Testimony to Illinois House Special Committee on Medicaid Reform (January 13, 2011)


Written testimony presented by Anne Scheetz, MD, FACP on behalf of Physicians for a National Health Program Illinois and the Illinois Single-Payer Coalition

As I have listened to the proceedings of the University of Illinois Institute of Government and Public Affairs State Summit 2010, “Reforming Medicaid in Illinois: Managing Service Delivery and Controlling Costs,” and to those House and Senate special committee hearings that I have been able to attend, I have heard several recurring themes, among them, restoring public trust in government by eliminating fraud and abuse in the Medicaid system; controlling costs; and obtaining good value for taxpayer money.

Committee members have been assured that by privatizing Medicaid, that is, by turning over taxpayer money to private insurance companies, and forcing Medicaid recipients into HMOs, they can control Medicaid costs while improving recipients’ quality of care.

The Illinois Chapter of Physicians for a National Health Program and the Illinois Single-Payer Coalition oppose forcing patients into HMOs. We work for a health care system in which every person has access to all necessary care without financial barriers and with complete choice of hospitals, physicians, and other providers. We note that the only health care system capable of controlling costs is, paradoxically, one in which everyone has access to care, because only a universal system is able to reduce the bureaucracy that consumes at least 30% of our health care dollars.

In regard to proposals for forcing people into Medicaid HMOs, we note that evidence from the Medicare program contradicts the assurances about cost and value that the committees have received.

Medicare was enacted in 1965 as a public program under which nearly all persons in the US over age 65 are entitled to receive certain health care services on a fee for service basis. Beginning in 1972 there have been multiple forays into partial privatization. Currently, Medicare recipients are allowed to choose between the public program and private HMOs called Medicare Advantage Plans (MAPs). Insurance companies offering qualified MAPs receive capitated payments and assume full risk for covered services for their enrollees.

I will review briefly the results of partial privatization in terms of value, cost control, fraud and abuse, and public trust.

A report released by the US House of Representatives Committee on Energy and Commerce on December 9, 2009, found the following: Traditional Medicare spends 1.5% of revenues on administration and over 98% on health care. By contrast, the average MAP insurer spent 15% of premium revenue on profits, marketing, and other corporate expenses, and some insurers spent less than 75% on medical care in at least some years. MAPs spent nearly ten times as much as traditional Medicare on administrative expenses per beneficiary. MAPs that spent less than 85% of revenues on medical care paid their executives over $1.2 billion, and one company that spent 83% of revenues on medical care spent $3.1 million for two executive retreats in Hawaii. In summary, the House report found that MAPs shift taxpayer money away from medical care into administrative overhead and wasteful executive benefits.

Dr. John Geyman in his 2006 book Shredding the Social Contract: The Privatization of Medicare provides further analysis of the effects of MAPs on beneficiaries’ health and on Medicare spending (pages 103 to 106). MAPs received on average 13% more than the cost of traditional Medicare per patient. Medicare beneficiaries enrolled in MAPs were hospitalized almost 40% less than traditional Medicare patients, saving the insurance companies the cost of those hospitalizations. However, during the first year after disenrollment, those patients were hospitalized at 180% of the rate of patients who had not been enrolled in MAPs, meaning that they emerged from the MAPs in worse health and needing more costly care. The cost of necessary hospitalizations was thus shifted from the insurance companies to the Medicare program. Additionally, 54% of chronically ill Medicare patients in HMOs had declines in physical health during a four-year period compared to 28% in traditional fee for service Medicare. These are only some of the damning pieces of evidence listed in Dr. Geyman’s book; all were derived from articles published in Health Affairs and in top peer-reviewed medical journals. Furthermore, Medicare private plans engaged in both legal and illegal practices in order to enroll healthier beneficiaries and avoid sicker ones, despite their receiving excessive payments (pages 69-70). Finally, between 1999 and 2002, about one-third of MAP enrollees lost their plans when insurance companies pulled out of certain markets due to what they considered low profitability, and/or inability to enroll sufficient providers in their networks (page 76).

A 2010 study by The Medicare Rights Center (www.medicarerights.org) provides a beneficiary perspective on disenrollment from MAPs. Voluntary disenrollment occurred because of provider access problems for such services as cancer specialists, home health, and rehabilitation; misinformation and marketing abuse, including enrolling customers without their consent; coverage problems; cost sharing that was higher than expected; and data systems problems. Although the practice is illegal, some patients were disenrolled involuntarily when they received a diagnosis of cancer, through plans claiming that premiums had not been paid and refusing to rescind disenrollment even when proof of payment was presented.

To summarize, partial privatization of Medicare has resulted in the opposite of cost control, increased value, and elimination of fraud and abuse. Instead, privatized Medicare as compared with traditional public Medicare has resulted in the following: increased per beneficiary cost to Medicare; increased beneficiary out of pocket costs; higher overhead; disruption of continuity of care; decreased choice of providers; denial of services; and poorer health outcomes. Furthermore, insurance companies break the law and waste taxpayer money.

Privatized Medicaid, as I have heard it presented during these hearings, will be different in some respects from privatized Medicare. For instance, recipients who cannot access the providers and other services they need, such as cancer care and rehabilitation, will not be able to switch to a public program. We do not know what will happen to these patients, but we can anticipate that their needs will not be met. On the other hand, we can anticipate that insurance companies will demand that the state pay them enough to ensure their profitability, regardless of the loss to patients and to taxpayers; if they do not get the profits they want they will withdraw, in itself an expensive process for the Medicaid program and for patients and providers. We can expect multiple disruptions of continuity of care. We can expect the insurance companies to engage in illegal practices. We can expect poorer health outcomes among Medicaid recipients.

At the same time that Physicians for a National Health Program and the Illinois Single-Payer Coalition foresee these problems for Medicaid recipients, we acknowledge that every person in the contemporary US health care system faces the risk of denial of services, disruptions of care, and financial devastation in the event of serious illness. Thus, we work for true reform of the entire US health care system in the form of Expanded and Improved Medicare for All. We urge all of you to support the Illinois single-payer bill, House Bill 311, when it is reintroduced during the next legislative session.

Thank you.

Reference: John Geyman, M.D. Shredding the Social Contract: The Privatization of Medicare. Monroe, ME: Common Courage Press, 2006.

Financial Disclosures: None. I receive no reimbursement, including expenses, for my work for PNHP and ISPC.

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