WASHINGTON — If competition drives prices down, then why does the government pay private insurers more per patient than the Medicare program spends on the average beneficiary? This is the question on the minds of a growing number of people, said panelists at a press briefing on health care costs sponsored by the Center for Studying Health System Change.
“In 2003, we passed the Medicare Modernization Act…. It was about how [we are] going to solve the baby boomer problem … [and] bring Medicare costs under control,” said Robert Laszewski, president of a health policy and marketplace consulting firm in Alexandria, Va.
At the time, the Republican-led Congress decided the best way to bring costs under control was to encourage more Medicare beneficiaries to join private plans. So, depending on which type of plan they offer, managed care companies receive 10%–20% above what Medicare spends on the average beneficiary in the government-run, fee-for-service system.
It's 4 years later, Democrats are in power in Congress, and some are beginning to wonder what they are buying with the millions of extra dollars flowing to private insurers. Physician thought leaders, including those on the government's Medicare Physician Advisory Commission (MedPAC), have called for Congress to redirect those funds toward other priorities, such as fixing the sustainable growth rate formula.
But Christine Arnold, a managing director at Morgan Stanley, where she covers the managed care industry, said it may be too early to pull the plug on using private insurers to control costs. “The companies I speak to say they can reduce medical costs 10% for a managed product versus an unmanaged product, but it takes 2–4 years.”
It is not just in the Medicare program that the cost-saving techniques of managed care companies are being questioned.
Health savings accounts and other consumer-driven approaches are beginning to lose favor with the public. The number of U.S. workers who enrolled in consumer-directed plans grew by a meager 300,000 between 2005 and 2006, according to the Kaiser Family Foundation's annual survey of employer benefits.
A survey by America's Health Insurance Plans, a trade body, seems to confirm that trend. After a couple of years in which enrollment in health savings account-affiliated, high-deductible plans doubled and then tripled, the number of people in the plans grew by less than a third last year.
Consumer-directed plans may be a good idea, but they're based on a false assumption that patients have the resources to make the right choices, said Douglas Simpson, the senior managed care analyst at Merrill Lynch & Co. “We're incentivizing them with the benefit structure, but we're not giving them the tools to make better decisions. It's like giving somebody $100 for dinner, then not putting the prices on the menu.”
The cyclical nature of health care reform also is becoming more apparent, said Joshua Raskin, who covers the managed care industry as a senior vice president at Lehman Brothers Inc.
During the late 1980s and early 1990s, health care premiums were growing by double digits, resulting in a political backlash in the form of Hillary Clinton's universal care plan further popularizing health maintenance organizations, he said. Costs in the mid-1990s to slipped to the low single digits, then the economy picked up again and so did medical cost trends. Now, the discussion is back to focusing on more government intervention.