The Medicare Advantage Piece of the Healthcare Debate

Insurers constantly caution seniors that their Medicare Advantage perks such as hearing aids, dental payments and even gym memberships will fizzle if Democrats get their way and cut government subsidies for them.

However, tens of billions of Medicare dollars funneled through insurers also pay for extras that never reach beneficiaries: multimillion-dollar salaries; executive retreats in Hawaii, Scotland and Cancun; and massive expenditures on marketing to lure more customers to the privately administered Advantage plans that serve as an alternative to government-provided Medicare.

The government-subsidized benefits that seniors on Advantage plans receive — often at premiums lower than Medicare premiums — are real, and are legitimately in danger in some cases if Democrats succeed in their healthcare overhaul.

Medicare Advantage subsidies are on the chopping block to pay for the overhaul. Though there are marked differences between House and Senate versions, both bills would lower payments to private Medicare Advantage plans, which on average cost the government 14 percent more than traditional Medicare.

The harshest critics of the Advantage program say patients are exchanging hassle-free coverage for a plan with cheap perks that may ultimately deny them necessary treatment.

“They’re giving special benefits that are valuable,” said Mary Johnson, policy analyst for The Senior Citizens League, a nonpartisan, 1.2-million-member group, “but what people don’t understand are the trade-offs.”

Coverage Disparities

Though AARP — which lends its name to a Medicare Advantage plan — and other senior advocacy groups support the Advantage cuts, it is likely that at least some seniors will see their premiums rise, benefits cut or plans close.

“I get too upset over it,” said 71-year-old Charlotte Casey of Miramar, Fla., who is on an Advantage plan through Coventry Health Care. “The seniors are going to get the worst of it.”

Casey first enrolled in a Humana plan, but she dropped it over problems with its prescription drug coverage. She plans to switch from her current plan, too, because her primary care doctor will no longer be covered and she’d have to travel farther for nonemergency hospital services. She has had to fight for payment sometimes, but overall she says it is the best fit for her because she doesn’t need a costly MediGap plan to cover what traditional Medicare would not.

“Regular Medicare is the best one, but you have to pay for a supplement,” she said. “With this, sometimes you want something and they don’t want to give it to you.”

Despite the belief that Advantage plans offer broad savings for seniors, a Government Accountability Office report last year found wide differences depending on the plan, including home health service costs that could be up to 84 percent more than traditional Medicare.

A half-million Advantage enrollees were in plans with no co-pay for hospital stays, but a roughly equal number were in plans with high hospital co-pays and no limits on out-of-pocket inpatient expenses, potentially costing patients thousands more.

The disparity was greatest for some of the sickest seniors — those who return to the hospital within 60 days of discharge, the GAO found. Under traditional Medicare, those patients would not pay any deductible. Under many Advantage plans, the deductibles can be steep.

‘Nickle-and-Dime Stuff’

Many of the perks offered by Advantage plans are relatively cheap. Vision coverage cost insurers $3.37 a person each month, on average, according to 2007 filings with the government. Hearing coverage cost less than a dollar.

“The little stuff, the nickle-and-dime stuff, it’s good,” said John Arline, who was faced with a huge bill for his 84-year-old grandfather Mervyn Urquhart earlier this year, “but people don’t need coverage for the nickle-and-dime stuff.”

Urquhart, though suffering from Alzheimer’s disease, is a reasonably healthy engineering retiree living in Wheatley Heights, N.Y. After treatment for a stomach virus and deep vein thrombosis in January, he was so weak from time in a hospital bed that doctors agreed he needed rehabilitation and physical and occupational therapy.

His Advantage plan turned him down, even though Medicare covers such treatment. Arline and other relatives footed the roughly $12,000 bill for rehab. With it, Urquhart is now able to walk, to feed himself and to live a fairly normal life.

“They violated this patient’s rights,” Arline said. “They did that because it was cheaper.”

Insurers participating in the Advantage program responded to inquiries by Senate Democrats that led to a report this month providing some fuel in their fight against the subsidies. The companies reported, on average, spending more than 15 percent of premium revenues on profits, marketing and corporate expenses, nearly 10 times the rate of traditional Medicare.

Meanwhile, Advantage companies were paying for multimillion-dollar corporate retreats in exotic locales and hundreds of their executives were being paid more than $500,000 annually. Government reports have shown Medicare Advantage providers continually outpace profit projections. The congressional review released this month showed 34 Advantage companies devoted $27 billion in government subsidies from 2005 through 2008 to profits, marketing cost and other corporate expenses.

Best in the World?

Still, Advantage enrollment has burgeoned, doubling to nearly 11 million people in the six years since Congress approved lucrative subsidies to insurers that allowed them to expand their reach. About one in four seniors are now on private plans.

Provisions were added to the Senate legislation to grandfather in beneficiaries in some areas and to provide emergency funds to others to avoid disruptions. The insurance industry still contends the majority of Advantage enrollees remain in danger.

“Seniors are going to lose many of the benefits that seniors like and rely on today,” said Robert Zirkelbach, a spokesperson for America’s Health Insurance Plans, an industry group. “And in some parts of the country, seniors will lose access to their Medicare Advantage plan altogether.”

Private plans have existed under Medicare since the 1970s, and many have persisted through previous cuts. Plans shuttered after reductions in funding during the Clinton administration, and changes approved by the Obama administration earlier this year are at least partly responsible for the 18 percent fewer plans operating in 2010 and higher premiums systemwide.

Neal Bulla, a 70-year-old retiree from a marketing job in Fort Wright, Ky., belongs to an Advantage plan through United Healthcare and receives a gym membership, vision and hearing coverage, and is immune to the prescription drug “doughnut hole” that plagues many seniors. He is so upset at AARP’s support of Democrats’ healthcare bills that he tore up his AARP membership card.

“It’s the best insurance plan that I’ve ever had,” he said. “They’re going to ruin the best medical system in the world.”

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