Hidden Costs of Medicare Advantage
Plans' Free Perks Are Subsidized By Government

By Philip Rucker
Washington Post Staff Writer
Thursday, October 15, 2009

TUCSON -- Patrick Higney, 66, doesn't want to give up the freebies that come with his zero-premium Medicare Advantage plan: free aspirin and free Band-Aids, a free blood pressure machine and a free ear thermometer.

Nancy Smyth, 68, wants to keep the free gym membership that comes with the Medicare Advantage policy she bought from Health Net, a private HMO. And John Kizer, 72, hopes his plan will continue to offer free prescription eyeglasses and free hearing aids.

"Everybody's trying to save their little kingdom," Kizer, a retired dairy farmer, said last week after receiving a flu shot. The shot was free, of course.

Seniors in this Sun Belt retirement haven and across the country revel in the free perks that private insurance companies bundle with legally mandated benefits to entice people 65 and older to forgo traditional Medicare and sign up for private Medicare Advantage policies.

The trouble is, the extra benefits are not exactly free; they are subsidized by the government. And some of the plans pass their costs on to seniors, who pay higher co-pays and additional fees to get care.

"It's a wasteful, inefficient program and always has been," Sen. John D. Rockefeller IV (D-W.Va.) said at a recent hearing. At its core, Rockefeller added, Medicare Advantage is "stuffing money into the pockets of private insurers, and it doesn't provide any better benefits to anybody."

President Obama has proposed cutting more than $100 billion in subsidies over 10 years, a contentious component of health-care reform that will be fought in earnest as the bills move through Congress. But unlike some issues that touch off partisan sparring, Medicare Advantage has an unlikely band of bipartisan defenders who have already battled to restore $10 billion of the proposed reductions.

In a health-care debate defined by big numbers and confusing details, the prospect of losing benefits such as a free gym membership through the Silver Sneakers program is tangible, and it has spooked some seniors, who are the nation's most reliable voters and have been most skeptical about reform.

Medicare Advantage was established in the 1970s (under a different name) when private insurers convinced Congress that they could deliver care at lower costs than Medicare. The program blossomed in the late 1990s when Congress bolstered it with millions in additional federal subsidies to for-profit HMOs. It has proven popular among younger, active seniors who had managed-care plans as workers, and about a quarter of Medicare's 45 million beneficiaries are enrolled.

Many private plans require no additional monthly premiums, yet the government pays an average of $849.90 in monthly subsidies to insurance companies for a person on Medicare Advantage, according to the Kaiser Family Foundation. That is about 14 percent more than the government spends on people with standard Medicare, according to the nonpartisan Medicare Payment Advisory Commission.

"The promise of Medicare Advantage and Medicare HMOs was to save the government money, to save consumers money, all the while providing additional benefits and coordinating care," said Joseph Baker, president of the Medicare Rights Center. "That promise has been unfulfilled overall because the plans are overpaid by the federal government at this point."

The insurance industry, foreseeing a loss in profits, warns that cuts would hurt seniors by increasing their premiums or co-payments and taking away some benefits. America's Health Insurance Plans (AHIP), an industry trade group, on Tuesday launched ads in several states citing a projection by the nonpartisan Congressional Budget Office that "many seniors will see cuts in benefits."

"This is a program that more than 11 million seniors currently rely on, and seniors have expressed very high satisfaction with this program and want to be able to keep the coverage," said AHIP communications director Robert Zirkelbach. "Seniors are going to be shocked when they find out what these cuts are going to mean."

As Congress inches toward a final debate, millions of Medicare Advantage beneficiaries such as those here in Tucson are factoring heavily in the political calculus for lawmakers who want to cut spending without alienating this powerful constituency.

Their anxieties are leading to regional alliances among Democratic senators, such as Florida's Bill Nelson and New York's Charles E. Schumer, and GOP senators, including Arizona's Jon Kyl, whose states are home to disproportionately high numbers of Medicare Advantage beneficiaries.

Federal subsidies to Medicare Advantage insurers vary based on location. In Arizona, insurers stand to lose between $35 and $57 in monthly subsidies per beneficiary under the bills in Congress, according to AHIP.

Nationally, about 25 percent of Medicare beneficiaries have Medicare Advantage policies. But in Arizona, that figure is about 32 percent, and in Tucson it's nearly 40 percent, which explains why Kyl has been so outspoken.

"Seniors like the choices they now have, and they don't deserve to have them ripped away to help pay for this bill," Kyl, a member of the Senate Finance Committee, said Tuesday before voting against the panel's bill.

"It's going to be one of the biggest factors in the debate because seniors are a political force in this country," Kyl said in an interview. "The argument we're going to make is, 'That's not right, that's not fair to take these benefits away from seniors.' "

Smyth, a life coach who visits the Tucson Jewish Community Center several times a week for cardio workouts and yoga classes, said she supports health-care reform but does not want Medicare Advantage subsidies to decrease. "Where are they going to cut back?" Smyth asked. "I'm worried they'll cut Silver Sneakers."

In Tucson, many Medicare Advantage policies have no premiums, while some beneficiaries pay relatively small monthly fees to get added benefits such as dental care. But many pay fees for each doctor's visit, on top of co-payments as high as 20 percent of costs.

Many seniors said they were drawn to the plans because they were relatively healthy and visit hospitals rarely, and because their premiums would be substantially higher if they bought full-coverage supplements to traditional Medicare.

"The appeal is cost, obviously," said Norman Powers, 72, a retired electrical engineer, who signed up with his wife, Carole. He said they have not had any costly medical operations -- and then knocked on a wooden table. The gym membership that Health Net gave away has been a plus, he said.

"We do the full workout, treadmill, the works," Powers boasted. "And it's all free. We were paying $600 a year for our gym membership before."

With the annual Medicare enrollment period a few weeks away, Humana and other HMOs have hired new insurance agents in the Tucson area to hawk private plans to the swelling senior population, said Denise Early, an independent insurance agent. About 57,000 people here are on Medicare Advantage, and Pima County data show there were 58 policies on the market this year.

"The bottom line is, if you are living on $1,500 a month, and you're paying rent and have a car and groceries and other expenses, then Medicare Advantage with zero premium is attractive," said Lydia Baker of the Pima Council on Aging.

But Medicare Advantage policies can be frustrating, too. As with traditional managed-care programs, beneficiaries must consult through primary-care physicians in their insurers' networks, and the companies sometimes deny coverage. Bernie Keegan, 68, was hospitalized in March when he got sick and was throwing up blood. But his HMO did not cover some of his bloodwork or doctor's fees, leaving him with hundreds of dollars in medical bills.

"I'm kind of rolling over on my back here like a whipped dog," said Keegan, who directs a nonprofit organization. "I don't want to fight with insurance companies."

Keegan has a free gym membership. But he has yet to use it.

View all comments that have been posted about this article.

© 2009 The Washington Post Company