Medicare Advantage in the Crosshairs

The election of Barack Obama will bring a radical shift in healthcare that could put a bull's eye squarely on the back of health insurers.

Obama's victory, coupled with the Democrats' control of both houses of Congress, means the Democrats have the two branches for the first time since the early days of the Clinton administration. Republicans have placed their stamp on healthcare since they took control of Congress in 1995 and later the White House in 2001. One of the GOP's legacies is Medicare Advantage.

With the Democrats in control, they will have an opportunity to forge ahead with wide-ranging changes, which will mean a movement away from private insurers and greater emphasis on government programs.

First, Democrats will expand the State Children's Health Insurance Program (SCHIP). President George W. Bush vetoed adding six to 10 million children to the SCHIP program last year, which would have cost $35 billion.

SCHIP is up for renewal in the spring, and Robert Laszewski, president of Health Policy and Strategy Associates, LLC, in Washington, DC, says the Democrats will look to renew and expand the program.

Next fall, Congress will again face the proposed Medicare payment cuts for physicians and will mostly likely delay the reductions for another year.

Where will the feds get money for both SCHIP expansion and stopping the physician payment cuts? You guessed it: The Republicans' beloved Medicare Advantage.

Medicare Advantage plans are being paid an average of 12.5% per enrollee more this year than the same beneficiary would cost in a Medicare fee-for-service program, according to a report from The Commonwealth Fund.

Any changes to Medicare Advantage will impact health plans associated with the program and about 20% of the Medicare population (more than 10 million lives). The three largest insurers who provide Medicare Advantage services, comprising 40% of Medicare Advantage lives, are UnitedHealth, Humana, and Kaiser Foundation Health Plan, according to Mark Farrah Associates.

Obama has his sights set on the money paid to private insurers involved in Medicare Advantage. During an October debate, he said, "We spend $15 billion a year on subsidies to insurance companies. It doesn't, under the Medicare plan, it doesn't help seniors get any better. It's not improving our healthcare system. It's just a giveaway."

Jaan Sidorov, MD, MHSA, FACP, independent consultant who owns and operates Sidorov Health Solutions in Harrisburg, PA, expects Congress will eliminate the fee differences between Medicare Advantage and Medicare fee-for-service.

"I think it's not Barack Obama necessarily, but it's Barack Obama, the Democratic president, working with the Democrats in Congress and the synergies there. We're going to see less interest I think in Medicare Advantage in general and more of a sea change toward a unified approach to Medicare," says Sidorov.

Laszewski predicts Democrats will phase out the overpayments in 2010 or 2011. "The extra payments for Medicare Advantage plans are toast. They're finished. They have had it," Laszewski says. "The question is how are they going to dismember the body."

By cutting the so-called "overpayments" to Medicare Advantage, Democrats will essentially make it less appealing for private insurers to continue in the program. "My guess is they will phase it out because they don't want the political backlash. If you phase it out, then the insurers start to withdraw and they do it gradually and they do it in a year or two."

The next four years promise to be quite different in Washington and should have a lasting impact on healthcare. Republican-backed programs like Medicare Advantage, Medicare Part D, and even consumer-driven healthcare could fall out of favor, and be replaced by government expansion and regulation.

But don't expect a major comprehensive healthcare bill. The economy, deficit, and wars mean incremental healthcare reforms in Obama's first term.

"I think a big Massachusetts style plan is a nonstarter, but there will still be plenty on the table and it will have a very negative impact on insurers, particularly in private Medicare," says Laszewski.