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Paying the Price of For-Profit Medicare
by Nicholas Skala
October 9-10, 2004

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The thirty years since privatization zealot Milton Friedman praised the torture and execution of political dissidents as “the miracle of Chile” have played host to significant and repeated examples of the inherent inhumanity of the free-market doctrine. Power deregulation has failed in Ontario, England, and Montana as well as California, where silk-tied energy execs were caught on tape yuking it up about the “poor grandmothers” they were stealing from. In Philadelphia, benevolent market forces compelled the city’s for-profit schools to sell off textbooks, computers, lab supplies and musical instruments; and reportedly prompted school CEO Chris Whittle to suggest replacing costly adult staff by extending the school day to include an hour of unpaid child labor. The effects of privatization on society’s most assailable aspects could not have been better surmised than when a South Carolina jury, in describing the brutal torture of a young man by guards at a for-profit prison, found the act to be “repugnant to the conscience of mankind.”

The lessons of the American privatization endeavor are clear: market forces always elicit an unacceptable cost when provided the opportunity to victimize those characteristics which make us human. Yet free-market dogmatists and their friends in the current political administration continue to push for expansion into new and ever more intimate territory. Last year, at the behest of the powerful pharmaceutical and insurance industries, a new privatization scheme was built into Medicare, the program though which society provides for its most vulnerable: the elderly and the disabled.

But market ideologues were dealt a series of blows in the past weeks, beginning with new evidence showing that taxpayers pay more to private health plans enrolling Medicare beneficiaries than they would pay in traditional Medicare. A Medicare Payment Advisory Commission report released to Congress on September 16 shows that Medicare pays for-profit plans up to 123 percent of what it would pay for those same beneficiaries had they been in traditional Medicare. Market enthusiasts in Congress, motivated by a visceral hatred of all social programs, had once maintained that significant savings could be accomplished by paying private HMOs to deliver services covered by Medicare. Enrollees would receive the same benefits as regular Medicare, they preached, but because of their businesslike efficiency, taxpayers would only have to pay 95 percent of they would cost in the traditional program. But far from driving down costs, Medicare privatization has resulted in higher taxpayer costs. Private plans, shopping around the new “free market” of Medicare-eligible Americans, cherry-picked the healthiest, and therefore cheapest, for participation. Since Medicare pays the same amount of money per capita whether HMOs enroll a perfectly healthy person or one who needs constant expensive treatment, the results have been outrageous overpayments to private plans, to the tune of about $50 billion, while traditional Medicare struggles to deal with those most in need of care. Oh, and the report doesn’t include the $10 billion giveaway written into the new Medicare law as an “incentive” for private plans to participate.

But it is the human costs of Medicare privatization that prove the most heinous. Seniors lured into Medicare HMOs with initial promises of prescription drugs and more comprehensive coverage at no addition cost quickly saw their benefits deteriorate as their premiums soared. Private HMOs, by virtue of their corporate nature, intrinsically create massively wasteful bureaucracies that drive up the cost of health care. Unable to control costs, denial of critical medical services, reduction of physician or treatment options, and huge out-of-pocket costs became common in the privatized HMOs. A September 2003 report by the Senior Action Network details the systemic pattern of inhumanity that for-profit medicine produces:

A California woman’s Medicare HMO stopped contracting with her doctor, forcing her to see a hematologist who didn’t know how to work the equipment she needed to provide blood transfusions. A diabetic double-amputee joined an HMO offering prescription drugs with no premium, only to see it drop the coverage, increase monthly plan payments to $70 and end local contracts, forcing him to drive 30 miles for his medical supples. An elderly grandmother’s Medicare HMO refused to authorize payment for a colonoscopy when she complained of abdominal pain, eventually causing her colon to rupture and spill her intestines into her body cavity. Results such as these are standard business in for-profit medicine.

Health researchers aren’t forecasting an any less dire future. Former House Ways and Means Subcommittee on Health Chief of Staff Brian Biles said on Sept. 23 that private HMOs will continue to suck $4 billion in overcharges during 2005. Summoning oracle-like insight, Biles pointed out to an Alliance for Health Reform forum audience that “if you’re paying 108% on average, you’re not saving money.” Medicare will overpay an average of $1,300 per corporate HMO enrollee, in direct contrast to the privatization credo.

The situation is unlikely to improve for Medicare patients either, as the Bush administration has built mechanisms to extend privatization into the new Medicare drug legislation. Seniors seeking relief from the pharmaceutical industry’s state-sponsored price gouging can only obtain their benefits through purchasing a private prescription-drug only insurance plan, or by leaving the traditional program and enrolling in one of the for-profit Medicare HMOs that so excel at charging more for vastly inferior care. As the New York Times reported on March 9, ecstatic HMOs have been scurrying around Florida like kids in a candy store, scrambling to enroll Medicare patients into the new plans. The deal: sell them the same temporary snake oil before getting back to “business as usual” in healthcare: vanishing choice, deteriorating coverage and skyrocketing premiums.

Finally, apparently feeling that current policy initiatives were not resulting in a satisfactory level of exploitation, it was revealed last week that the Bush administration has been joining forces with for-profit Medicare PPOs to deny care to the elderly and disabled. A Government Accountability Office report released on Sept. 28 found that the Bush administration “improperly” allowed private plans participating a Medicare PPO demonstration program to deny patients their choice of provider. Under federal law, the PPOs are required to cover all services in their benefit packages, even if those services are delivered by out-of-network providers. But the administration illegally waived those requirements for 29 of the 33 PPOs involved, leaving elderly and disabled patients to bear the burden of the full cost themselves. In a no longer shocking revelation, the report found that in addition to the chance that your PPO will conspire with the government to steal from you, they also cost $650 to $750 more per patient than traditional Medicare.

Conclusions can be drawn without much difficulty: privatization doesn’t work any better for Medicare than it did for those California grandmothers or the schoolchildren in the slums of Philadelphia. Profit margins and bottom-lines have no place dictating the care of our loved ones. Market forces are subject to manipulation by unsavory interests and indifferent to the evils of human suffering. Its time for proponents to admit the utter failures of privatization, politicians to recognize single-payer Medicare as the most efficient and cost-effective health care delivery system we have, and for American society to identify full health care coverage for everyone as a top priority. Only then will we begin to realize the compassion that serves as the foundation for our proudest social programs.

Nicholas Skala is a health policy researcher based in Chicago. He can be reached at:

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