among Medicare Advantage plans and to increase the quality of care furnished under such plans, this provision establishes a competitive bidding mechanism that will apply to these plans beginning in 2011.” [The Patients’ Choice Act, Section-by-Section, accessed 9/24/2009] 

Republican Senators abandon their free market ideology to keep subsidies flowing to the private insurance industry. On almost every issue, Republicans demonstrate a strong adherence to free market ideology. When speaking of health insurance reform, Republican Senators have argued that we just need to “get out of the way and allow the market to work” and that what we “need to do is unleash the marketplace that you've got.” [Congressional Record, 7/20/2009; The News and Observer, 8/28/2009]Now, Senate Republicans claim to be concerned about both the reductions in subsidies to private insurance companies and the idea that the program will become competitive.