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Arthur Jackson Wheeler, CHC
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(978) 867-8001
340 Tamiami Trail North 
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Naples, FL 34102

Medicare Part C - Is “Real” Health Insurance

The only other “Real” actuarially underwritten federally sponsored health insurance program (besides FEHB) that covers “We the People” is our Medicare Part C – Medicare Advantage. This is the program that BCS advocates as “The Best Bi-Partisan Answer to Repeal and Replace Obamacare.”  About 5 years after Hillary’s - Health Security Act was briefly referred to as Medicare Part C, the national health care inflation rate surprisingly fell into single digits, due in part to the impact of HMOs. This took some of the steam out of health reform.

Congress, perhaps hopeful of enacting more far reaching legislation, passed Balanced Budget Act of 1997, allowing capitated health insurance programs to be the Part C of our Medicare. These plans were initially referred to as “Medicare + Choice”. They were very successful in lowering the rate of inflation and the cost of traditional Medicare, in part because of the creative techniques used to manage the delivery of health care in the “Choice” programs. Later, the Medicare Modernization Act of 2003 re-branded most of the Medicare Part C programs as “Medicare Advantage” (MA) in which Medicare beneficiaries are given the choice of receiving their Medicare benefits through capitated Part C health plans. (14.) A person making this choice joins a Medicare Part C Plan and suspends their participation in an Original Medicare - fee for service plan. Medicare Part C has also included some fee for service plans in the past, which may be used again for people who live in an area not covered by a Medicare Part C plan. 

Lincoln Memorial

The Medicare Part C operates under the principals of “REAL” insurance. Medicare Part C - Medicare Advantage programs cover approximately 21 million of our most vulnerable elderly citizens. The program’s popularity has increased due to ACA. For the participants in Medicare Part C, the federal government does an annual evaluation on the actuarial equivalency of cost for Original Medicare. This means that they determine how much the government would have to pay an insurance carrier if they were going to produce an insurance program that was actuarially-equivalent to the traditional Medicare program in a particular county. Therefore, CMS annually determines what capitation fee the federal government is willing to pay for health insurance in each county in the United States. The health insurance carriers and health maintenance organizations take these rates and design health insurance benefits programs, with CMS approval, to cover the participants within the margin of the prospectively determined capitation (per person dollar amount) rate. The federal government agrees to pay that rate and the insurers (insurers and/or health care providers) take the risk and assume the responsibility of administering the programs. There is no confusion about how much the carriers are to be paid. There are certain requirements that the insurers must meet to satisfy the Centers for Medicare and Medicaid Services and these are met in strict but collaborative and rational interactions characteristic of this successful Public-Private Partnership. This is the way it should be done, and is unlike the turmoil that ACA has created in some markets.

As stated above, Original Medicare is not a capitation rated plan. It is a “pay-as-you-go” fee for service plan, meaning the federal government takes the risk and is going to pay for all the expenses, using various revenue streams, plus any general revenues required, no matter what the cost. This guarantee is backed by the full faith and credit of the federal government. The providers that make application to CMS to participate in Medicare Part C assume all the risk for the programs administration and financial viability. And, they have demonstrated agility in controlling the cost of health care for the government and participants at the same time. Any savings they are able to generate goes directly to their bottom lines.

According to the latest estimate by the Medicare Trustees (2016) Medicare trust funds will become insolvent in 11 years (2028), give or take a few years. Medicare was designed to be funded from payroll taxes, paid by the active healthy workers and employers, enrollee’s out-of-pocket premiums and surtaxes and if necessary, general revenues. It works a little like a socially acceptable well-intentioned government Ponzi scheme, where our workers pay into the Medicare Trust for the promise of future health benefits and their money is used to pay for the retired and disabled enrollees that are presently using their benefits. Medicare enrollment is set to increase from 55 million to 79 million by 2020 and the ratio of workers to enrollees will decrease from 3.7 to 2.4. The good news about is this ratio has declined for many years and yet our social insurance systems have remained sustainable due to increases in worker productivity. (16.) 

However, the biggest difference between Original Medicare and Medicare C is the risk assumption. We don’t have the expectation that Original Medicare (Medicare A,B & D) is going to pay for itself, as there would be if Original Medicare was an actuarially-underwritten insurance plan. Pay-as-you-go is the only way for us to go on Original Medicare, because you can’t get a balanced risk pool when all the participants are “restricted” to retired Americans over age 65 and the disabled. The older we are, the more likely our need for healthcare.