Why Insurers Are Fighting to the Death Over Military Healthcare

While Republicans continue to complain about a government takeover of healthcare, publicly funded healthcare is well on its way to being privatized. After all, Medicare Advantage plans are healthy and growing, and Medicaid managed care plans continue to expand as states frantically seek ways to stanch their red ink. Meanwhile, the Department of Defense (DoD) will spend $53 billion on health care next year -- a three-fold increase in that category since 2001. Much of that money is funneled through Tricare to private health plans that provide services to active and retired military personnel and their dependents and survivors.

The Tricare situation was dramatized recently when UnitedHealth Group (UNH) protested a decision by the Defense Department to shift a $21.8 billion contract it had awarded to United back to Humana (HUM). (That's right, $21.8 billion.) United sent a letter to the General Accountability Office (GAO) alleging that DoD had violated federal procurement law.

Here's the background: Humana has run Tricare in the South since 1996. It lost the contract to United in 2009, but won it back in February after convincing the GAO that the selection process had been flawed. GAO sided with Humana in October 2009, and it took DoD a year and a half to reverse itself. United's argument is that Humana's bid reflects provider payments that are so low that they will drive doctors out of Tricare and endanger the quality of care.

The DoD is unlikely to reverse itself again, since it rarely overrides GAO stop orders. But the clash between United and Humana -- and the fact that United set up a special military health unit in 2007 -- shows high the stakes are for insurance companies.

Meanwhile in Florida, Medicaid goes private
Meanwhile, Florida's conservative government is likely to privatize its Medicaid program, the annual cost of which has mushroomed from $9 billion to $22 billion in the past 10 years. If the legislature approves, Florida will place all 3 million of its Medicaid recipients into HMOs -- a move that could save the state $1 billion a year. It will achieve that savings by simply capping the amount that it pays for Medicaid, letting the private plans figure out how to allocate the money.

That sounds hard, and it alarms Floridians who have had bad experiences with HMOs. But the state is facing a budget gap of $4.5 billion, and, while the feds pay the majority of Medicaid costs, the health program devours a third of the state budget.

Besides Tricare and current Medicaid programs, private insurers are looking at a big boost from healthcare reform, starting in 2014. If the reforms actually go through, 16 million more people will enroll in Medicaid, and many, if not most of those recipients will go into managed care plans. Fewer of the 16 million newly insured people who are not on Medicaid will join HMOs. But even those who don't will have a hefty portion of their premiums paid by Uncle Sam.

Half of our current system is already public, and that percentage is expected to rise. But much of what's public is really private, and health plans will inherit more and more of the system as the state and federal governments realize that they have no choice but to budget healthcare. Some prefer to call it rationing: but by whatever name you choose, it's coming, and private enterprise will likely administer it.

Image supplied courtesy of the U.S. Army.
Related:

Ken Terry

Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.

More from CBS News