Is Selling Medicare Lucrative?
Some critics have slammed the industry for selling Medicare lucrative, but others say the only way to get the money needed to update the program is to make sure it's solvent.
How much is the industry making?
In the first half of the decade, the industry made $24 billion.
How much is that?
That's more than the industry made in the entire '90s, and it's more than the industry brought in during the entire decade of the 1980s.
Who makes the most money?
The most lucrative firm is UnitedHealth Group (UNH), which made $7.1 billion in just the first half of the decade. That's more than the company made in the entire decade of the 1980s, when it was still known as United Healthcare.
Who else makes a lot of money?
WellPoint (WLP) -- the nation's largest health insurer -- made $3.3 billion in the first half of the decade.
How does this compare to the other industries?
Health insurers are the top moneymakers in the S&P 500, beating out the oil industry, technology, and banks in 2000.
How is the money made?
Health insurers make their money on the premiums they charge their customers, and the companies are able to get many more customers because of the overlap between Medicare and Medicaid.
What is the overlap?
Medicare and Medicaid pay for essentially the same services in the same places. Most doctors, hospitals, home health agencies, and nursing homes accept both Medicaid and Medicare, because they can be reimbursed at almost the same rate. And most people with private insurance, including Medicare, also have health insurance from Medicaid.
How can these two programs overlap?
Medicare is a federal program, but Medicaid is a joint federal-state program, and states decide who is eligible for Medicaid.
What is the problem with this overlap?
The overlap means that when Medicare is fixed, it is fixed for everyone -- and that includes people on Medicaid. So if Medicare raises its rates to make them more in line with the private sector, that also means that Medicaid rates will rise.
What is the current problem?
The gap is too narrow between Medicare and Medicaid, and Medicare rates are dangerously low, says Robert Berenson, a former senior official at the Medicare agency who now represents hospitals and nursing homes at the Urban Institute, a liberal research group.
"The rates have been below inflation for years, and they are now below the legitimate costs of doing business. Hospitals are losing money on Medicare patients. They are losing market share and merging," he says.
Medicare beneficiaries have been protected from market forces, he says, and have not had to compete.
"The other problem is that Medicare has not been paying its fair share," he adds. "Medicare has been underpaying for years."
Doesn't Medicare have a good record on controlling costs?
It has been able to control costs, but only because it has been able to limit the number of people who are eligible for the program, says Glenn Melnick, a professor of health economics at the University of Southern California.
"There has been a huge expansion of the program and a huge reduction in the number of people on the rolls," he says.
How has the number of people on Medicare been reduced?
The number of people on the program has fallen because of a "pretty good" program of means testing and because of the high cost of inflation. The inflation rate has been higher than the annual cost of living adjustment (COLA) that is made to grandma's check.
Is Medicare able to control costs for those who are eligible?
No. Medicare is not able to control costs for those who are eligible. "The typical Medicare beneficiary is older, has more medical problems, and has more frequent doctor visits than the typical private health insurance beneficiary," according to a study done by the Robert Wood Johnson Foundation.
So what is the solution?
Berenson thinks the solution is to make Medicare the same as private insurance.
"What we need to do is get Medicare into the market. Medicare has to be fixed for everyone -- it can't be just for the seniors and those on Medicaid," he says.
Berenson says that Medicare should be able to negotiate with doctors to bring down prices.
But Melnick says that Medicare is already doing that.
"Medicare has been using its market power. It is not as if they haven't been using the market. They have been using their market power to get discounts, and they have been trying to manage the procurement process," he says.
Still, Melnick says that Medicare is not trying as hard as it could.
"There is no doubt that they could do more," he says.
But Melnick says that the solution is not to make Medicare like private insurance.
"We can't have Medicare compete with the private sector. It is already facing a budget deficit. It is already facing a huge increase in demand," he says.
Melnick says that the solution is to bring Medicaid standards up to the Medicare standards.
"Medicare shouldn't have to compete with providers in the private sector," he says. "It should have to compete with Medicaid."
He says that the Medicaid standards should be brought up to the level of its federal counterpart, Medicare.
"Medicaid should be in the Medicare system," he says. "Medicaid is a big part of the problem."