HMOs to start ad blitz against Medicare cuts

CHICAGO Thu Jul 26, 2007 4:05pm EDT

CHICAGO (Reuters) - Remember Harry and Louise, who helped derail then-First Lady Hillary Clinton's universal health plan a decade ago? Now Sandi, Alvin and Charlotte are making their television debuts.

U.S. health insurers will launch one of their biggest campaigns ever on Thursday to stem the loss of billions of dollars in Medicare payments and they will feature seniors, like Harry and Louise a decade ago, fretting over their benefit coverage.

The deep-pocketed industry is on defense as the U.S. House of Representatives considers slashing $47 billion in payments to private health plans in Medicare, the federal insurance for the elderly and disabled, to help expand a popular children's health program.

Private health insurers' first television advertisement will appear during evening programming and feature a series of seniors worried that cuts to the so-called Medicare Advantage private plans will cost them more and lead to disruption in care.

"The industry has a lot at stake, not just in the short term in terms of profits and margins on these plans, but in terms of a long-term attempt to privatize as much as Medicare as they can," Jonathan Oberlander, associate professor of politics and policy at the University of North Carolina, said.

"This is a very lucrative market for them and it's been booming," he said.

The trade group America's Health Insurance Plans (AHIP), sponsor of the ads and the group behind the Harry and Louise campaign, will consider naming lawmakers for the first time in future ads. It wouldn't say how much it was spending, but called the ads "a very substantial effort."

About 20 percent of the 45 million individuals in Medicare are enrolled in private plans that have become major profit centers for companies like Humana Inc., UnitedHealth Group and HealthSpring Inc..

In the current earnings season, the big private insurers are delivering double-digit profit growth, with tens of billions in revenues industry-wide.

AMMUNITION?

When Humana hiked its 2007 profit forecast for the second time earlier this month, CIBC Markets managed care analyst Carl McDonald said: "We have to wonder if these announcements give House Democrats more ammunition to cut rates."

Analysts believe the proposed $47 billon in cuts will be skimmed during negotiation, but they are predicting cuts of up to $30 billion over five years.

In the ads, seniors named Sandi, Alvin and Charlotte say, "Some people in Congress are talking about cutting Medicare Advantage. Apparently they aren't too concerned about the millions of us who will be forced to pay more for health care."

That claim is misleading, according to Tricia Neuman, director of the Medicare Policy Project at the nonpartisan Kaiser Family Foundation, who has testified before Congress on the issue.

"It's not necessarily the case that people are better off financially if they sign up for Medicare Advantage," she said, noting the plans can charge higher doctor or hospital co-pays.

AHIP has stressed the impact of the cuts on those with low incomes and minorities. But a similar percentage of beneficiaries in traditional Medicare plans and in Medicare Advantage plans live on incomes below $20,000, and enrollment rates are similar for whites and blacks, according to Kaiser research.

OVERPAID

Payments to private health plans are on the block because several groups, including the independent federal Medicare Payment Advisory Commission (MedPac), have reported they are paid significantly more than government-run Medicare.

In March, MedPac reported that private Medicare plans are paid up to 19 percent more than the publicly-run plans.

The highest paid are so-called private fee-for-service plans, which face fewer requirements than the private health maintenance organizations. Analysts say they are growing because they are locating in areas that pay well.

Private plans can provide extra services such as dental or vision benefits because of the overpayments, but that misses the point, according to critics.

The original intent of Medicare private plans was to save money for Medicare, which is expected to exhaust its hospital fund by 2019. Instead they are adding costs.

"The excess payments to private plans allow them to be less efficient than they would otherwise have to be," MedPac said.

The MedPac report also points out that the extra benefits are being funded by all 45 million Medicare beneficiaries, for the benefit of the 9 million or so in the private plans.

"These benefits in a way are an addiction. Once you overpay and create a sense of expectation (from certain recipients), it's not that easy to roll them back and it becomes self-fulfilling," Oberlander said.

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