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Why You Are Spending More For Health Care

By       Message Calvin Leman     Permalink
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What are you spending for health care? More than you did last year? By several measures, health care spending is increasing at a faster rate than it ever has.

In 2004 (the latest year data are available), total national health expenditures increased 7.9 percent; about three times the rate of inflation. Total health care cost $1.9 TRILLION in 2004, 16% of gross national product (GDP), or $6,280 per person. Health care spending is expected to increase for the next decade, reaching $4 TRILLION in 2015, or 20 percent of GDP.

In 2006, employer health insurance premiums increased by 7.7 percent, two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $11,500. The annual premium for single coverage averaged over $4,200.

Why is health care cost increasing? Experts agree that our health care system is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, inappropriate care, waste, and fraud. Can we do anything about this?

Yes, part of the problem is caused by the Medicare Modernization Act Of 2003 (MMA). We can ask our elected officials to fix it.

The problem started in 1983, when private managed care plans were introduced. The plans were supposed to decrease Medicare costs and help people by coordinating their care. What happened instead was an increase in costs. Medicare's privatized managed care program, called Medicare Advantage, has never provided a better bargain than traditional fee-for-service Medicare. This is how it works:

Medicare pays private insurance companies a flat amount for each beneficiary who joins their managed care plans. The plans are supposed to develop cost-effective treatment strategies and coordinate care to reduce expenses. What happened instead was private plans reduced costs by recruiting the youngest and healthiest beneficiaries.

Have you ever been refused by an HMO? Excessive overpayments of billions of dollars, according to the GAO, were going to the private managed care plans.

When Medicare found out about this, they started paying less for healthy people. Then the HMOs began dropping out. They couldn't compete with traditional Medicare.

So what did congress do? They gave these cherry-picking HMOs more money with the Medicare Modernization Act of 2003, the same law that started the prescription drug plan, part D of Medicare. A 2004 Medicare Payment Advisory Commission (MedPAC) analysis found that payments to managed care plans represented 107 percent of per capita costs for traditional Medicare-a 7 percent overpayment.

In 2006, MedPAC estimates that this overpay ¬ment to private plans has risen to 11 percent. According to the Commonwealth Fund, which has a similar estimate of the excess cost, the subsidy to private HMOs cost Medicare $5.4 billion in 2006.

Do you think you should tell your elected officials to get the HMOs out of Medicare?

 

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