Good riddance to Medicare Advantage disadvantage.

President Barack Obama’s bid to reduce the taxpayer-funded slush fund that flows to the managed-care insurance industry through Medicare is an emphatic, if overdue, effort to turn Washington around. So be ready for insurance-industry propaganda masquerading as concern for the elderly — and know that the facts belie the industry’s fantasies.

For years, public and private studies of Medicare HMOs — euphemistically called “Medicare Advantage” — have shown that the program run by the insurance industry costs the government more per patient than the very same patient would have cost to treat under traditional Medicare. The most recent analysis by the nonpartisan Medicare Payment Advisory Commission puts the overpayment at 14 percent per enrollee, a surcharge that taxpayers pay for those Medicare beneficiaries who now get their coverage through private, managed-care plans (more than a fifth of the people in the overall program). “This added cost contributes to the worsening long-range financial sustainability of the Medicare program,” the commission says.

The White House proposes to curtail this excess by tightening the bidding process through which the industry must compete for contracts. According to administration estimates, the savings would be $176.6 billion over the next decade.

You would think that private industry would welcome the competition — fair bidding for government contracts is not an exotic idea, after all. But predictably, the insurance industry has resorted to scare tactics. Benefits would be cut! Patients would be harmed! Those who choose to get Medicare through private insurance plans would bear the brunt of cost reductions that are necessary to save Medicare as a whole!

The claims are about as accurate as the marketing pitch the insurance industry made when it began heavily promoting health maintenance organizations during the 1990s.

Remember when HMOs were the next big thing in health care? Managed care was offered as an antidote to the Clinton administration’s attempt at broad health care overhaul. It was to be a magic elixir that cured just about everything that ailed the health care industry. Patients would have a limited choice of doctors and hospitals, but in exchange they were supposed to get more coordinated care that helped them stay healthier and avoid costly illnesses and procedures. In Medicare, the savings were to be poured into extra benefits — notably prescription drug coverage, at a time when there was no drug plan in traditional Medicare. Those who paid for the insurance — Medicare, for example, or private employers — would reap great savings, and the nation’s overall health expenditures would begin to decline.

What happened on the way to this utopia?

The insurance industry figured out pretty quickly that it was easy to make a buck by managing price, not care. “What happened in the late 1990s is that patients perceived that managed care plans were in business to keep them from seeing doctors, as opposed to helping them get the right care,” says Stuart Guterman, a Medicare expert at the nonpartisan Commonwealth Fund.

Soon came the invention of “drive-by deliveries” that pushed women and their newborns out of hospitals within 24 hours, and “drive-by mastectomies” that sent cancer patients home to care for their own surgical wounds. “The concept has gotten kind of contaminated,” Guterman says.

The backlash was political, with Congress passing legislation to end the worst abuses, and practical: In 1996, according to the Kaiser Family Foundation, 31 percent of workers covered by employer plans were in HMOs. By 2008, the proportion had dropped to 20 percent. The vast majority of workers covered by an employer-based health plan now choose more-flexible preferred-provider networks.

The Medicare Advantage experiment is not without usefulness. But profit-making enterprises are motivated by money, not altruism. Whenever the private insurance industry says it can do something better than public insurance, be wary: Routing government money through private industry so that it eventually gets to the intended beneficiaries is often inefficient. Obama also plans to end the circuitous route that student loans now make from government coffers through private lenders and then, finally, to students. Direct government loans to students, studies have shown, cost taxpayers less.

This country needs to manage health care better, by reordering the system in a way that rewards prevention and cuts down our reliance on costly procedures. This was supposed to be what managed care achieved.

The greatest lesson of Medicare managed care isn’t that we shouldn’t manage care. It’s that the management must be done for public benefit, not private gain.

Marie Cocco’s e-mail address is mariecocco(at)

© 2009, Washington Post Writers Group

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