Partisan Attacks on Private-Fee-for-Service Plans Debunked

Editor's note. On page one of the March issue of NRL News, we discussed how NRLC has long recognized that the involuntary denial of lifesaving medical treatment is a form of involuntary euthanasia. Therefore NRLC has opposed government rationing of health care. In 1997 and 2003, NRLC successfully fought to amend Medicare by allowing older people the right to use their own money to obtain unrationed care. Shockingly, under the new leadership of Congress that right is now at risk. Part of that attack is to attempt to demonize private-fee-for-service Medicare. Keeping private fee-for-service Medicare is essential if ordinary citizens enrolled in Medicare are to obtain unrationed health insurance.

In a world of managed care and a declining number of providers willing to accept fee for service patients under the traditional government Medicare program, private-fee-for-service Medicare plans provide a critically important mechanism through which older Americans can voluntarily add their own money to get unrationed health insurance. But if you read a spate of recent press attacks, you'd think these plans were nothing more than diabolical consumer frauds cooked up by profiteering insurance companies.

Many of the accusations are derived from a document issued January 29 by the "Center for Medicare Rights."  Shrewdly packaged to sound like a consumer watchdog group, in fact the Center for Medicare Rights has an ideological agenda. Part of that agenda is discrediting private fee-for-service programs by invoking a scare tactic: labeling such initiatives as "privatizing" Medicare. Let's briefly address five misleading or altogether fallacious charges.

        1.  CHARGE: Private fee-for-service plans (PFFS) are promoted as allowing you to see any doctor, but in fact many doctors refuse to accept them.

        RESPONSE: Unless a PFFS plan has a specifically-negotiated contract with a particular doctor, the plan must pay doctors at least the same reimbursement as original (government) Medicare.  Refusals are not due to a problem with the new PFFS program as such but either because front-office personnel at some doctors' offices are confused about the particulars, or because some physicians considerate the rate of reimbursement to be inadequate--the same problem that exists with the original government Medicare program.

        PFFS plans have become widespread only in the last year or so, and some doctors' offices may confuse them with other private Medicare plans (the managed care plans that pay lower rates and that have contracts with only some providers.) They may not realize that a PFFS plan will pay just as much, or more, as reimbursement under original Medicare. 

        Beyond educating providers, one solution is for PFFS plans to raise the reimbursement level above that of original Medicare, and adjust premiums accordingly. Original Medicare cannot do this without raising taxes. The answer is certainly not to abolish the PFFS option, which would eliminate older Americans' only alternative to either seeking out a declining number of providers willing to accept patients under the original Medicare program or to accepting managed care.

2.  CHARGE: Because Medicare beneficiaries can only change plans annually, during the open enrollment period from November 15 to December 30 of each year, those "tricked" into choosing PFFS plans are unfairly locked into them for a full year.

           RESPONSE: The year-long commitment applies whether we're talking about the choice of a managed care plan, original Medicare, or PFFS. Insurance companies set premiums based on actuarial evaluations of the probabilities that people will get sick and estimates of how much treating them will cost. This is a complicated and challenging process that relies on historical records and mathematical probability analysis. That is one reason why most insurance plans--whether for automobile insurance, homeowner's insurance, or health insurance--are sold on an annual basis. 

        3.  CHARGE: PFFS plans are receiving government contributions at a rate that averages 119 percent of the average cost in original Medicare, giving them an unfair advantage.

         RESPONSE: It is flatly not true that PFFS plans receive preferential government contributions in comparison to managed care plans. The amount of the government contribution is set county by county and is the same for any plan chosen by residents.  People in rural areas have historically faced difficulties in obtaining access to medical care. To provide an incentive for providers to locate there, Congress established formulas that resulted in increased government contributions for those in rural areas.  PFFS plans have proved particularly popular in rural areas, where 40% of those in private Medicare plans are in PFFS plans.

        4.  CHARGE: Private Medicare plans in general (including PFFS plans) are given government contributions at rates that exceed what the government pays on behalf of original Medicare beneficiaries.

        RESPONSE: NRLC's focus has been on preserving the right of older Americans to add their own money in addition to the government contribution. We have not taken a position on what level of Medicare funding the government should provide.  It is important to understand that in the past Congress structured the formulas for the government contribution both to provide incentives for better medical care in rural areas (as explained above) and to "prime the pump"--to get private Medicare plans established on a stable basis.  Significant cuts in government contributions to Medicare Advantage plans to be applicable in 2007 were already enacted in late 2006.  In any case, whatever adjustments to government contribution rates might be made to "equalize" the payments with regard to those enrolled in original (government) Medicare, there is no justification for completely abolishing the PFFS option.

        5.  CHARGE: Salespeople operating on commissions pressure older people to sign up for PFFS plans that may not be in their best interest.

        RESPONSE: We have already addressed one explanation for much of the alleged "marketing abuse." (See #1.)  In addition, some beneficiaries are said to be confused about what type of plan they were signing up to obtain. Most of the criticism relates to high pressure sales tactics that might be experienced from any commissioned salespeople promoting anything, from encyclopedias to cars, and is not related to the particulars of PFFS plans. When and if there are inappropriate sales tactics, of course they ought to be addressed directly. That hardly discredits the specific alternative of PFFS.

If you have any comments or questions, please send them to Dave Andrusko at daveandrusko@hotmail.com.