Obama Administration Opposes Medicare Overpayments to Private Insurers, Except When It Doesn't

When it comes to payments for private insurers in the Medicare Advantage program, the White House has always been clear: The program's "overpayments" to private insurers need to be cut back in order to preserve Medicare's benefits for seniors. Back when the Obama administration was still young, former White House budget director Peter Orszag laid down the law for insurers he believed were being overpaid by the program: "I believe in competition. I don't believe in paying $1.30 to get a dollar," he told attendees at a health industry conference in 2009.

But apparently they don't need to be cut back quite yet: The administration is ignoring the money saving payment reductions called for by the 2010 health care overhaul until sometime after the election. And the Government Accountability Office (GAO) is telling the administration to cut it out.

Medicare Advantage serves about 12 million Medicare beneficiaries, offering seniors a choice of competing private insurance plans. Medicare rates the effectiveness of those plans on a five star scale, with five stars being the best. ObamaCare limited the program's payment structure so that only plans rated four or five stars would get the best bonuses. The result? Big Medicare savings—an estimated $145 billion over a decade—intended to help pay for the law's $1 trillion in new spending.

But the administration isn't quite ready to see those all those savings yet. As the GAO reports, "Rather than implement PPACA's bonus structure, CMS announced in November 2010 that it would conduct a nationwide demonstration from 2012 through 2014 to test an alternative method for calculating and awarding bonuses." The new payment system—billed as yet another Medicare pilot program—temporarily (at least so far) expands the bonuses down to plans rated three and three and a half stars and pays higher bonuses to the four and five star plans.

The administration claims this is yet another innovative pilot program designed to create incentives for quality within Medicare. "The administration is defending the program," according to The Washington Post, "saying that without the bonuses many plans wouldn't have an incentive to improve quality."

But the program isn't paying for quality. It's paying for mediocrity. The bulk of the program's spending goes to the underachievers: "The expanded bonuses and higher MA enrollment mainly benefit average performing plans," according to the GAO.

And they're paying a lot for it. The program is expected to cost $8.3 billion. GAO reports that the program "dwarfs all other Medicare demonstrations" since 1995. "The estimated budgetary impact of the demonstration, adjusted for inflation, is at least seven times larger than that of any other Medicare demonstration conducted since 1995," the GAO report says, "and is greater than the combined budgetary impact of all of those demonstrations."

After its analysis, the GAO is calling for the administration to end the program and let the previously slated cuts stand.

Remember when critics of the health care overhaul argued that it would be extremely difficult to save money on the program by making targeted cuts to provider payments? This is why.

This program is transparently not about testing ways to encourage provider quality. Unlike most Medicare pilot programs, it's not a small-scale test built to be expanded if it works: It allows any eligible provider to participatem, nationwide, from the start. As an experiment in how payment tweaks can lead to provider quality, it's worthless: As the GAO notes, "The design of the demonstration precludes a credible evaluation of its effectiveness in achieving (the administration's) stated research goal."

Instead, this is about avoiding politically difficult Medicare payment reductions in an election year.

And it tells us a lot about the administration's actual commitment to reforming, refining, and improving Medicare—especially when those commitments conflict with short-term political goals.

It's clear enough from the program's design that they're willing to politicize Medicare's already messy payment system. The election-year timing also suggests that, contrary to their rhetoric, members of the administration believe that technocratic payment cuts to private providers will reduce service quality—or, at minimum, the perception of quality. It also tells us that the administration is willing to run unusually expensive, junk programs in order to cover up the side effects of its biggest reforms. The Obama administration may or may not be willing to pay for medical effectiveness. But it sure seems like it's willing to pay for political effectiveness.