Medicare Advantage Was NOT Paid For; Benefits Wealthy Seniors

Medicare Advantage tussle at heart of overhaul

Chances are that many taxpayers have never heard of Medicare Advantage.

Yet that program — in which private-sector firms insure about 10 million people age 65 and older — is at the heart of this week's Senate debate over health insurance.

About 23 percent of Medicare beneficiaries now have Medicare Advantage coverage, which provides more benefits than traditional Medicare.

Senate Finance Committee Chairman Max Baucus is proposing to cut more than $100 billion over 10 years from Medicare Advantage plans.

The senators on the Finance Committee who are debating Baucus's bill this week are trying to walk a fine line: how to cut spending on Medicare Advantage, while not alienating the seniors in their own states who are happy with the plans.

Those on Medicare Advantage will get a chance to let Congress know what they think of all this in next year’s elections. In the last off-year election in 2006, nearly two-thirds of people over 65 voted. By contrast, only one-third of people aged 25 to 34 voted in 2006.

Why cut Medicare Advantage? The logic is simple: A principal goal of overhauling health insurance is to insure the uninsured.

Senators need to raise the revenue to pay for that.

Specifically, they must find the money to pay for subsidies to help the uninsured purchase coverage. They must also pay for a major expansion of the Medicaid program for low-income people.

Medicare Advantage plans provide benefits, such as vision and dental care, which go beyond those covered under the traditional fee-for-service Medicare program. Private insurers contract with the federal government to provide the plans, and they offer the extras as perks to entice patients to choose their programs instead of regular Medicare.

But the non-partisan Medicare Payment Advisory Commission told Congress that such services cost too much, with Medicare Advantage payments per enrollee 14 percent higher than traditional Medicare.

The commission said that this year the government will pay about $12 billion more for enrollees of Medicare Advantage plans than it would if they were in fee-for-service Medicare.

“These excessive payments encourage inefficient plans to enter the program, further raising the costs to Medicare,” the commission reported last June.

But the commission also said some Medicare Advantage plans were high quality.



Budget chief sees benefit cuts

And Congressional Budget Office director Douglas Elmendorf told Finance Committee members that cuts to Medicare Advantage “would reduce the extra benefits that would be made available to beneficiaries though Medicare Advantage plans.”

Who's who in the health care debate

In other words, if Congress cuts more than $100 billion from Medicare Advantage, some people's benefits will be cut.

Most Democrats are critical of Medicare Advantage, agreeing with Sen. Jay Rockefeller, D- W.V., who said at Wednesday’s hearing, “It’s a wasteful, inefficient program and always has been.”

“It is part of what is endangering the solvency of the Medicare program,” said Sen. Kent Conrad, D-N.D. “One of the reasons Medicare is forecast to go broke in eight years is because of the explosive additional cost of Medicare Advantage.”

But other Democrats defend Medicare Advantage plans — especially the plans in their own states.

Finance Committee Democrat Sen. Bill Nelson of Florida said it would be “intolerable” to ask seniors on Medicare Advantage to “have something taken away from them that they have come to expect.”

He offered an amendment to “grandfather in” some Medicare Advantage plans and shield those beneficiaries from benefit cuts.

And, then, he promised, “On a going-forward basis, we’re going to squeeze the inefficiencies out of that extra 14 percent that has gone into Medicare Advantage."



Finance Committee member Sen. Charles Schumer, D-N.Y., said that in his state, too, there are laudable Medicare Advantage plans.

"There are some of us on this (Democratic) side who see Medicare Advantage working in good ways," said Schumer. "I have non-profits who do Medicare Advantage in parts of my state that do a very good service for seniors and I am working with Sen. Nelson to try to keep those people viable."

But, he added, "In some areas, the amount of money given to the companies, given the amount of services that is returned, is excessive. … What we’re trying to do is thread the needle and garner back some of those excessive profits without hurting the individual on Medicare Advantage who actually gets a good plan."

Oregon Democrat sees 'a lifeline'

“Not all Medicare Advantage plans are created equal,” said Sen. Ron Wyden, D-Ore., explaining that Oregon has the highest Medicare Advantage enrollment, on a percentage basis, of any state.

Oregon has well-run Medicare Advantage plans, Wyden said. “In our part of the country it is a lifeline,” he told his colleagues.



Wyden said some companies had peddled Medicare Advantage plans using deceptive marketing, with salesmen masquerading as doctors in medical garb. The CEOs of those firms “really ought to go to jail,” he said.

But Wyden said the Senate must “make a distinction between the good quality Medical Advantage and those kinds of practices.”

Western state Republicans on the Finance Committee such as Sens. John Ensign of Nevada and Mike Crapo of Idaho say their states’ Medical Advantage beneficiaries would not be adequately protected from the proposed cuts. Crapo said that in Idaho 60,000 people, or 27 percent of the Medicare beneficiaries in the state, would face cuts.

Baucus and other Democrats argue that, on balance, all Medicare beneficiaries will be better off if the Democrats' bill passes because they'll get improved preventive care, have more of the cost of their prescription drugs covered by the taxpayers, and see other improvements.

But the Republicans on the Finance Committee kept reminding the audience of the formula that President Barack Obama used to use: “If you like the plan you have, you can keep what you have.”

Obama’s altered version of that formula came in his speech to Congress two weeks ago: “If you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. Let me repeat this: nothing in our plan requires you to change what you have.”

With next year’s elections little more than a year away, Republicans are telling older voters that that while they may not have to change their plan, cuts in Medicare Advantage funding would force their insurer to change their plan unilaterally, to their disadvantage.


