Vail Valley Voices: Public vs. private payer: Who wins and loses |

Vail Valley Voices: Public vs. private payer: Who wins and loses

Jill E. Kovacevich
Vail, CO, Colorado

As Washington threatens to cut the Medicare Advantage program our seniors are becoming increasingly concerned about increased premiums and decreased benefits.

Those of us non-seniors may not realize that seniors pay a premium for their health care and in some cases pay a higher premium for the same “plan” than the private insured.

So when we hear talk of Medicare reform threatening premium increases, benefit decreases or fee schedule cuts, most providers and Medicare patients become alarmed and deservingly so. The current premium, claims and fee reimbursement system is already insufficient to meet the needs of seniors, providers or result in a sustainable Medicare product.

To entertain further cuts is in direct disregard for providing sustainable health care to our senior population, for which the program has become intended. But there is more to the story.

Medicare Advantage is a private-payer product offered to Medicare eligible patients to cover medical services as a replacement to Medicare coverage. Medicare Advantage products are offered by private payers such as United Health Care, Humana, AARP, etc.

This product is a very lucrative market for the private insurance industry, reporting larger profits from their Medicare Advantage product than from any other profit source within the company. (See, One reason is because Medicare Advantage payers are paid more for claims than under the standard Medicare fee schedule.

In other words, the private insurance company receives a bonus from Medicare on Medicare Advantage claims. The Wall Street Journal reports the bonus on average as costing the government 14 percent more than average Medicare costs per claim. (

This bonus, or increased fee revenue plus product premium dollars, has supported a profit-producing product. Initially the “bonus” revenue was thought to create an incentive for the private sector to offer coverage for benefits to Medicare-eligible patients that Medicare was unable to budget and pay.

Basically, Medicare sought a means to decrease its losses by off-loading a portion of its claims liability to the private sector.

However, the private payer quickly turned this “losing” product into a money maker. Now, Medicare wants to either take back the incentive or “level the playing field,” depending on how you look at it.

Essentially, Medicare argues it is paying an increased fee, resulting in increased private-payer profits without a corresponding return of savings to Medicare.

Further, as Medicare continues to suffer losses and threatens providers with reduced fees and seniors with increased premiums, the alternative is to focus on areas to reduce costs. Eliminating, the Medicare Advantage bonus pay is thought to be one way to do so.

The private Medicare Advantage payers are intent on retaining the product as its best current producer and are taking aim at derailing any legislative or Medicare reform that decreases the Medicare Advantage profit margin.

The private payers argue that their improved profit margins are the result of better management and lower administrative costs. However, their quarterly reports cite lower claims paid under prescription plans and increased premiums, resulting in a 2009 first quarter increase of 10 percent revenues, for Humana alone. (See,, Humana Medicare Advantage)

Medicare argues that if the private sector is better at reducing administrative costs, then an elimination of the bonus revenue or eliminating the bonus fee schedule should be easier to absorb by the private payer.

The private payers counter by threatening to increase premiums, decrease benefits and decrease claims paid, to offset a reduced fee schedule and decreased bonus revenue stream.

The private-payer sector has spent considerable time and money to convince all of us, and particularly the Medicare patient, that cuts to the Medicare Advantge program will harm senior health care.

Humana wrote a letter in September to its patient insureds alleging “that current health care reform legislation affecting Medicare could hurt millions of seniors and disabled individuals who could lose many of the important benefits and services that make Medicare advantage health plans so valuable.”

They have also launched a sizable television campaign with the same message. Their September letter is under investigation by Center for Medicare Services (CMS) as to whether is violates federal marketing regulations. CMS states it feels the letter is “misleading and confusing” by “urging patients to protest the proposed cuts” threatened by Washington. Remember, Humana has one of the biggest Medicare Advantage businesses among private health insurers.

And so the jocking for position continues. The historic conservatives find themselves advocating against Medicare cuts, while liberals attempt to explain away that what appears to be a cut is not really a cut with regard to Medicare Advantage.

Talk about a political brouhaha. No wonder the rest of us, patient constituency and health-care providers, don’t know whether to laugh or cry. It is now more apparent than ever that the public-private insurance conglomeration we currently call our health-care pay system is more focused on profit retention and loss reduction on both sides, the public and private sector, than on solving the issues of providing sustainable cost effective health care.

If it were otherwise, it would be incumbent upon any legislative reform to have been drafted from compromise first not threats of decreased services later. Maybe we should lock them all in room without food and water until reality sets in.

And to say they need more time to compromise only belabors the point.

Better yet, maybe our congressional representatives and executive branch should convert their health-care coverage to Medicare or Medicare Advantage to truly appreciate the gravity of the situation.

Sometimes it doesn’t hit home until it hits home. But that’s just how I see it.

Jill E. Kovacevich is the practice administrator Doctors On Call PC, based in Avon.

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