28 July 2010

Health Law Augurs Transfer of Funds from Old to Young

The Wall Street Journal

Mark Baumann, a 44-year-old uninsured diabetic, sees in the Obama administration's health-care law a future with stable coverage to pay for his insulin shots and blood tests. Currently unable to meet costs such as Anthem health insurance quotes, he will rely on reform measures to meet his medical needs.

That's likely to come indirectly at the expense of his mother's generous health-care plan.

Humana Inc., Mary Baumann's insurer, intends to pare her "Medicare Advantage" plan to make up for the smaller government payments it will soon receive as a result of the new law, leaving her with higher costs or fewer services. On the table are beefed-up co-payments and premiums, as well as the loss of perks such as her free membership at a health club.

Across the country, dozens of private insurers that run similar Medicare plans are preparing to pare dental, vision and certain prescription-drug coverage starting next year, according to consultants who have helped them assemble annual bids.

Although some planned cuts might not materialize given Congress's history of tabling unpopular measures, the law represents the tip of a broader change. Most Americans know the overhaul is designed to cover the uninsured, a decades-long goal of Democrats. But it also represents a change in how the government spreads its social safety net underneath Americans. Already, it's creating tensions that are a harbinger of debates to come.

Since the creation of Social Security and Medicare, younger workers have funded programs for the elderly. It's a compact in which workers paid for retirees with the understanding that they'd be looked after by the generation behind them.

The health overhaul diverges by tapping a program for the elderly to help provide insurance to 32 million Americans of younger generations. Nearly half the funding for the law is supposed to come from paying lower fees to hospitals, insurers and other health-care providers that participate in Medicare, the federal insurance program for Americans age 65 and older, as well as younger disabled people.

The 44 million Americans on Medicare won't see changes to their guaranteed benefits under the law. But of those, 11.3 million on Medicare Advantage plans, a public-private hybrid of the type used by Ms. Baumann, who is 79, are likely to begin seeing extra benefits go away as soon as next year. Medicare Advantage cuts are slated to pay for 15% of the health-care law's tab.

The trims mark the leading edge of a spending shift that could broaden as lawmakers grapple with a deficit expected to hit $1.47 trillion this year. Left unchanged, Medicare and Social Security will consume half of all federal spending by 2035, up from about one third today, according to the Congressional Budget Office.

A White House-sponsored commission that is examining ways to reduce the budget deficit is considering how to tackle Social Security, too. Even AARP, the seniors group, recently embraced the prospect, noting that to keep Social Security viable, Congress "needs to make some small adjustments." AARP supported the health-care overhaul.

Prominent lawmakers in both parties have suggested restrictions on future Social Security benefits, such as a higher retirement age for younger workers and financial means testing to determine who gets benefits.

"We badly need to, over time and very gradually, reallocate resources from the elderly to younger families and their children," said Isabel Sawhill, senior fellow at the liberal-leaning Brookings Institution.

The White House says the health law doesn't take from seniors to help younger generations, but instead eliminates overpayments to private companies, particularly insurers that run Medicare plans like Ms. Baumann's. By lowering payments to health providers, the new law extends the life of Medicare's trust fund by 12 years, according to an actuarial report from Medicare's umbrella agency.

"I'm sure that some of those additional benefits have been nice," Nancy-Ann DeParle, who runs the White House's Office of Health Reform, says of Medicare Advantage plans. "But I think what we have to look at here is what's fair and what's important for the strength of the Medicare program long term."

Stuart Butler, a vice president at the conservative Heritage Foundation, says the White House is misrepresenting the benefits that accrue from Medicare payment cuts. "It uses it to create a new entitlement for a separate group of people rather than strengthening" the program, he says. Moreover, such cuts alone don't pay for the law.

The law will spend $938 billion over a decade, mostly to expand coverage to lower-income Americans. To finance that, there will be $455 billion coming from cuts in government payments to health-care providers that serve patients on Medicare and two other federal programs. The hardest hit—to the tune of $136 billion—will be private insurance companies that run Medicare Advantage plans.

Most of the rest will be funded by new levies, including taxes on health-care companies, a higher Medicare payroll tax for wealthy Americans and a tax on high-value insurance plans. Critics of the law say its total cost is likely higher than advertised.

Some older Americans are irate, including some of Ms. Baumann's gym-mates. One has joined the tea-party movement, in part to protest the cuts. Democrats are worried about the political pressure from seniors, who vote in large numbers, especially in midterm elections, and represent a political force that is disproportionate to their numbers.

The party has played up the perks for seniors included in the law. Among other things, it closes a gap in Medicare prescription-drug coverage and makes preventive services free for enrollees.

Ms. Baumann has few medical needs except two daily blood-pressure medications and dental work, but she is torn about the changes. She credits the gym membership with helping her overcome her husband's death in 1994. She couldn't afford it on her fixed annual income of $17,000 and has voiced that concern at meetings of Humana's local consumer advisory board, of which she is a member.

