Gloomy predictions cloud Medicare's future

June 1, 2006

The good news from Washington last month was that millions ofseniors have signed up for the Medicare drug benefit, includingsome 6 million through Medicare Advantage prescription drug plans(MA-PDs). But troubling reports indicate that the Medicare programoverall is in poor health and faces insolvency sooner thanexpected. In fact, President Bush may be compelled to proposesignificant cuts in Medicare spending next year if current trendscontinue. The remedies lie in higher taxes, reduced benefits,higher premiums for seniors and lower payments to plans andproviders-none very attractive.

The good news from Washington last month was that millions of seniors have signed up for the Medicare drug benefit, including some 6 million through Medicare Advantage prescription drug plans (MA-PDs). But troubling reports indicate that the Medicare program overall is in poor health and faces insolvency sooner than expected. In fact, President Bush may be compelled to propose significant cuts in Medicare spending next year if current trends continue. The remedies lie in higher taxes, reduced benefits, higher premiums for seniors and lower payments to plans and providers-none very attractive.

SCARY SCENARIOS

Mark McClellan, MD, administrator of the Centers for Medicare and Medicaid Services (CMS), pointed to proposals in the Bush administration's 2007 budget plan that can start lowering Medicare spending. Taking action now to eliminate increases in Medicare provider payments and to require wealthier beneficiaries to pay higher premiums could head off more drastic action down the road.

However, the current political climate makes such action unlikely. Medicare officials already have boosted Part B premiums by 11% to nearly $100 a month reflecting growth in outpatient medical services and Congress' decision earlier this year to cancel a planned reduction in payments to physicians.

INSURERS CURB COSTS

Dr. McClellan identified Medicare Advantage plans as a "key part of the transformational strategy" for Medicare to become a program that emphasizes prevention and quality of care.

He also noted that the Medicare drug benefit will cost about 20% less than predicted a year ago because of lower drug utilization and enrollment and plans' ability to negotiate high discounts on drug prices.

Whether such savings continue apparently rests in the hands of a few large insurers that are attracting a large proportion of Medicare beneficiaries. Recent CMS data indicate that UnitedHealthcare and Humana have enrolled more than 40% of all Part D members in both stand-alone drug plans and MA-PDs and that the top 10 Part D plans have captured 80% of the prescription drug plan market. United and Humana also dominate the MA-PD market, along with Kaiser Permanente, which serves more than 800,000 seniors.