Why I Love Medicare Advatage

06Mar12

I love Medicare Advantage. I’m not eligible for Medicare. Traditional Medicare may not even be around by the time I am eligible. I’m also a supporter of most government programs, and prefer to keep the profit motive out of health insurance. (As though that’s possible.)

So why do I love Medicare Advantage?

The answer is simple: I love irony, and I love disproving claims that the private sector is more efficient than the government.

See, Medicare Advantage is not a direct government program. Medicare Part A was established to reimburse hospitals directly, and Part B was established to reimburse doctors and other non-hospital providers directly (both paid for out of payroll taxes. In contrast, Part C (Advantage) was established to prove that the private sector is more efficient than the government.

Enacted in Bill Clinton’s second term (1997), Medicare Advantage was one of the public-private partnerships loved by ‘third way’ politicians like Clinton and Tony Blair. Like so many of those programs, it was adopted by conservative politicians as a chance to show how much more efficient the private sector is than the public sector.

In Medicare Part C, private companies were going to be paid a set amount per enrollee, an amount equivalent to each enrollee’s proportion of the program budget. They would be required to meet Medicare’s benefits at a minimum, and (using the efficiencies of the market) could add additional benefits or reduce premiums.

Those who are convinced that the private sector is more efficient than the public were equally convinced that Medicare Advantage would outshine traditional Medicare and prove their case. This would be an apples-to-apples comparison, unlike comparisons between US public programs and private insurance (where Medicare and Medicaid regularly show lower administrative costs than their private-sector counterparts — but are unlike in the populations they serve), or comparisons of medical costs in other countries to those in the US (which regularly show that medical care is more expensive in the US — but cannot factor in cultural and regulatory differences in an attempt to compare insurance).

So, what happened?

Well, the Medicare Advantage companies put together their policies and started to sell them, but before too long, they were back at the door of their political allies. It seems they weren’t able to deliver the efficiency they promised. In order to deliver the additional benefits (or, perhaps, even the standard benefits) they promised, they needed additional subsidy. It turns out that they can’t fulfill the goals set out by establishing Medicare Part C. They can’t deliver the efficiency. They can’t beat Medicare. So, they got additional subsidy.

That’s worth repeating: We pay more per enrollee for Medicare Part C (Advantage) than we do for traditional Medicare, because the private sector cannot beat the public sector’s efficiency.

Perhaps if they remembered why the government is involved at all in senior citizens’ health insurance, we could have avoided this situation. Medicare was created in the 1960s because private health insurers had priced themselves out of the market for senior citizens’ health insurance. (Their reasons were simple enough — seniors are a high-cost group for health insurance.) Poverty among senior citizens was a growing problem, with increasing numbers having to pay out-of-pocket, then having to choose between medical care and groceries or rent. With the private sector failing our seniors, the government stepped in, expanding the risk pool (and having people contribute early in their lives) through a payroll tax.

In other words:

The private health insurance industry abandoned the senior citizen health insurance market in the ’60s. Thirty years later, they realized they were missing a market sector, and with the help of friendly politicians got back into that sector — accepting public subsidy, and on the promise that they deliver greater efficiency. They then failed to deliver the greater efficiency, and got more public subsidy.

How can you not love that?

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One Response to “Why I Love Medicare Advatage”


  1. 1 The Ryan Plan for Medicare is Bound to Fail « withamouthfullofstones

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