11/28/2009 05:12 am ET | Updated May 25, 2011

Cutting Subsidies to Insurers Are Not Benefit Cuts

Let's be very clear about who, in this ongoing health care reform debate, is truly threatening to cut seniors' Medicare benefits. It's not President Obama. It's not health care reform proponents in the House or Senate.

In fact, the only threats of benefits cuts have come from private insurers offering Medicare Advantage plans. Why? Because the industry is at risk of losing billions in federal subsidies--subsidies that have raised premiums for every beneficiary in Medicare (not just the 20% in private MA plans) and stolen more than a year from the Medicare trust fund. These subsidies continue to amass over time, ultimately costing the Treasury and every senior in Medicare $169 billion during the first decade alone. It's a sweet deal for insurers. A deal they're now fighting hard to protect.

But this is a tough economic climate to try to sell Americans on the need to subsidize an industry which has shown record-breaking profits thanks to the growing seniors' market. So the overpaid private insurers and some allies in Congress have opted to convince retirees that the proposed subsidy cuts are actually benefit cuts--with threats to drop seniors, drop coverage, or cut benefits if the Medicare Advantage slush fund is trimmed. One insurer, Humana, even went so far as to pitch their scare tactics directly to beneficiaries in possible violation of their provider's agreement with the federal government.

Unfortunately, this is nothing new. For decades, the insurance industry has told Congress it could provide better health care for seniors while saving Medicare money. However, it has never happened. Seniors in Medicare have been threatened before with losing their private coverage because there just wasn't enough profit in it for the insurance industry. In the '80s, insurers promised to deliver coverage for retirees at 95% of Medicare's costs. However, by the late '90s, even after dropping the sickest beneficiaries, raising premiums and reducing benefits, many private plans withdrew from Medicare and dropped beneficiaries entirely. Sound familiar?

It's time we call this decades-long dance with the insurance industry and Medicare what it is-- political extortion--not benefit cuts. Privatized Medicare cannot deliver on its promise because without massive government subsidies to boost profits, the industry inevitably loses interest in providing coverage for America's elderly. In spite of the many opportunities given to insurers to compete against Medicare, they have consistently failed to deliver more cost-effective coverage for seniors. The Congressional Budget Office has concluded:

Though Medicare Advantage plans cost more than care under the FFS program does, on average, they would be more cost-effective if they delivered a sufficiently higher quality of care. The limited [quality] measures available suggest that Medicare Advantage plans are not more cost-effective than the FFS program.

The fiscal truth of the matter is Medicare cannot afford to continue to give away $169 billion dollars of taxpayer funds to America's insurance industry. The industry is quick to highlight extra benefits provided to MA beneficiaries (such as eyeglasses, dental coverage, and gym memberships) but why shouldn't these benefits be provided to all seniors, not just those in private plans?

Conversely, MA insurers don't talk about benefits that are shortchanged like chemotherapy treatment and home health care services. All too often, seniors discover these coverage limits only after a serious diagnosis or illness. If insurers want a piece of the senior market, they should compete fairly to earn it and health care reform proposals now being considered in Congress reflect this. The independent advisory panel which oversees Medicare, MedPAC, has also recommended that Congress "level the playing field" by setting payments to private plans at the same levels as it would cost to serve comparable beneficiaries under the traditional Medicare program.

Seniors have a lot at stake in this health care reform debate but their attention has been diverted by a public relations campaign designed to masquerade industry giveaways as benefit cuts. While current health care reform proposals do not threaten Medicare's fee for service benefits, continuing to pour billions of dollars in subsidies into America's insurance industry certainly does. Passing up this historic opportunity for system wide health care reform in favor of the unsustainable status quo only speeds Medicare towards insolvency and puts a target on Medicare's back for potential funding cuts of unprecedented levels in the future. And that's the scariest proposal of all.