Health care for the poor, or poor health care?


Community organizations and labour groups hold a demonstration for their views in handling of the 'Fiscal Cliff' near the office of U.S. Sen. Marco Rubio (R-FL) in Doral, Florida December 10, 2012.

Article Highlights

  • Republicans are often vilified as wanting to "end Medicare as we know it."

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  • The Centers for Medicare & Medicaid Services announced plans to reduce payments to Medicare Advantage by 7-8% in 2014.

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  • More than 14 million beneficiaries enrolled in MA plans will be affected in some way by this cut.

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Republicans are often vilified as wanting to "end Medicare as we know it." The Obama administration has taken the first action to do just that for millions of low-income seniors.

On February 15, the Centers for Medicare and Medicaid Services announced its intention to reduce payments to Medicare Advantage (MA) plans by 7 to 8 percent in 2014. Most of this reduction is the result of the Affordable Care Act, which relies on cuts in the Medicare program and an increase in taxes on health plans to finance expansions in Medicaid and subsidies in the health insurance exchanges.

The cut was larger than expected because the administration is betting that spending in traditional Medicare will spontaneously slow next year by 2.3 percent (on a per capita basis) without changes in federal policy. This is the health policy version of divine intervention for a program that remains the last bastion of 1960s-style health care.

The impact of such a severe cut in MA payments is predictable. Private plans will reassess their participation in the program, pulling out of less profitable market areas and cutting back on extra benefits (such as dental, hearing, and eyeglass coverage and a cap on out-of-pocket costs) not available in traditional Medicare.

More than 14 million beneficiaries enrolled in MA plans will be affected in some way by this cut. Low-income beneficiaries have the most to lose. According to America's Health Insurance Plans, the insurance industry trade association, 41 percent of MA enrollees in 2011 had incomes of $20,000 or less. Medicare Advantage is attractive to those with low incomes because private plans offer a better deal.

Traditional Medicare is an inadequate insurance plan. It imposes a hodgepodge of deductibles, copayments, and benefit limits on beneficiaries, and it does not provide protection against catastrophic expenses. The most egregious costs are imposed by Medicare Part A, which covers hospital and other institutional services. Each time a beneficiary is admitted to the hospital, she pays a $1,184 deductible. Unlike a deductible in private insurance, which is paid only once a year, traditional Medicare could impose the hospital deductible several times during the year. Moreover, traditional Medicare places a limit on the number of days a patient can remain in the hospital and receive benefits.

To avoid the possibility of financial ruin because of a spell of bad health, most Medicare beneficiaries have some form of supplemental coverage. The costs can be high. The most popular Medigap policy is also the most comprehensive, fully covering all costs for Medicare-covered services. In 2010, the premium for that plan averaged $172 per month, although premiums could be twice as high depending on where the beneficiary lives. Coverage for prescription drugs through Medicare Part D could add another $40 monthly premium.

The 18 million Medicare beneficiaries living on less than $20,000 a year would be hard pressed to buy that kind of protection. Nearly a third of them are eligible for Medicaid, which covers most of their out-of-pocket health costs. But only 11 percent purchase Medigap insurance and few have retiree coverage through an employer.

Nearly a third enroll in MA plans. For those 6 million people, Medicare as they know it will end as the plans respond to the lower payment rates by leaving some markets and dropping benefits in others.

This is not a wild-eyed exaggeration. We have gone through this before, courtesy of Republicans. The Balanced Budget Act of 1997, pushed through by a Republican Congress, included severe payment cuts to private plans in Medicare. In the ensuing 6 years, the number of participating plans dropped by more than half despite additional legislation intended to soften the impact of the cuts.

To be clear, some retrenchment in Medicare Advantage is needed. In 2003, Republicans passed legislation guaranteeing that private plans would be paid more than traditional Medicare. That ensured a choice of private plans for all beneficiaries, even in the most remote areas incapable of supporting a competitive health market without large federal subsidies to prop up the plans. What is needed is a more nuanced policy. What the Obama administration offers is the Medicare version of sequestration: fiscal surgery with a blunt knife.

This is all too typical of the administration's health policy, and the poor are on the receiving end. The Affordable Care Act will put millions of additional people into Medicaid, a program that has struggled with access to care for the past 47 years. They may gain insurance coverage, but they will step to the back of an already lengthy line waiting to see a physician and will make hospital emergency rooms even more crowded. The Medicare Advantage cuts ratchet up the pressure on the poor. Rather than foreclosing their options, it is time we gave the poor a voice in the kind of health care they receive.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute (AEI).

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About the Author


  • Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute (AEI), where his research focuses on the economics of health policy — including the Affordable Care Act, Medicare, the uninsured, and the overall reform of the health care system and its financing. He also studies the impact of health care expenditures on federal budget policy.

    Before joining AEI, Antos was assistant director for health and human resources at the Congressional Budget Office (CBO). He has also held senior positions in the US Department of Health and Human Services, the Office of Management and Budget, and the President’s Council of Economic Advisers. He recently completed a seven-year term as health adviser to CBO, and two terms as a commissioner of the Maryland Health Services Cost Review Commission. In 2013, he was also named adjunct associate professor of emergency medicine at George Washington University.

    Antos has a Ph.D. and an M.A. in economics from the University of Rochester and a B.A. in mathematics from Cornell University.

    Follow Joseph Antos on Twitter.

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