When insurance companies run the show, we pay more
By Consumers Union on Wednesday, March 11th, 2009
You’ll be hearing a lot in the coming months about how we should trust the marketplace – ie, big insurance companies – more than our own government to provide us affordable health coverage. And how our leaders shouldn’t offer us the choice of a publicly run insurance plan in addition to private insurance options.
But a new study from the Kaiser Family Foundation finds that when insurance companies are allowed to run the show – as they now do in providing seniors a prescription drug benefit through Medicare Part D –seniors and taxpayers end up spending too much.
(A bit of background: When Congress agreed to give seniors Medicare drug coverage in 2003, it expressly forbid Medicare from offering its own plan, or negotiating to get lower drug prices, even though taxpayer money funds the program. Rather, it let private insurance companies — who lobbied hard to keep government out of the way — offer drug insurance to seniors, claiming that choice and competition would bring down costs.)
Kaiser found most seniors enrolled in these private insurance plans spent an average of $360 to $520 more on their prescription drugs in 2006 than they would have if they had chosen the lowest-cost plan available. Some spent as much as $1,360 more. As researchers noted, seniors wanted to save money — 72 percent reported that the cost for each prescription was a very important factor in picking a drug plan. But they didn’t end up getting the lowest price, and worse, paid too much.
As Consumers Union has found, many of these private insurance plans offer a sort of ‘bait and switch,’ promoting low costs for drugs during the open enrollment period, but then hiking prices once seniors pick a plan and are locked in for a year.
The Kaiser study also notes that seniors were overwhelmed by too many plans to choose from. In 2006, the typical county in the nation had 48 plans, while some had more than 70 choices. Kaiser reports that nearly three-fourths of seniors felt that the drug benefit was too complicated, and when asked if they’d prefer Medicare picking a handful of plans with certain standards so seniors would have an easier time choosing, 60 percent agreed.
“The unprecedented privatization of a public insurance function embedded in the Medicare Part D program provides an excellent opportunity to understand how well individuals handle choice in their public insurance options. The results presented here suggest that the answer is “not very well” in terms of maximizing savings to the consumer; most seniors in this analysis did not choose the lowest-cost Part D plan available to them in 2006,” the Kaiser report finds.
Not only did seniors choose plans that cost them – and taxpayers — more, most tend to stick with the same insurance plan because shopping and switching is too confusing. Insurance companies count on that to keep their profits up.
Since letting private insurance companies run the show, many members of Congress have tried – unsuccessfully – to let Medicare offer a drug coverage plan. Or at least to negotiate lower drug prices, which a Congressional study found could save taxpayers $61 billion over a decade. But the powerful insurance and drug company lobby have made sure those efforts have gone nowhere.
As our leaders tackle health reform this year and try to get us more affordable health insurance and more dependable coverage, let’s hope they pay more attention to the costly lessons learned from the privatization of the Medicare drug benefit than the insurance industry scare tactics against allowing our government to offer its own choice of health coverage.