Private HMOs cost more to Medicare


medicare card CHICAGO (Reuters) - Private insurers in the Medicare insurance program were paid 12.4 percent more by the government than the health care provided would have cost under traditional Medicare, a report released on Thursday said.

Payments to private insurers were $922 more per enrollee in 2005 than they would have been to the government-run program, the report by the nonprofit research group the Commonwealth Fund said.

Private managed-care companies have taken a bigger role in Medicare, the health insurance program for 43 million elderly, after recent changes pushed by President George W. Bush and the Republican-led U.S. Congress.

Supporters argued that the extra payments were needed to lure insurers to the program, and that competition would drive efficiency at lower costs.

"If the purpose of having private plans in Medicare is to make private plans available at a lower cost, then why is the government paying so much more?" said Stuart Guterman, senior program director at the Commonwealth Fund and study co-author. "What it does is give private plans a leg up compared to the traditional Medicare program."

About 13 percent of Medicare's 43 million enrollees are in the private plans, known as Medicare Advantage. UnitedHealth Group and Humana Inc. are two of the biggest companies offering the plans.

The remaining enrollees get Medicare straight from the government in a fee-for-service plan.

America's Health Insurance Plans, the trade group for the industry, rejected the study's methodology and said it omits certain costs that traditional Medicare plans incur.

Mohit Ghose, a spokesman for the group, said profit margins for the plans are not excessive -- generally between 2 and 4 percent. He also said 75 percent of any savings that private plans extract must go back to enrollees in the form of lower premiums or extra benefits.

"The idea that the money is not being used for beneficiaries is a canard," Ghose said.

But Guterman said all beneficiaries are paying the extra cost to the government -- not just those signing up for the private plans.

The Commonwealth report is similar to findings earlier this year by the Medicare Payment Advisory Commission, which found that private plans cost 11 percent more than traditional plans in 2006.


Kirsten Sloan, chief lobbyist for AARP (formerly the American Association of Retired Persons), said overpayments to private insurers are unfair to seniors in the traditional Medicare program and will quicken insolvency of the hospital section of the program.

"The overpayment creates this unlevel playing field," she said. "It is an issue of equity."

Democrats, who will take over both houses of the U.S. Congress in January, will likely take a closer look at the incentives provided to insurers. Some have argued that the private sector push is a back-handed way of privatizing the Medicare program completely.

The Commonwealth study said that the higher payments are due largely to the benchmarks used to calculate payments on a statewide basis.

© Reuters 2006