Medicare is quietly being privatized. Does anyone care?

By Brett Arends

More than half of all Medicare beneficiaries are enrolled through private insurers

The campaign to privatize Medicare has just passed a landmark. This year, for the first time ever, more than half of all Medicare beneficiaries are enrolled through private insurers, in a system known as Medicare Advantage.

"In 2023, 30.8 million people are enrolled in a Medicare Advantage plan, accounting for more than half, or 51 percent, of the eligible Medicare population, and $454 billion (or 54%) of total federal Medicare spending (net of premiums)," reports the healthcare nonprofit and think tank the Kaiser Family Foundation.

As recently as 2005, privatized Medicare plans accounted for just 13% of beneficiaries. By 2033, they are expected to be above 60%.

This is a remarkable evolution. Medicare was created as a government program. But today more than half of its beneficiaries are in the hands of private insurers, rather than the government.

Private Medicare plans have existed since the 1970s but only really took off in recent decades. A big change came under President Obama. His Affordable Care Act, which became known as "Obamacare," improved the system, drove down costs and introduced incentives for insurers to make their plans better -- including a star rating and annual bonuses for hitting quality targets.

Kaiser reports that those bonuses are on track to jump 30% this year to $12.8 billion, more than four times the amount paid out by Uncle Sam in 2015. This is just over 1% of the annual Medicare budget, which will top $1 trillion this year

The process of privatizing Medicare has been surprisingly uncontroversial so far. For one thing it doesn't fit easily into a TikTok video.

Is it a good thing? Maybe. Consumers are certainly voting with their feet. Medicare Advantage plans typically operate through HMO or PPO networks, which give them greater control over costs. Most Advantage plans include benefits not offered by traditional Medicare -- typically free prescription-drug coverage, and vision, hearing and dental coverage. But Advantage plans don't have to cover hospice, and there is some evidence that those who need the most care are apt to switch back to traditional Medicare.

Due to rules laid down by Obamacare, insurers offering Medicare Advantage plans must spend at least 85% of their revenues on actual care -- meaning profits and overhead are capped at 15%. Which means that if the companies offering Medicare Advantage really do provide superior insurance to traditional Medicare, they are also doing so for 15% less.

Harvard's T.H. Chan School of Public Health and the health-tech company Invalon are currently engaged in a deep dive into the mechanics and economics of Advantage. Initial findings seem mixed. Interestingly, they have also found that those enrolling in Medicare Advantage are on average poorer than those enrolling in traditional Medicare. Advantage enrollees are twice as likely to be people of color, and on average earn less, have lower wealth and are less likely to live in affluent neighborhoods.

Is Medicare Advantage offering its customers better health outcomes, at lower cost? Time will tell.

-Brett Arends

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08-14-23 1333ET

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