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Obama Picking Early Fight with the Insurance Industry?

By John Reichard, CQ HealthBeat Editor

DECEMBER 11, 2008 -- Despite their unsuccessful encounter with the insurance industry the last time Washington debated a big health overhaul, Democrats aren't being shy about criticizing insurers even as they emphasize the need to bring all players to the table to reach a deal on changes to the health system.

President-elect Barack Obama took on insurance company revenues from the Medicare program prominently in remarks Thursday on early steps he said must be made to lower costs in the health care system. And House Ways and Means Health Subcommittee Chairman Pete Stark, D-Calif., never shy about attacking industry profits, issued a statement slamming the private health plans in Medicare, known as Medicare Advantage plans, for making big money at the expense of taxpayers and health plan enrollees.

Obama said in announcing the appointment of Tom Daschle as HHS secretary that "rising costs are unsustainable. We can't simply insure everybody under the current program without bankrupting the government or bankrupting businesses or states. So we're going to spend a lot of time on how do you streamline and rationalize the system. And I think you can fairly expect that we're going to have some very aggressive initiatives around things like health IT, around things like prevention that reduce costs."

"We're also going to examine programs that I'm not sure are giving us a good bang for the buck," Obama said. "The Medicare Advantage program is one that I've already cited where we're spending billions of dollars subsidizing insurance companies for a program that doesn't appreciably improve the health of seniors under Medicare. So our starting point is savings. Now, we are probably going to have to, then, find additional dollars to pay for some investments in the short term, although, my charge to my team is figuring out how do we make sure that it pays for itself over, say, a ten-year period so that we're actually saving money over the long term."

Stark, meanwhile, released a report by the Government Accountability Office saying that Medicare Advantage plans spent less on health care services than they projected in 2006, and as a result "pocketed an extra $1.33 billion in profits—65 percent more than estimated in their 2006 bids."

"This is the second year in a row that MA organization profits exceeded their own projections," the Stark statement continued. "A June GAO report showed than in 2005, MA plans earned an extra $1.14 billion in profit." Stark said the report "reinforces why we can't trust the health insurance industry with taxpayer dollars," and called for enacting minimum percentages of premium dollars that plans must pay in benefits to enrollees.

GAO said that "on average MA organizations reported earning profits of 6.6 percent of total revenue in 2006—which was higher than their projected profits of 4.1 percent. MA organizations reported spending an average of 83.3 percent of total revenue on medical expenses, but had projected spending an average of 86.9 percent of total revenue on those expenses."

Cracking down on Medicare Advantage payments and bringing them down to the level of payments to providers in traditional Medicare could save as much as $160 billion over 10 years, according to a 2007 Congressional Budget Office estimate.

But America's Health Insurance Plans has staunchly defended current Medicare Advantage payment levels, warning that cuts would mean higher out-of-pocket costs and reduced benefits for seniors, notably those with modest incomes who can little afford to buy the supplementary Medicare coverage purchased by more affluent Americans, including those with retiree health benefits.

AHIP hasn't hesitated in the past to let lawmakers know that they'll bring in busloads of irritated seniors if the budget knife slices too deeply into Medicare Advantage payments. That may not be the kind of image the Obama administration wants outside the Capitol later this year as lawmakers debate health care changes inside.

But the insurance industry has public relations problems of its own, with health plans that originally boasted they could take lower payments than traditional Medicare and crank out extra benefits to boot because of their efficiency now receiving far higher payments than the fee-for-service part of the program.

Both AHIP and the Blue Cross Blue Shield Association of America kept a low profile in the wake of Obama's statements. The Blues declined to comment either on the Medicare Advantage remarks by Obama or on Stark's statements concerning the GAO report.

Responding to Obama's comments doubting health improvements from Medicare Advantage, Robert Zirkelbach, AHIP's spokesman, said the plans "offer care coordination and disease management programs that are helping seniors get the care they need. There is a lot of anecdotal evidence showing that these programs are working to improve the quality of care for seniors," he said, referring a reporter to an AHIP publication touting plan features such as the use of caseworkers to oversee care, phone monitoring of those with bipolar disease, and reduced out-of-pocket charges for preventive care. "I would also like to point out that seniors in MA report incredibly high satisfaction with their benefits."

Concerning Stark's blast and the GAO findings, Zirkelbach said, "plans based their projections on the best available knowledge at the time. Both Medicare expenditures and national health expenditures grew less than were originally projected. Moreover, MA plans have implemented a variety of innovative programs that improve the quality of care for seniors and help control rising health care costs."

"I would also point out that 2006 was the first year of the Medicare drug benefit, which created significant uncertainty about what future costs would be. For example, Part D expenditures are significantly lower than originally anticipated thanks in large part to plans' efforts to incentivize greater use of generic prescription drugs."

Other observers saw little likelihood Obama was stoking a strong backlash from the insurance industry with his remarks.

"This is a classic political no-brainer in the sense that every Democratic member of Congress has said they ought to stop overpaying those Medicare Advantage plans," said Joseph Antos, a health policy scholar at the American Enterprise Institute. Insurers know they've had it good payment-wise of late, he added. "They know they've been getting a very good deal."

Antos added that cuts proposed by the Obama administration might be "close to the scalp but they won't get all the way to the bone." The Obama team knows that Medicare Advantage benefits lower-income seniors who get added benefits and lower out-of-pocket costs through Medicare Advantage at little expense, he said.

So-called private fee-for-service plans in the MA program could see big cuts, Antos added. But even there the Obama administration "will be very careful about how far they go in that direction because they don't want to undercut retiree coverage for big corporations because big corporations are who we're bailing out on a daily basis." Private fee-for-service plans are an attractive retiree health option for big corporations because they offer nationwide coverage.

A managed care industry executive likewise opined that Obama wasn't really playing with fire, noting that the president-elect's comments were part of an ongoing series of comments by Democrats. "It's just sort of piling on to a fire that's already burning," the executive said.

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