One reply to my last blog on health care said that the writer also enjoys a Medicare Advantage plan and believes that maybe there is some fat in it to cut. While admirable and a desire we all share, i.e. cut the fat out of health care, the reader does not understand what the Feds mean when they say there is “excessive” payment to Medicare Advantage recipients.

The Feds have found “excess” in Medicare Advantage plans because they are an insurance program. With traditional Medicare the participating states, and all participate, pay the health care provider’s bill directly using federal and state funds and this liability is unlimited. Under Medicare Advantage the state pays a monthly premium per participant to a private health insurance firm that in turn pays all medical bills for the participant, thus limiting the Feds and the states’ liabilty to just the premium. The “excess” comes when the average insurance payment for a Medicare Advantage recipient is higher than the average payment to health care providers under traditional Medicare. But this is like comparing apples to oranges.

I argue that the Feds and the states would be better off putting all Medicare recipients under Medicare Advantage plans. If this were the case the Feds and the states would know exactly what they have to pay, i.e. the montly insurance premium. Under traditional Medicare the Feds and the states’ exposure is unlimited.

Think this is unworkable? At present most Medicaid care is delivered via HMOs (Health Management Organizations) in which the Feds and the states pay a private insurance company to in turn pay the health care providers. Precisely what I urge be done with Medicare. And it delivers the lowest cost health care of any system.

Cutting Medicare Advantage plans is simply an example of being “penny wise, pound foolish.”