The History of Medicare and
The Current Debate

The Birth of Medicare The Heritage Foundation Media Campaign Leading Market-Driven Legislative Proposal Instability in the Medicare HMO Marketplace The New Medicare Law: A Victory for the Proponents of Privatization Growing Power of Extremist Think Tanks MRC's Media Education Campaign

Instability in the Medicare HMO Marketplace

The Medicare+Choice program was enacted in 1997 to foster a Medicare program that relied heavily on private plans and to lower the costs of the Medicare program. It has failed on both counts.

Today, in 2004, private plans offering coordinated care are not available to 16 million people with Medicare (40%), because they have not found it profitable enough to offer coverage to all people with Medicare.¹ While there are other types of private plans that offer coverage through Medicare, the vast majority are HMOs. Since 1999, the number private plans participating in Medicare has declined steadily. From 1999 to 2003, it went from 309 to 188.² Many of the plans that have stayed have increased their premiums and reduced benefits, claiming increasing profit losses. Because of this inherent instability in the Medicare private plan marketplace, from 1999 through the beginning of 2004, over 2.4 million people with Medicare lost their HMO coverage and were forced to find new coverage.³ Nationally, only 12 percent of people with Medicare are now enrolled in Medicare HMOs.⁴

Furthermore, according to an August 2000 report issued by the U.S. General Accounting Office (Medicare+Choice: Payments Exceed Cost of Fee-for-Service Benefits, Adding Billions to Spending) and many other independent reports, people who enroll in Medicare HMOs actually cost the government more than if they were enrolled in the original fee-for-service Medicare program. Healthier people with Medicare who have lower than average medical costs are more likely to sign up for Medicare HMOs, leaving the sicker ones whose care is more costly in the original fee-for-service Medicare program. According to the GAO report, in 1998, Medicare paid HMOs an average of 13.2% more than Medicare would have spent if HMO enrollees had received care under the government-run Medicare program. The consensus of the GAO report and other independent reports is that risk-adjusted payments are needed to prevent financial losses to the program and to encourage plans to enroll high cost cases, otherwise increasing numbers of people enrolling in private plans will lead to a huge surge in per person costs in fee-for-service Medicare.⁵ However, experts agree that there are no good risk-adjustment methods yet established that would allow for government payments to reflect accurately the needs of members.

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¹ Medicare Payment Advisory Commission, “Report to Congress,” March 2004.
² Ibid.
³ Centers for Medicare and Medicaid Services.
⁴ Medicare Payment Advisory Commission, “Report to Congress,” March 2004. ⁵ Centers for Medicare and Medicaid Services.

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