Baseball Crank
Covering the Front and Back Pages of the Newspaper
February 19, 2010
POLITICS: The "P" Word

I know I linked to him once already today, but Francis Cianfrocca's column on Medicare Advantage - which is very much worth reading in full - neatly summarizes, in response to criticism from Obama and Pelosi, why it is necessary for businesses with shareholders to make a profit:

Everyone gets that you have to pay salaries to the people who do the work for you. But you also have to pay the people who provide the capital to start and grow the business (and create the jobs) in the first place. That obligation never goes away. Even though Nancy Pelosi has recently been howling about the fact that insurance companies make billions in profits, she never stops to think that: A) we wouldn't have large, efficient insurance providers without capital; and B) the health insurance sector provides terrible returns to investors relative to other sectors because it's already over-regulated; and C) most of those profits are used by pension funds to write monthly checks to retirees.
Posted by Baseball Crank at 2:41 PM | Politics 2010 | Comments (3) | TrackBack (0)

It's telling that people like Nancy Pelosi, and others who decry Insurance company 'profits', only speak in actual numbers, rather than profit margins. Actual numbers look scary but, the reality is, the Insurance companies profit margins are very small (in the 2.3% range).

Posted by: Agent W at February 19, 2010 4:59 PM

People who never worked in the private sector have no clue what it is about.

Profit is not an curse word, it is a a necessacity. You work every day to make your customer more pleased with your product, make it cheaper/better, and keep your employees energized. It is not a burden, it gives you vision and daily goals. You become better every day or you lose.

Posted by: Lee at February 21, 2010 10:05 AM

I'm not so sure Francis has the right argument there. From what I understand, this is Obama's argument:

"At a town hall meeting today outside Las Vegas, Obama said the Medicare Advantage plans were getting a "sweet deal" from the government - overpayments averaging 13 percent. "All we've been saying is, 'Let's make sure that there's a competitive bidding process, and that we are getting the absolute best bargain,'" the president said." . . . .

"Nonpartisan technical advisers to Congress say Medicare Advantage plans are being overpaid because of a flawed formula.""

Speaking of non-partisan technical advisors:

"MedPAC is charged by the Congress to make recommendations on payment policy both for
providers in Medicare’s traditional fee-for-service (FFS) program and for MA plans. The
Commission’s goal is for Medicare payments to cover the costs that efficient providers and
organizations incur in furnishing care to beneficiaries, while ensuring that providers are paid
fairly and that beneficiaries have access to the care they need. MedPAC focuses on ensuring
that Medicare program dollars are spent wisely—ensuring that beneficiaries and taxpayers
get maximum value for each dollar spent in the program. Providers who are put under fiscal
pressure, whether FFS or MA plans, are more likely to contain costs and innovate new care
delivery mechanisms.

"Private plan participation in Medicare was originally intended as a way to achieve efficiency
through care coordination and other innovations in the delivery of care. Managed care plans
have greater flexibility to innovate and the presence of an appropriately paid managed care
choice is consistent with MedPAC’s goals of improving the value of the program. As
initially designed, plans were to be paid 95 percent of projected FFS spending for each
enrollee. The thought was that efficient plans would be able to provide extra benefits to
enrollees, and greater efficiency would lead to higher plan enrollment. Competition among
plans for enrollees would promote further efficiency.
Over time, however, this original vision of the potential of private plans has been
compromised and ultimately undermined by successive payment increases to plans. Payment
increases have been so large that plans no longer need to be efficient to attract enrollees. The
result is that, on average, Medicare pays far more for each beneficiary who opts for an MA
plan than it would if they stayed in FFS. In addition to promoting inefficiency in MA, this
misalignment increases the burden on taxpayers and beneficiaries, who must pay higher Part
B premiums, whether they are in managed care plans or not. Furthermore, MA overpayments contribute to undermining the long-term sustainability of the Medicare

"MedPAC believes that adhering to the principle of financial neutrality is key to ensuring that
private plans add value to the program. Financial neutrality means that the Medicare
program should pay the same amount, adjusting for risk, regardless of which Medicare
option a beneficiary chooses. What this means for MA payment policy is that benchmarks—
the basis of payment in MA—should be set at 100 percent of FFS Medicare rates. When
private plans are paid in this way, they have greater incentives to undertake innovations in
care delivery and management and to negotiate with providers over levels and methods of
payment. Indeed, they have the flexibility to use care management techniques that FFS
Medicare does not encourage."


Given all this, Francis' argument looks like a complete oversimplication of the whole debate.

Posted by: MVH at February 22, 2010 9:58 AM
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