"I think there's other cuts we could make besides our age group," she says. But she wants her son to get insured.

The Congressional Budget Office says on average, Medicare Advantage enrollees will get $68 less a month in benefits by 2019 because of the law. The payment cuts to Medicare Advantage begin in 2012.

John Gorman, a consultant who helped insurers prepare bids, says his clients are planning to raise non-essential emergency room co-pays to $500 from $200. They're pushing enrollees toward generic drugs and charging more for optometrist visits.

Ms. Baumann and her late husband, Donald, raised six children around New Orleans. Donald Baumann worked as a switchman for the phone company and earned $40,000 a year when he retired in 1982. Ms. Baumann stayed home to raise their children and later sold cosmetics at an Estee Lauder counter.

Donald Baumann's health plan from BlueCross BlueShield of Louisiana kept their costs low. When their youngest child, Mark, was diagnosed with Type 1 diabetes at 16, the insurance covered his two-week hospital stay.

After college, Mark Baumann bounced between jobs in Chicago selling hotel rooms to corporate groups. The hotels offered patchy insurance. In 2008, shortly after Mr. Baumann moved back to Louisiana to be closer to his family, he lost his $44,000-a-year sales job at a New Orleans Best Western.

"I thought I'd be employed within a month," Mr. Baumann said one afternoon as he sat on his mother's couch petting his Chihuahua, Peanut. He didn't worry about housing since he lived in his mother's one-story home, perched eight feet above ground to protect against flooding from nearby Lake Pontchartrain. He limited discretionary spending to splurges such as $150 in plants for their garden.

Mr. Baumann began stretching the time between daily blood sugar tests to make his supply of testing strips, which cost $1.20 each, last longer. He skipped three annual blood tests. Last summer, he went to a low-cost clinic and accepted three vials of free insulin that had been partially consumed. In the fall, an intense side pain landed him in the emergency room, resulting in an $8,000 bill. The facility waived it after he wrote a letter saying he couldn't pay.

Cobra, the federal insurance program for people between jobs, was too costly. Louisiana turned him down for Medicaid, saying he didn't qualify because his unemployment benefits—$3,096 over three months—put him over the income limit.

Under the health law, that will change by 2014. If Mr. Baumann is earning under $43,320 a year then, he'd qualify for a health insurance tax credit. If unemployed, he has a better chance than now of qualifying for Medicaid, the federal-state insurance program for the poor.

Mr. Baumann's unemployment benefits recently lapsed, and he's now leaning on $200 a month of food stamps. He got a break last month, when his local health clinic told him he qualified for the state's low-income care program, which paid for a CT scan and other tests to diagnose bouts of fainting. The program will defray his medical costs until he finds a job, but still leaves him without insurance.

Ms. Baumann has one of the best government insurance deals the country offers. Since 2003, she has been enrolled in a Humana Gold Plus HMO. The plan is part of an experiment Congress started decades ago to make Michigan Medicare plans more efficient by paying private insurers to administer coverage. In rural areas, private insurers didn't rush into the market, prompting Congress in 2003 to raise the rate it paid.

The government now pays private insurers an average of 9% more to operate the plans than it costs to run traditional Medicare, according to the Medicare Payment Advisory Commission. Insurers must spend most of that overpayment on enrollees.

As a result, Ms. Baumann's plan covers her "Silver Sneakers" gym membership, worth $54 a month, at Franco's health club and spa. The plan includes $10 a month worth of sunscreen, vitamins, laxatives and other products. She pays no premium beyond what seniors pay for traditional Medicare.

Humana, which administers Medicare Advantage plans to 1.75 million seniors, is trying to pare 15% of its overall costs, in part to offset lower expected government payments.

"There's no question that either premiums go up or either benefits go down over the long term," said Michael B. McCallister, Humana's president and CEO. "Everything is on the table."

Word of cuts has Ms. Baumann's gym mates in a huff.

"With the president being younger, my biggest concern is that we don't mean anything," said Sandy Reed, a 61-year-old who has a Medicare Advantage plan because she qualifies as disabled. "We're disposable."

One recent morning, Ms. Baumann and her son drove her 1999 Lexus SUV 35 miles to the Louisiana State University Bogalusa Medical Center. It sells insulin for at least 50% less than a traditional pharmacy. Ms. Baumann lent her son $100 to buy it.

He ducked his head into the pharmacy window, underneath a burned-out light bulb, and a woman handed him a paper bag with 100 syringes and three vials of insulin for $83.

Back in the car, he lamented his finances. "Maybe I shouldn't have bought all those plants," he said.

The next morning, Ms. Baumann walked past the waterfall in the lobby of her health club. She brought Mr. Baumann as a guest so he could lift weights. The facility has two pools, waterslides, a Starbucks counter and a grill which sells quesadillas and avocado mint smoothies.

After Ms. Baumann's "Dancin' to the Oldies" class, some of the women fretted that the free memberships they get through Humana could go away.

"Most of these older people don't like change," Ms. Baumann said. "But they have to get used to it. There will be change."

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