Is Gingrich’s prediction of Medicare withering on the vine about to come true?

Gingrich’s Correct Prediction About Medicare’s Future

By Austin Frakt
The New York Times, July 7, 2014

On Oct. 24, 1995, Newt Gingrich made an assertion about what would happen to Medicare if its beneficiaries could choose between it and private plans. Medicare is “going to wither on the vine because we think people are voluntarily going to leave it — voluntarily.” Though he later walked this statement back, many observers viewed it as an attack on the program.

In fact, over the nearly two decades since, Mr. Gingrich’s claim has undergone something of a test — and it has largely passed it.

In that time, Medicare beneficiaries have enjoyed various levels of access to private alternatives to traditional Medicare through the Medicare Advantage program and its predecessors.

Today, 30 percent of Medicare beneficiaries are enrolled in a Medicare Advantage plan, more than at any time in history.

The surge in Medicare Advantage enrollment seems surprising. With payments to plans cut by the Obama administration, history suggests enrollment should go down, not up. What, then, could explain the growing popularity of private Medicare plans?

One answer is that baby boomers, who are just entering Medicare-eligibility age, are more accustomed to the types of insurance Medicare Advantage offers, such as H.M.O.s, than their predecessors were.

Another answer is that prior generations of retirees may have been more likely to have had coverage from former employers that wrap around traditional Medicare, filling in its gaps. This coverage has become less common as employer-sponsored retirement benefits have eroded generally. Since Medicare Advantage plans generally offer extra benefits, financed by the generous government subsidies they receive relative to traditional Medicare, perhaps new retirees are turning to them in greater numbers for more complete coverage.

As Medicare Advantage grows, traditional Medicare necessarily shrinks and its influence on the American health care system weakens. If the trend continues, policies, including those in the Affordable Care Act, designed to use traditional Medicare as a tool to reshape health care delivery for all Americans may become less potent. Is there a tipping point at which traditional Medicare ceases to matter?

If so, we’re probably not there yet, but we may be moving toward it. Unless things change, the data suggest Mr. Gingrich may have been right in a way: Given a choice between traditional Medicare or more benefits from more highly subsidized private plans, Medicare beneficiaries may well be willing to let the former wither on the vine.

Reader comments:

Don McCanne 
San Juan Capistrano, CA

Although the higher payments to the Medicare Advantage plans are being reduced, the Obama administration, with encouragement from Congress (responding to AHIP’s intense lobbying campaign), has offset some of the reductions with innovative measures to increase payments to the private insurers.

That is perpetuating the blatant unfairness wherein taxpayers are paying more for those enrolled in the private plans than they are for those enrolled in the traditional Medicare program.

If it is right that we pay the private insurers more, then in all fairness we should be paying more for those in the traditional program so that everyone receives comparable benefits.

Fairness should be of the highest priority when our elected politicians are spending our tax dollars. Once we get that right, it will be no contest when it comes to comparing the traditional Medicare program with the private Medicare Advantage plans that divert a large portion of funds to profound administrative excesses, wasteful marketing, excessive executive compensation packages, and profits for superfluous passive investors, as they take away our choice of health care providers.

If we voters insist on fairness, it will be the private Medicare Advantage plans that will wither on the vine.


Further comment by Don McCanne

Maintaining the integrity of the traditional Medicare program is important because it serves as an example of the capabilities of the government in managing a public insurance program. If the reputation of Medicare is trashed it would provide powerful rhetoric for the opponents of single payer.

The Medicare plus Choice program was established to provide private health plan competition to the traditional Medicare program, supposedly bringing us higher quality at lower cost. The experiment proved to be a failure since it was clear that the private insurers were unable to deliver on that promise. The privatizers did not give up. The program was revitalized as Medicare Advantage, but with a new twist. To supposedly prove that the plans could provide higher quality at lower cost, Congress cheated. They gave the plans an extra 14 percent over the costs of traditional Medicare, thinking that we wouldn’t notice.

The plans became popular mainly because they could entice Medicare beneficiaries with extra benefits, though those benefits were only a small part of their extra payments. That was enough to lure more enrollees. Recognizing that the plans were being paid too much, and struggling to find ways to pay for the Affordable Care Act, Congress included in the Act a gradual reduction in these Medicare Advantage overpayments.

It did not take long for the insurance industry to organize protests against Obama’s “cuts to Medicare.” The Obama administration, under pressure from members of Congress, responded with three years of accounting gimmicks that would offset some of the reductions.

Not only is our tax money being unfairly diverted to the private insurers, while neglecting those in the traditional program, a portion of the Part D premiums paid by traditional Medicare beneficiaries is also being diverted to the provision of more benefits for the Medicare Advantage patients - benefits that those in the traditional program do not receive.

It is important that we publicize this injustice so that the blatant cheating will end. Once that happens, the Medicare Advantage plans will have proven to be a failed model of health care financing. Hopefully then people will listen when we show them that a publicly administered and financed program - a single payer system - provides much greater value in health care.