Paul Krugman: First, Do Less Harm

Medicare Advantage [run by the H.M.O.'s] now costs 11 percent more per beneficiary than traditional Medicare. According to the Commonwealth Fund... the subsidy to private H.M.O.'s cost Medicare $5.4 billion in 2005.

Universal health care, much as we need it, won’t happen until there’s a change of management in the White House. In the meantime, however, Congress can take an important step toward making our health care system less wasteful, by fixing the Medicare Middleman Multiplication Act of 2003.

Officially, of course, it was the Medicare Modernization Act. But as we learned during the debate over Social Security, in Bushspeak “modernize” is a synonym for “privatize.” And one of the main features of the legislation was an effort to bring private-sector fragmentation and inefficiency to one of America’s most important public programs.

The process actually started in the 1990s, when Medicare began allowing recipients to replace traditional Medicare — in which the government pays doctors and hospitals — with private managed-care plans, in which the government pays a fee to an H.M.O. The magic of the marketplace was supposed to cut Medicare’s costs.

The plan backfired. H.M.O.’s received fees reflecting the medical costs of the average Medicare recipient, but to maximize profits they selectively enrolled only healthier seniors, leaving sicker, more expensive people in traditional Medicare. Once Medicare became aware of this cream-skimming and started adjusting payments to reflect beneficiaries’ health, the H.M.O.’s began dropping out: their extra layer of bureaucracy meant that they had higher costs than traditional Medicare and couldn’t compete on a financially fair basis.

That should have been the end of the story. But for the Bush administration and its Congressional allies, privatization isn’t a way to deliver better government services — it’s an end in itself. So the 2003 legislation increased payments to Medicare-supported H.M.O.’s, which were renamed Medicare Advantage plans. These plans are now heavily subsidized.

(The rest is here.)