SAVING MEDICARE

One of the major initiatives of President Obama's plan to correct the economy is his overhaul of Medicare and Medicaid. All agree that the nation's health care is too expensive. We get the same level of health care as is received in Western Europe but at about 2.4 times the cost in Europe.

President Obama wants to get better return on the government's dollar from its expenditures on Medicare. He then points the finger at everyone's favorite whipping boy, the health care insurance companies, e.g. Blue Cross. He believes we can get more for our Medicare dollar by curbing the insurance companies.

Well his plan is what I call "penny wise, pound foolish." As a cost saving measure the president wants to do away with what are called, "Medicare Advantage" plans. Essentially for a fixed payment from Medicare, usually so much per participant per month, the health insurance company agrees to pay for all medical care for the participant. Obama sees a problem here, Medicare pays a fee for the participant, but the participant may not use any health care, or much less than the fee paid. Thus Medicare is paying for a service that is not used.

The problem is that the Obama administration does not understand basic insurance. What it is actually paying is an insurance premium to the health care insurer who then agrees to cover all "losses" which in this case means health care expenses.

What the Obama team also does not understand is that by paying the insurance premium they limit Medicare's exposure for that participant to the premium. If there were no such plan Medicare would have to pay the participant's medical costs, up to very high limits. Thus not paying the premium would in effect set Medicare up for unlimited losses, the very reason we use insurance.

Moreover, the health care insurer provides a limit on the cost of medical care. Those medical services that agree to its fee structure only receive what the insurer will pay. And this is a great savings. My latest medical service procedure was billed by the physician and his group for $5110. Blue Cross paid $2320 and I had to pay $120 in co-payment. In short Blue Cross saved Medicare $1768 and me about $1200.

Clearly the real culprit in sky-high medical costs are the health care providers, not the insurers. In fact the insurers are the only reason that health care costs have not gone even higher. Doing away with the very effective "Medicare Advantage" plan will simply insure that health care costs rise even faster, instead of bringing them under control.

Leo Cecchini
April 2009