In the next few weeks Congress will decide whether to cut $54 billion in overpayments to Medicare insurers, igniting a battle that may well determine whether the program survives. On one side are Medicare supporters, who want it to continue as a successful social insurance program. On the other is the insurance industry, which is spending millions and lobbying hard to put Medicare on a fast track to privatization, a goal long sought by fiscal conservatives and their allies in right-wing think tanks.
The seeds of the conflict were sown in 2003, when Congress passed the Medicare Modernization Act (MMA), which gives seniors a prescription drug benefit that is sold and administered by private insurers, not the government. This drug benefit, known as Part D, opened new markets for insurers, some of which have profited handsomely from the government’s gift. The story of one of those companies, Humana, a forty-six-year-old carrier based in Louisville, Kentucky, shows what’s at stake.
Before 2003 Humana, a regional company peddling health insurance, including HMOs, was hardly a household name. One of its policies had been a big money loser, and the company was struggling to dig its way out of a financial hole. Vice president Steve Brueckner called the MMA “an unprecedented opportunity to establish relationships,” and his company made the most of it. Humana gained 4 million new policyholders and reported to stockholders in April that it had amassed “record breaking revenues.” What’s more, Humana has become a national brand poised to sell policies in the non-Medicare market, where people will increasingly be forced to buy their own health coverage, especially if an “individual mandate” becomes a solution for the country’s healthcare woes. “Part D transformed the company,” says Bridget Maehr, an analyst for A.M. Best, an insurance rating service.
Humana’s game plan centered on the options the MMA gave seniors for obtaining their benefits. They could keep traditional Medicare, in which the government provides the benefits, and buy a “stand-alone” drug benefit; or they could get the new drug coverage plus regular Medicare benefits provided by one of the Medicare Advantage plans, which include HMOs, the less restrictive preferred provider organizations (PPOs) and private fee-for-service plans, which usually offer traditional Medicare benefits, drug coverage and benefits for extras like dental, vision and chiropractic care. There are no limits on specialist referrals, and seniors can choose any doctor who accepts the insurer’s fee schedule.
Some Medicare Advantage plans were not new. Medicare HMOs had been around since the 1970s. But by the late 1990s, conservatives had seized on HMOs, as well as new options such as medical savings accounts and PPOs, as ways to speed up privatization. Under the guise of “consumer choice,” always a popular concept, Congress authorized four new kinds of plans, in the 1997 Balanced Budget Act, that would compete with traditional Medicare.