Will Privatization Force Traditional Medicare Out of Business?

Five or ten years from now, seniors may wake up one morning and discover that their beloved Medicare program has been completely privatized. And it will not be because that's what seniors want; it will be due to corporate influence and profiteering. Medicare was not created as a private program. In fact, it was enacted in 1965 as federal health insurance for seniors because many private insurers refused to cover them. But over the past three decades, insurance companies and private investors have found a way to capture a growing share of federal Medicare dollars--money that should go toward patient care, not corporate profit.

The most recent sign of this trend: The Trump administration initiated a pilot program called Direct Contracting to improve upon the Accountable Care Organizations (ACOs) first authorized by the Affordable Care Act. ACOs were created to emphasize better care coordination for the purpose of managing chronic conditions rather than treating them episodically. But the problem with the Trump administration's version of ACOs--Direct Contracting Entities (DCEs)--is that it allowed 75 percent of their governance to be controlled by private insurers and other investor-backed companies. The Biden administration allowed part of this program to continue, but faced blowback from the National Committee to Preserve Social Security and Medicare and progressives concerned about for-profit interests expanding their role in traditional Medicare.

After drawing fire from seniors' champions on Capitol Hill and in the advocacy community, the Center for Medicare and Medicaid Services (CMS) re-branded the Direct Contracting program as Accountable Care Organization/REACH, changed the governing requirements to require 75 percent provider governance, and removed other objectionable aspects of the model. However, private insurers and other investor-backed entities can still fund traditional and REACH ACOs--and participate as significant minority representatives on their boards. Some investors view these care coordination models as ripe for financial exploitation.

While we commend CMS for revising the pilot program's rules, we continue to be troubled by the potential for REACH organizations to steer beneficiaries away from traditional Medicare providers outside the ACO network. Because of payment incentives in the pilot project (if not adequately designed to improve care), patients could be pushed toward in-network doctors and hospitals simply because they cost less, and not necessarily because they provide quality care.

In recent years, there has been tremendous growth of the Medicare Advantage (MA) program. MA plans are publicly financed, but privately run--a creation of the Medicare Modernization Act of 2003. The putative rationale for Medicare Advantage was that the private sector could theoretically manage patient care and contain costs better than the federal government, ostensibly saving the Medicare program money. While that may sound good in theory, it hasn't worked out that way where MA is concerned.

Between 2009 and 2021, the government paid Medicare Advantage plans $140 billion more than it would have if the same patients had stayed in traditional Medicare. In fact, the cost to taxpayers of switching seniors to MA plans "has exploded since 2018 and is likely to rise even higher," according to Kaiser Health News. As Axiosreports, "Overpaying the Medicare Advantage plans as their enrollment continues to grow threatens Medicare's long-term finances." Meanwhile, writes Diane Archer of JustCare USA, "There's no one policing (Medicare Advantage companies) from taking taxpayer money and spending as little as possible on care."

Even as evidence against Medicare Advantage mounts, MA plans are capturing a larger and larger share of the market. In 2000, it was 17%. Today, more than 40% of Medicare patients are enrolled in MA plans. And little wonder. Medicare Advantage companies run television ads featuring celebrities like Joe Namath and Jimmy Walker, promising seniors a plethora of goodies like gym memberships and rides to the doctor. The ads do not mention MA's considerable limitations or that seniors have the option to enroll in traditional Medicare. In fact, the ads gloss over the difference between the two options, presenting MA as synonymous with Medicare itself. Of course, the more profits MA insurers reap, the more they can plow back into advertising.

Traditional Medicare does not advertise. Worse yet, during the Trump administration, the Centers for Medicare and Medicaid Services (CMS), actively promoted Medicare Advantage during enrollment season and downplayed the option of traditional Medicare. Not coincidentally, Medicare Advantage increased its market share by nearly 10% during the Trump years. Advocates, including the National Committee to Preserve Social Security and Medicare and the Center for Medicare Advocacy, decried the tilting of the playing field toward MA plans by the federal government itself, which should remain neutral with respect to enrollees' options.

In fairness, MA plans do offer coverages that traditional Medicare should offer but still doesn't - including vision, dental, and hearing care. (The President's Build Back Better plan finally would have expanded Medicare coverage, but it was effectively buried in the Senate.) However, Medicare Advantage plans come with several disadvantages that patients may not realize when they dial that 1-800 number on the tv screen.

Medicare Advantage plans offer limited networks of participating providers with whom they've negotiated lower rates. Many MA plans require pre-approval for procedures that traditional Medicare doesn't. And Medicare Advantage insurers often deny claims that traditional Medicare would have covered. All of this leaves seniors vulnerable to high out-of-pocket costs - in some cases, thousands of dollars per year--which many living on fixed incomes simply can't afford.

Unfortunately, most seniors do not discover MA's drawbacks until it's too late. There are myriad stories about MA patients who develop chronic or acute conditions only to find out that their preferred specialists or hospitals are out of network, or that their claims for care have been denied - leaving them to foot the bill. According to a 2017 report by the Government Accountability Office (GAO), seniors commonly cited problems with "coverage of preferred doctors and hospitals... and access to care," among other issues.

The GAO found that sicker beneficiaries are likelier to disenroll from MA, "a sign that the quality of plans with high turnover may be poor." But if patients want to switch from MA to traditional Medicare, they may not be able to obtain (or afford) supplementary Medigap insurance and can remain stuck in the MA program.

With Medicare Advantage's questionable track record, it would behoove CMS to be careful in how it sets parameters for any initiative that changes the way traditional Medicare operates. Traditional Medicare needs to remain a robust, viable option for seniors. Recent developments can be a lesson learned in proceeding cautiously so as not to undermine traditional Medicare.

The primary focus of Medicare should be patients' health and well-being, not corporate profits. Medicare Advantage has not lived up to its core promise to deliver comparable care for less money--while benefitting from government overpayments and billing schemes like "upcoding."

That hasn't stopped conservatives from trying to privatize Medicare through various means over the decades. As early as 1996, none other than Newt Gingrich gleefully predicted that privatization would cause Medicare to "wither on the vine." CMS has partly addressed this challenge in their restructured Direct Contracting/ACO REACH pilot program by limiting the participation of private insurers and other investor-backed companies to 25 percent, but concerns remain about how the demonstration's payment structure could result in a limited provider network being expanded to all of traditional Medicare.

Will traditional Medicare still have a primary role in the provision of quality, cost-effective care for seniors that get to choose their own doctors? That depends on whether Congress demands that CMS do a better job of determining what ACO REACHs are doing to improve the quality of care, enhance transparency of the contracts between ACOs and providers to ensure that financial incentives are not limiting physician choice, and develop better metrics to evaluate if ACOs are delivering on their mission of better management of chronic conditions. These steps must be taken to preserve our cherished Medicare program. They will determine whether the public program is turned over to private entities with limited provider networks and gatekeepers driven more by profit than patient care, or if an improved traditional program will continue to give seniors and people with disabilities access to most doctors and hospitals at a time in their lives when they need it the most. Let's save and expand traditional Medicare before Gingrich's ominous prediction comes true.