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HMOs Get a Windfall, Seniors Get Short Changed

by Jerry Flanagan, 12:05 p.m. PST - (415) 633-1320

The Bush Administration says it wants to increase competition between Medicare and private insurance, but what it is really doing is rewarding health insurer excesses. As a result, seniors will pay more for less.

The Bush Administration will use the new Medicare prescription drug benefit to encourage enrollment in private health plans despite the fact that those insurers are much more inefficient than the government-run Medicare program.

In 2002 alone, insurance administrative costs increased 16.8%, making it the fastest growing component of health care spending over the past three years. In comparison, overhead costs for the Medicare program are closer to 3% annually.

The Congressional Budget Office estimates that as a result of the new Medicare bill, payments to private health insurers will reach $500 million this year and total more than $14 billion over the net ten years.

In addition to increased payments, private health plans will get to keep a larger piece of the $400 billion earmarked to provide a new prescription drug benefit. Since seniors are required to sign-up with a private health plan in order to receive the prescription drug benefit, the insurance plans, whose administration and overhead costs can range up to 20% and more, will gain tens of billions of dollars from the new program.

Throwing money at the problem of private market waste will only encourage bad behavior. Uninsured rates of non-elderly Americans will continue to increase and fewer seniors will be able to afford care under the new Medicare plan until HMOs and health insurers are require to abide by caps on their administrative and overhead costs.