Auditors call for end to Medicare bonus program

As the government has grown, spending on the social safety net for Americans has grown with it. Today, the number of people enrolled in Medicare grows at an average 2 percent a year. The program costs $574 billion a year and is expected to cost $1 trillion a year by 2020. President Lyndon Baines Johnson established Medicare with the passage of the Social Security Act of 1965. Prior to passage, almost half of seniors lived without health insurance. Medicare Part A focused on hospital care, while Part B covered supplemental medical insurance for those over 65 years old. In 1972 Medicare expanded to include those who received Social Security benefits or disability payments for at least two years. Part C is the Medicare Advantage, which provides additional coverage and Part D is the prescription drug benefit added in 2003. Spencer Platt/Getty Images

(AP) WASHINGTON - In a rebuke to the Obama administration, government auditors are calling for the cancellation of an $8 billion Medicare program that congressional Republicans have criticized as a political ploy.

The nonpartisan Government Accountability Office says in a report to be released Monday that the $8.3 billion the administration has earmarked for quality bonuses to Medicare Advantage insurance plans would postpone the pain of cuts to the plans under the new health care law. Most of the money would go to plans rated merely average.

The administration is defending the program, saying that without the bonuses many plans wouldn't have an incentive to improve quality.

But Sen. Orrin Hatch, R-Utah, says the GAO report suggests that the administration abused its authority, pumping money to the plans to avoid more criticism over unpopular cuts.

Medicare Advantage is a popular private insurance alternative to the traditional health care program for seniors. More than 3,000 private plans serve nearly 12 million beneficiaries, about one-fourth of Medicare recipients. They offer lower out-of-pocket costs, usually in exchange for some limitations on choice.

President Barack Obama's health care law trimmed Medicare Advantage to compensate for prior years of overpayments that had allowed the plans to offer attractive benefits — and pocket healthy profits.

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Republicans fiercely attacked those cuts during their successful campaign to take control of the House in the 2010 midterm elections. Seniors, a key constituency of swing voters, responded by backing GOP candidates.

After the election, the administration announced what it called a "demonstration program" to test whether a generous bonus program would lead to faster, broader improvements in quality. (The health care overhaul law had already provided a smaller bonus program only for top-rated plans.)

GAO, the investigative agency of Congress, did not address GOP allegations that the bonuses are politically motivated. But, its report found the program highly unusual. It "dwarfs" all other Medicare pilots undertaken in nearly 20 years, the GAO said.

Most of the bonus money is going to plans that receive three to three-and-half stars on Medicare's five-star rating scale, the report said.

Available through 2014, the bonuses will soften much of the initial impact of the Medicare Advantage cuts, acting like a temporary reprieve.

This year, for example, the bonus program offset more than two-thirds of the cuts in the health care law. Indeed, Medicare Advantage enrollment is up by 10 percent and premiums have gone down on average.

But GAO questioned whether the bonus program will achieve its goal of finding better incentives to promote quality. "The design of the demonstration precludes a credible evaluation of its effectiveness in achieving (the administration's) stated research goal."

The administration says it disagrees with the GAO findings and believes the bonuses will improve the quality of care.

Medicare "believes the demonstration supports our national strategy to improve the delivery of health care services, patient health outcomes, and population health," the Health and Human Services department said in its formal response to the GAO report. "Absent this demonstration, we believe that many plans would not have an immediate incentive to improve the quality of care delivered to (Medicare Advantage) enrollees."

Hatch, the ranking Republican on the Senate panel that oversees Medicare, is questioning whether the administration had the legal authority to create the program in the first place.

"The Obama administration seems to be using a technicality to sidestep Congress and write itself a blank check to spend more money for political purposes leading into this year's elections," Hatch said in a statement.

"The White House does not have the authority to green-light spending on whatever program it wants," he added. "This report is just the beginning — I will be demanding answers."

HHS spokeswoman Erin Shields said the bonus program will help Medicare improve quality.

The Associated Press first reported on concerns about the bonus program last spring. Administration officials said at the time it had nothing to do with politics.

But another nonpartisan agency that advises lawmakers on Medicare also criticized the bonus plan as the administration was pursuing it.

The Medicare Payment Advisory Commission said it amounts to "a mechanism to increase payments" and its design "sends the wrong message about what is important to the program and how improved quality can best be achieved."

At a time when government is urging health care providers to improve quality and cut costs, the bonus plan "lessens the incentive to achieve the highest level of performance," commission chairman Glenn Hackbarth wrote to HHS officials.

The bonus program is the costliest demonstration program in Medicare history. The money for it will come from the Medicare trust fund. On Monday, the Medicare and Social Security trustees are scheduled to release their annual report on the status of the programs, both of which face a long-term financial crunch.

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