View Larger Map

Sources: C-Span, MSNBC, Youtube, Google Maps

Drug Companies Increase Prices Ahead Of Race For Health Care Reform

Drug Makers Raise Prices in Face of Health Care Reform


Even as drug makers promise to support Washington’s health care overhaul by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect, the industry has been raising its prices at the fastest rate in years.

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.

The drug trend is distinctly at odds with the direction of the Consumer Price Index, which has fallen by 1.3 percent in the last year.

Drug makers say they have valid business reasons for the price increases. Critics say the industry is trying to establish a higher price base before Congress passes legislation that tries to curb drug spending in coming years.

“When we have major legislation anticipated, we see a run-up in price increases,” says Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. He has analyzed drug pricing for AARP, the advocacy group for seniors that supports the House health care legislation that the drug industry opposes.

A Harvard health economist, Joseph P. Newhouse, said he found a similar pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years.

“They try to maximize their profits,” Mr. Newhouse said.

But drug companies say they are having to raise prices to maintain the profits necessary to invest in research and development of new drugs as the patents on many of their most popular drugs are set to expire over the next few years.

“Price adjustments for our products have no connection to health care reform,” said Ron Rogers, a spokesman for Merck, which raised its prices about 8.9 percent in the last year, according to a stock analyst’s report.

This year’s increases mean the average annual cost for a brand-name prescription drug that is taken daily would be more than $2,000 — $200 higher than last year, Professor Schondelmeyer said.

And this means that the cost of many popular drugs has risen even faster. Merck, for example, now sells daily 10-milligram pills of Singulair, the blockbuster asthma drug, at a wholesale price of $1,330 a year — $147 more than last year. Singulair is now selling at retail, on drugstore.com, for nearly $1,478 a year.

The drug companies “can charge what they want — it’s not fair,” Eric White, the 42-year-old owner of a small jewelry store in Queens, said as he left a pharmacy recently.

Despite having drug insurance, Mr. White says he now pays $110 a month out of pocket for two brand-name allergy medicines, even as he has cut prices in his jewelry store by at least 40 percent to keep customers coming through the door.

He shook his head. “What can I do?” he said. “I need my medicines.”

The drug industry has actively opposed some of the cost-cutting provisions in the House legislation, which passed Nov. 7 and aims to cut drug spending by about $14 billion a year over a decade.

But the drug makers have been proudly citing the agreement they reached with the White House and the Senate Finance Committee chairman to trim $8 billion a year — $80 billion over 10 years — from the nation’s drug bill by giving rebates to older Americans and the government. That provision is likely to be part of the legislation that will reach the Senate floor in coming weeks.

But this year’s price increases would effectively cancel out the savings from at least the first year of the Senate Finance agreement. And some critics say the surge in drug prices could change the dynamics of the entire 10-year deal.

“It makes it much easier for the drug companies to pony up the $80 billion because they’ll be making more money,” said Steven D. Findlay, senior health care analyst with the advocacy group Consumers Union.

Name-brand prices have risen even as prices of widely used generic drugs have fallen by about 9 percent in the last year, Professor Schondelmeyer said. But name brands account for 78 percent of total prescription drug spending in this country. And as long as a name-brand drug still has patent protection it faces no price competition from generics.

Ken Johnson, senior vice president of the industry association — the Pharmaceutical Research and Manufacturers of America — criticized the analysis Professor Schondelmeyer had conducted for AARP, saying it was politically motivated.

“In AARP’s skewed view of the world, medicines are always looked at as a cost and never seen as a savings — even though medicines often reduce unnecessary hospitalization, help avoid costly medical procedures and increase productivity through better prevention and management of chronic diseases,” he said.

But Professor Schondelmeyer’s analysis — which found prices for the name-brand drugs most widely used by the Medicare population rising by 9.3 percent in the last year, the fastest rate since 1992 — is in line with the findings of a leading Wall Street analyst, too.

Catherine J. Arnold, a drug industry analyst at Credit Suisse, said her latest study of the nation’s eight biggest pharmaceutical companies showed markedly similar results: list prices rising an average of 8.7 percent in the 12 months ending Sept. 30 — the highest rate of growth since at least 2004.

As does Professor Schondelmeyer, Ms. Arnold based her price calculations on reported wholesale prices and a formula that puts more emphasis on each company’s best-selling drugs.

Ms. Arnold said the prospect of cost containment under health care reform, as well as the tougher business environment, entered into the decisions of manufacturers to raise prices this year.

The industry stands to gain about 30 million customers with drug insurance from the legislation pending in Congress. But the industry also faces the prospect of tougher negotiations from both public and private buyers as the government tries to squeeze savings out of the health system.

“If you’re going to take price increases,” Ms. Arnold said, “here and now might be the place to do that, because the next year and the year after that might be tough.”

Mr. Johnson did not dispute the Credit Suisse study or deny Ms. Arnold’s finding that American drug makers have raised prices at the fastest rate in five years.

He said both studies were incomplete by failing to include rebates that drug makers give distributors. But Ms. Arnold, Professor Schondelmeyer and a 2007 Congressional study of Medicare said the rebates often accrue to the middlemen, not consumers, and higher manufacturer prices lead to higher retail prices.

And the drug industry’s own major consulting firm, IMS Health, has also reported a significant run-up in prices. Back in April, IMS predicted that United States drug sales might actually decline this year.

Billy Tauzin, president of the industry’s trade association, highlighted the gloomy prediction in a June 1 letter to President Obama shortly before striking the deal to cut drug costs by $80 billion. In negotiating the deal, the drug makers argued that they could not afford to give up more than that.

But in October, IMS made an unusual change in the middle of its forecasting cycle, saying it now believed United States sales would grow at least 4.5 percent in 2009 — or $21 billion more than expected six months earlier.

A major reason, IMS said, was higher-than-expected price increases for drugs in the United States.


Sources: NY Times, Wikipedia