HMOs Deconstructed

Government-run Medicare health coverage for the elderly is more efficient than private sector fee-for-service treatments, Hugh Waters of Johns Hopkins University argued earlier this month in a seminar held by the libertarian Cato Institute. “Medicare has lower administrative costs,” Waters told the audience at the symposium on Capitol Hill.

He tallies the overhead at $127 per Medicare enrollee in 2003 compared to $421 per capita for the private sector equivalent. Additionally, Waters asserts, “Medicare has slower increases in costs.”

Between 1970 and 2004, he estimates, costs went up 10.9 percent in the private sector compared to just 9 percent for Medicare. “There’s an $80-trillion-dollar unfunded mandate in Medicare,” Michael Tanner of Cato countered.

Tanner has been a health-care-policy analyst at Cato for many years. “The United States offers more health care than any other country in the world,” Tanner said. “We spend one-third more than our nearest competitor.”

Also, despite what you may have heard, “Rising health care costs are not an American phenomenon,” Tanner asserts. The source of the confusion, on this and many other issues, lies in the Turtle Bay section of Manhattan, because that is where the United Nations headquarters is.

The United States gets smacked down by the World Health Organization (WHO), a UN offshoot, for a range of policies not directly related to doctor’s visits. Waters is among those who puts great credence in the WHO rankings, although, to his credit, he looks askance at film auteur/provocateur Michael Moore’s efforts to explain the health care crisis.

“The World Health Organization rates the United States on fairness of progressive taxes,” Tanner observes. “The World Health Organization also grades the United States down on smoking.”

Actually, believe it or not, “The dissatisfaction rate is 58-70 percent in every country,” Tanner contends. “All other health-care systems want to be like the United States.”

“Those countries that worked best were the ones most like the United States.”

Waters might be on more solid ground if he compared traditional Medicare to Medicare HMOs. The latter are a “private sector” attempt to curb rising costs in the program that have proven to be even more unsuccessful at containing runaway expenses, U. S. government audits show.

In fact, the U. S. Government Accountability Office (GAO) just released a study in February entitled Medicare Advantage: Higher Spending Relative to Medicare Fee-for-Service May Not Ensure Lower Out-of-Pocket Costs for Beneficiaries. The GAO is a research arm of the U. S. Congress.

“HMOs account for 71 percent of total MA enrollment,” the GAO found. “In 2006, Medicare paid $59 billion to MA plans—an estimated $7.1 billion more than Medicare would have spent if MA plan beneficiaries had instead received care through the FFS program,” a GAO official told a congressional committee.

That official, James Cosgrove, testified before the House Ways and Means Committee’s Subcommittee on Health. “Medicare spends more per beneficiary in MA than it does for beneficiaries in Medicare FFS, at an estimated additional cost to Medicare of $54 billion from 2009 through 2012,” Cosgrove told subcommittee members.

Cosgrove is the acting director of the Health Care division at the GAO.

Still, the connection of HMOs to the private sector is somewhat tenuous. HMOs, or Health Maintenance Organizations, were created by an act of Congress during the Nixon years. Moreover, they were protected from malpractice lawsuits via another congressional statute—the Employee Retirement and Income Security Act—and derive much of their income from government contracts and programs.

Malcolm A. Kline is the executive director of Accuracy in Academia.