Medicare Advantage: The canary in the coal mine

Patrick Hedger FreedomWorks
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Despite the growing opposition to the Patient Protection and Affordable Care Act among the American public, its progressive defenders in Congress and the administration continue to insist that the law – more commonly known as Obamacare – is somehow a market-based approach to healthcare.

The heavily regulated and subsidy-supported exchanges are touted as “choice,” despite the inconvenient detail that if you don’t buy one of the approved plans the IRS will fine you. In spite of this, liberals persist in pushing the false narrative that this is a patient-centered and market-based approach. This contention continues to be one of the focal points of the Obamacare fight.

Democrats can kick and scream all they want, insisting that their objectives are markets and choice. Yet Obamacare effectively destroys a peripheral element of the current entitlement state that offers patients real choice, giving the lie to progressives’ claims about their long-term plan for American healthcare.

Within the existing, pre-Obamacare, structure of Medicare is a program called Medicare Advantage. Medicare and Medicare Advantage are quite different from one another. Traditional Medicare is a fee-for-service program that directly reimburses healthcare providers such as doctors and hospitals for services rendered. Medicare Advantage, on the other hand, is a program where enrollees’ benefits are paid to any number of third party insurers in a given area that compete with one another to offer the best and broadest coverage at the lowest price.

Under Medicare Advantage, beneficiaries are allowed to shop around between given providers in their area. Unique to Medicare Advantage, providers receive a rebate from the federal government if they offer coverage at a price below the government benchmark – or the price the government would be willing to pay in the given area for patients enrolled. Providers were able to use this rebate to lower prices further and expand coverage for their enrollees. As a result, Medicare Advantage enrollees often enjoy additional health, wellness and non-essential coverage well beyond that of traditional Medicare enrollees.

This may sound familiar. It’s healthcare coverage based on choice and the marketplace, which Democrats claim define Obamacare. There is just one problem: Obamacare completely guts Medicare Advantage.

Provisions of the law are almost explicitly structured to drive the government’s premier choice-based healthcare program into oblivion. First, Obamacare lowers Medicare Advantage benchmarks across the board. The law lowers the benchmarks so much that many Advantage enrollees will only qualify for a reimbursement to their providers worth 95 percent of what the government would cover under traditional fee-for-service Medicare.

Adding insult to injury, Obamacare also slashes the available rebates that are used to lower costs and provide additional benefits to Medicare Advantage patients. Previously, companies that provided care efficiently were eligible to receive 75 percent of the difference between their costs and the government benchmark. Obamacare, in addition to the lower benchmarks, slashes these rebates. Most companies will now only be eligible for 50 percent rebates, raising the cost and lowering available benefits for Advantage enrollees.

The goal is obvious: destroy the incentive for patients to enroll in Medicare Advantage and push patients back to traditional Medicare. This effect is antagonistic to the stated objectives and selling points Democrats use to vehemently defend the controversial law. While progressives stump for the law and brag about its so-called market-based approach, their prized legislation quietly eliminates healthcare freedom for the more than 14 million current Medicare Advantage enrollees, gradually using market forces to push them all into the Medicare fee-for-service system. In effect, the phase-out from Medicare Advantage to fee-for-service is nothing more than a move from markets to a government monopoly.

Consider Medicare Advantage the canary in the coal mine for healthcare in America. This is but a microcosm of what is to befall all Americans, not just our retired and elderly. Already, we’re seeing premiums and out-of-pocket costs skyrocketing across the country for myriad plans, be they employer-sponsored or exchange-based. Increasingly, companies still struggling in the sluggish economy are dumping their employees into the state exchanges, where, in turn, the enrollees expect to receive subsidies that will allow them to choose from a number of government-approved plans. Sound familiar?

The problem is that the exchanges, reliant upon taxation of independent insurance plans to cover costs, will continue to absorb new enrollees at greater costs while available revenue to support the subsidies dries up. Thus the government will be forced to undertake cost-cutting measures and reduce the types of plans and coverage they are willing to subsidize. The endgame is ultimately that the exchanges become unsustainable, and, just like Medicare Advantage, a fiscally unstable government will look to cut its losses and move everyone on the exchanges into a fee-for-service system – or as our European friends know it: single-payer.

Patrick Hedger is a Policy Analyst for FreedomWorks, a grassroots service center to a community of over 6 million activists who believe in individual liberty and constitutionally-limited government.