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Life Health > Health Insurance > Medicare Planning

Doctors, Lawmakers See Danger in Moving Medicare Toward Privatization

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What You Need to Know

  • The CMS has implemented plans that could automatically switch retirees to a different, more privately driven Medicare program as early as 2023.
  • A new structure empowers groups of providers to manage care and costs for each patient.
  • Several members of Congress and medical practitioners have argued against the move.

Traditional Medicare may be changing as the government program may be moving toward privatization — with health care managed by private equity or large insurance companies — by as soon as next year. These potential moves mean advisors should help clients heading into retirement understand how this could impact the future funding, and quality, of their health care.

Today there are two types of Medicare options. The first is a fee-for-service program, or traditional Medicare, which a majority of retirees use. Traditional Medicare is accepted by most doctors but does not cover services like dental and vision care. Retirees can purchase a separate Medigap plan to cover those expenses.

The second is Medicare Advantage, a managed-care solution administered by private companies. Medicare Advantage plans may cover services like dental or vision but typically have more limited provider networks. Think HMOs. This option has been growing in popularity.

“The distinctions between the two options will soon begin to blur, however, if a plan to change Medicare goes forward,” Mark Miller wrote in April for Morningstar.

In February, the Centers for Medicare & Medicaid Services (CMS) announced changes to the traditional Medicare program that could take place as soon as Jan. 1, 2023.

Through a structure called accountable care organizations, physicians and other health care providers will “join together” to manage the quality and total costs of care for each patient, the CMS explained. The hope is these responsibilities encourage providers ”to coordinate the services across clinicians and care settings.”

A key goal of this model — formerly called the Global and Professional Direct Contracting model and recently renamed the Accountable Care Organization Realizing Equity, Access, and Community Health, or ACO REACH, model — is to improve overall care for Medicare patients, especially those in “underserved communities,” the CMS explained.

“This approach affords patients greater individualized attention to their specific health care needs while preserving choice of providers and all other services and flexibilities in Traditional Medicare,” it said in the notice.

Critics say the change moves Medicare toward privatization, as “CMS plans to enroll everyone in this new model by the end of this decade — and as early as next year, in some cases — without prior consent,” Miller writes.

Advantage for Whom?

Medicare Advantage has garnered 42% of Medicare enrollees, so it shouldn’t be looked upon as a bad option, proponents have said. But moving traditional Medicare into private companies that may worry more about the bottom line than the patient is what concerns many.

In March, AARP sent a letter to CMS regarding the 2023 policy and technical changes to Medicare Advantage, stating: “We are committed to ensuring that older Americans have and maintain affordable access to high-quality health care and ensuring that the beneficiary’s perspective is a key component of care delivery. The importance of this commitment is magnified as we have seen enrollment trends increasingly favor [Medicare Advantage] over the last several years.”

In a Jan. 5 letter to the Department of Health and Human Services and CMS, 54 members of Congress asked the departments to end the use of direct contracting models within traditional Medicare by July 1.

The reason: The program’s direct contracting entities “are privately owned and controlled coverage networks in which for-profit companies are paid monthly to cover beneficiaries’ healthcare. Any funds left over after it covers care are kept as profits creating a perverse motive to decrease the quality and volume of seniors’ care.”

More blunt about their concern for the ACO REACH program was a group of 250 health care entities, under the banner Physicians for a National Health Program, which in a March 8 letter to HHS and CMS wrote:

“REACH retains the most dangerous elements of Direct Contracting, and under the guise of promoting equity, provides even more opportunities for middlemen to profit at the expense of beneficiaries and the Medicare Trust Fund. If allowed to continue, REACH would completely transform Traditional Medicare by allowing third-party middlemen to manage seniors’ care, without seniors’ full understanding or consent.”

In addition, The Senior Citizens League has “seen no reports to indicate whether savings [with the ACO program] will be financially advantageous for beneficiaries as well. Will ACOs slow the rate of increase in base Medicare Part B premiums (currently at $170.10) or pricey supplemental Medigap insurance premiums that currently average $235 a month for beneficiaries?” writes Mary Johnson, the advocacy group’s Social Security and Medicare policy analyst, in its May newsletter.

However, some proponents of the new program stated that “criticism against the [ACO] model are misleading and flat out false,” in a February letter from the National Association of ACOs, which was signed by 200 health care organizations.

“Traditional Medicare patients maintain their freedom of choice to see any willing provider. They keep all of their rights and protections, and in fact, get more benefits and lower cost care through the model,” they stated. ”This is not the end of traditional Medicare … but a way to provide additional beneficiary and provider tools as part of the whole-person approach.”

Private Equity and SPACs

But the fear of having ACOs become a key part of traditional Medicare is that the owners are not necessarily health care organizations, such as large physician practice groups. Indeed, there has been a “surge” in investment in ACO groups by private equity firms and insurance companies.

This has become a ripe investment area as the U.S. population ages. And as Miller noted, “most of the investment activity is coming from special-purpose acquisition companies or SPACs, private equity firms and health insurance companies already dominant in the Advantage business.”

And though an AARP spokesperson said in an email to ThinkAdvisor that it had not “commented specifically on the ACO Reach program,” in its letter regarding MA programs, it said that it shares the concern by CMS on third-party marketing of MA programs and a “rise in marketing-related complaints from beneficiaries.”

They note that in 2021 there were 33 different plan options, and determining which is best is a “daunting process for even the most knowledgeable consumers. This challenge has been exacerbated by the MA program’s history of marketing abuses involving enrollment.”

Further, they “strongly” support the proposal to “restore network adequacy review standards when an MA plan applies for a new or expanded service area,” stating that per the previous administration’s rules, a network had to only “attest that it has an adequate network.”

Even the HHS inspector general had some concerns with MA programs, stating in an April report that it found a 13% to 18% rate of denied prior authorization and payment requests that met Medicare coverage rules.

Fixing Medicare

Many practitioners have advocated keeping Medicare as is, with some tweaks to strengthen it. Dr. Ed Weisbart, chair of the Missouri chapter of PNHP and assistant professor of clinical medicine at Washington University in St. Louis, told Healthcare Innovation in March 2022:

“There’s a school of thought that drives Medicare Advantage, and drives a lot of the innovation out of Medicare Innovation Center, which says that the root problem is [traditional Medicare] fee-for-service. And so, they want to move everything over to capitation. And that to me is, on its face, just ridiculous,” he said.

“We really should eliminate [or] greatly reduce the copays and deductibles of traditional Medicare. … This could fix the personal finance aspects of traditional Medicare and then other things could be experimented with like adding in hearing, vision, and dental. These are things that improve health outcomes and should be inexpensive to offer. So, improve traditional Medicare and stop giving an unfair advantage to Medicare Advantage.”

Likewise, Dr. Ana Malinow, past president of PNHP and professor of pediatrics at the University of California-San Francisco, told Healthcare Innovation that “traditional Medicare is working pretty well. … we should be looking at what it is that traditional Medicare is doing better than Medicare Advantage. The profit motive there is not making things better.”

ThinkAdvisor contacted several members of Congress and health organizations who had signed the various letters, as well as the CMS and HHS. They had not responded by deadline.

But as Miller stated: “The ACO model has important implications for the future of one of our most important social insurance programs. It shouldn’t be implemented without a robust discussion — and without the approval of Congress.”


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