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'Make More Money Act' Might Need Renaming

By John Reichard, CQ HealthBeat Editor

June 14, 2007 -- Congressional Democrats and Republicans alike could find that the views of Wall Street analysts have much to offer as they consider Medicare payment revisions in coming weeks. Democrats with an eye on cutting payments to private health plans in Medicare will be interested to learn that from "the Street's" point of view, the plans are making lots of money. Republicans, on the other hand, could be chagrined to learn that the sales growth of Health Savings Accounts, a type of plan they view as key to braking the nation's rising health costs, appears to be tapering off.

Both types of plans owe their recent prosperity to the 2003 Medicare overhaul law (PL 108-173), popularly known as the Medicare Modernization Act. Stock and bond analysts said at a forum Thursday that they see changes coming in the legislation, dubbed by one Wall Street seer as the "Make More Money Act." Medicare payment cuts in Congress this year could make that name less appropriate, some attendees suggested.

The D.C. event, which was held to bring Wall Street's perspective to health policy makers, was sponsored by the Center for Studying Health System Change, a Washington-based health policy research organization.

Christine Arnold, managing director at the investment firm Morgan Stanley, noted that private fee-for-service plans in particular are flourishing under payment changes in the 2003 law. Almost three-quarters of the rapid enrollment growth in 2007 in the private health plan side of Medicare, known as the Medicare Advantage program, is in private fee-for-service plans, she said. But the unusually high payment rates they receive—they deliver care at an estimated 119 percent of the cost in traditional Medicare—make them a target for Democrats seeking savings to fund wider coverage of uninsured children through pending measures to reauthorize the State Children's Health Insurance Program.

Those high payments may be a luxury lawmakers decide they can no longer afford. The glory days of the private fee-for-service plans might be ending, suggested Joshua Raskin, senior vice president at the investment firm Lehman Brothers. "I'm not sure how many years we're going to be talking about it."

Boosters of private fee-for-service plans originally conceived them as a bulwark against the advance of HMOs, which have had a reputation of forcing doctors and hospitals to accept low payment rates and restricting where enrollees can go for care. In contrast, "fee-for-service" in the "private fee-for-service plan" moniker connotes the practice of traditional medicine with its unfettered access to doctors and hospitals. The plans also have been portrayed as entities that would pay doctors and hospitals more than penny-pinching HMOs would, easing the desire to ration care.

Robert Laszewski, president of the consulting firm Health Policy and Strategy Associates, urged that the plans in their current form be phased out over several years. They are a boon to the insurance industry because they are very profitable and to Medicare beneficiaries because they offer extra benefits, he noted. But the whole premise of the 2003 law is that market-based competition will lower, not increase, the costs of the Medicare program, he said.

Laszewski said it would be wrong to end the plans outright but added they should be viewed as a "prime the pump" strategy to get insurers back into rural areas. They should be turned into plans that can really manage costs—and if they can't they shouldn't exist, he suggested.

Raskin questioned how well a transition strategy would work for private-fee-for-service plans, however. As their payments are trimmed, their premiums will rise and the benefits will be cut, he said. "I think the biggest hurdle is going to be if you're going to be able to convince the seniors to stay in the plans."

Speakers at the forum suggested that HMOs in Medicare are much more efficient, but that there is also room to trim their payments.

Raskin said they can deliver the benefits offered by traditional Medicare at 95 percent of the cost of that program. Yet they are paid rates 110 percent of those in traditional Medicare, he said. "Medicare Advantage is extremely profitable to the HMOs," Laszewski concurred. "What [Medicare HMOs] should be doing is proving that the private market works. Instead, they're marching the NAACP out to say 'get us more money . . . so we can get poor people better benefits.' "

The analysts also suggested that Health Savings Account growth is tapering off because their tactic of lowering premium costs by raising deductibles only goes so far in controlling the underlying growth of health costs. "Everything I look at says it's stalling out," Arnold said of HSA sales growth. According to the America's Health Insurance Plans, sales of health plans associated with HSAs now stand at about 5 million.

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