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Title : The Long-Term Viability Of Medicare Advantage--Why Aren't The Analysts Shout Out For For The Numbers To Add-Up?

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The Long-Term Viability Of Medicare Advantage--Why Aren't The Analysts Shout Out For For The Numbers To Add-Up?

I bring been struck past times the optimism regarding somebody Medicare presented past times health innovation executives during the recent earnings season too the analysts failure to press them on exactly how their numbers volition add-up to sustain the long-term viability of a somebody Medicare strategy.

The typical private Medicare wellness innovation operates on a medical damage ratio inward the mid-80s. Let's assume 86% for medical costs too the remaining 14% for overhead, profit, too taxes.

Government-run Medicare operates on nearly 3% overhead. One tin fence that many federal Medicare costs are paid for elsewhere but that is the let on the somebody plans bring to compete against.

So private Medicare plans pass 14% on overhead too Medicare charges itself 3%--that's an 11% disadvantage for the somebody marketplace correct out of the box.

Private plans bring to offering improve benefits inward venture for seniors to desire to purchase the somebody plans. Let's role 6% equally the amount wellness plans pass for the extra benefits needed to attract seniors to their plans.

So, inward this example, the disadvantage for private Medicare is non entirely the 11% overhead shortfall but around other 6% for the benefits needed to proceed selling the plans to seniors--or a full burden of nearly 17%.

Today, the authorities pays somebody Medicare plans an average of 13% to a greater extent than than it does the government-run plan--17% to a greater extent than for the somebody fee-for-service (PFFS) version that volition sunset inward 2011.

These extra payments are what brand private Medicare so attractive to seniors too HMOs today.

Let's say our HMO has one-half of its private Medicare growth inward PFFS. Their average payment inward a higher house what criterion Medicare gets would hold out nearly 15%. So this hypothetical HMO gets 115% of what Medicare pays itself for the same senior population. Take the 11% overhead disadvantage from that likewise equally the extra 6% they pass on attracting seniors amongst improve benefits too the HMO would bring a medical tending damage of 98% of what Medicare spends (115%-11%-6%=98%) inward venture to residue the books today.

So, today my hypothetical HMO is managing its medical costs at nearly 98% of what Medicare spends for the same senior population.

But what happens if the extra Medicare payments to somebody Medicare larn away? It is almost for sure that is going to happen--presuming the Democrats growth their majorities inward the fall.

Private Medicare volition ever require to offering seniors something extra to larn too proceed their business--that extra 6% our hypothetical HMO spends today. Why would seniors purchase it if in that location wasn't an incentive to create so?

The whole private Medicare experiment is nearly the notion that the market tin create create Medicare costs improve than government-run Medicare. If the private market cannot larn a improve long-term damage final result the whole strategy exactly is non viable.

The solar daytime private Medicare gets the same payments equally public Medicare the somebody sector is going to bring to brand upwardly for that higher overhead grade (11%) too improve benefits (6%) past times managing to a lower medical damage final result than government-run Medicare.

Instead of somebody Medicare operating at 98% of the medical damage grade of populace Medicare, equally our hypothetical HMO does today, my HMO volition require to bring medical costs at 83% of public Medicare inward venture to sustain a medical damage ratio xi points higher than Medicare too 6% inward improve benefits (100%-11%-6%=83%).

For whatever somebody Medicare strategy to hold out feasible post-excess payments to the somebody plans, the somebody plans bring to shell Medicare's costs. In my example, which I volition propose is a pretty fair approximation of the marketplace reality, no wellness innovation tin sustain its somebody Medicare describe organization plan unless it tin ultimately get its medical costs to nearly 83% of the government-run Medicare plan. And, that would exactly hold out a necktie amongst the populace program's costs. To essay out the somebody marketplace is improve than government-run Medicare the final result would bring to hold out fifty-fifty improve than that.

Most somebody plans are inward the 95% to 100% hit today. And, around of the markets they are inward bring much improve payments than the average extra authorities payment of 13% too 17%.

During this past times earnings season nearly every health innovation managing director has boasted that Medicare is inward their futurity too they tin plow over their earnings objectives spell competing head-to-head amongst the populace program.

But for that to happen, the typical HMO needs to trim its Medicare benefits ratio from 95% - 100% today to nearly 83% to exactly represent the surgical physical care for of the government-run plan.

Not a unmarried investment analyst challenged HMO managers on whatever conference telephone holler upwardly I heard on exactly how they are going to larn from hither to in that location earlier the Democrats zap the extra payments somebody Medicare plans at in 1 lawsuit get.

It would look to me that would hold out at the crux of whether their private Medicare strategy had whatever long-term viability.

The End of Medicare Private Fee-For-Service--the Questions to Ask the Health Plans During Earnings Season

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