Updates on Obama’s Plans

President Obama's budget chief has made it clear to health insurance executives that the fun is over and it’s time to get serious.

On Tuesday, White House Budget Director Peter Orszag said the government will no longer overpay companies that offer Medicare Advantage plans, the privately run portion of the government health program for seniors.

Companies like Humana Inc. and UnitedHealth have been defending their plans for over a decade, pointing out that in their opinion, they offer lower premiums and extra benefits compared with government-run Medicare. More than 10 million of the 44 million seniors enrolled in Medicare are signed up for Medicare Advantage.

The problem is that industry executives have long known that the government spends significantly more money on Medicare Advantage than its own plan. When private insurers first entered the Medicare program in the late 1990s, many lawmakers assumed companies would lower costs with their managed-care strategies. Instead, over a decade has passed and the government is spending about $1.30 per Medicare Advantage patient versus $1.00 per patients who are enrolled in traditional Medicare. The cost burden falls on taxpayers as well as patients in regular Medicare, who pay higher premiums.

"I believe in competition. I don't believe in paying $1.30 to get a dollar," Orszag told conference attendees, including representatives from Aetna Inc., WellPoint Inc. and Cigna Corp.

Orszag's address came less than a week after President Obama kicked off his health reform effort with a massive summit at the White House. Orszag showed little intention of compromising on the Medicare Advantage issue.

Under President Obama's recent budget proposal, Medicare Advantage companies would have to compete to offer their services in different parts of the country. The government payment for each region would be based on the average bid submitted by companies, saving $177 billion over 10 years, according to the White House. Under the existing system, payments are calculated annually using a preset formula.

Orszag reiterated Tuesday that the best chance to solve the country's current health care predicament is to eliminate billions of dollars worth of wasteful spending. He pointed out that different regions of the country spend vastly different sums on seniors in Medicare, without showing much difference in health outcomes.

Insurers are not the only group being asked to change how they do business. As part of his economic stimulus package, Obama provided $1.1 billion in funding for research comparing the effectiveness of various medical treatments. By rewarding physicians for using the most efficient practices, the administration hopes to reduce health care costs.

"We are pushing hard on changing incentives for providers so that we are rewarding better care and not more care," Orszag said.

Some quotes from The Associated Press.

Filed under: General-Medicare

Tags: General-Medicare, Health Budget, medicare advantage, President Obama's Budget