“Obama promised,  ‘If you like your current insurance, you keep that insurance.’  He lied.”   I have seen these words over and over again in letters-to-the-editor and comments on websites, so I thought I would address the issue of cancellations of certain Medicare Advantage plans.

Several thousand Medicare beneficiaries in Pima County have received letters informing them that their Medicare Advantage plan is being canceled as of January 1.  The plans being canceled are:  Evercare, a chronic illness PPO plan; Secure Horizons Medicare Direct Plan 3 private-fee-for-service (PFFS); Unicare’s PFFS; Universal Health Care PFFS. There may be other PFFS plans in Pima County with a few enrollees, but I haven’t talked to anyone in those plans.

Across the country most plans being canceled are private-fee-for-service (PFFS) plans. There was a story in Boston about a PFFS Medicare Advantage plan cancellation that will affect 22,000 people. The Boston Globe reported on the story and the outrage among seniors, many of whom blamed “Obamacare” for changes to their Medicare.  The Boston Globe got the story wrong as did many of the people enrolled in the plan being canceled.

Why are Private-Fee-For-Service Plans being canceled?

These plan cancellations have nothing to do with the Affordable Care Act (aka Obamacare) that was passed earlier this year. The cancellations are due to a 2008 law which rescinds the PFFS provider network exemption in areas with at least two local network plans (HMOs or PPOs). Therefore, wherever HMOs and PPOs exist, PFFS plans are required to have a network as of January 1, 2011.  The companies mentioned above determined that they did not want to create a network, or, in the case of Secure Horizons, they already had their own HMO plans in places like Pima County.  A representative from Universal Health Care told me last spring that the company was working on building a network of contracted doctors and hospitals.  But in September, Universal announced it would not offer a network PFFS plan in Pima County but would continue to offer non-network plans in outlying areas like Yuma.

The Incidental Economist, who studies Medicare and Medicare Advantage, explains PFFS plans very well, so I thought I’d use excerpts from a recent post of his.

[Private-fee-for-service plans] are paid like other Medicare Advantage (MA) plans but are not required to establish networks, manage care, report on quality, or offer drugs, among many other exemptions. They are essentially enhanced fee-for-service (original Medicare) products or subsidized Medigap. For all this, they are paid well above [Medicare fee-for-service] cost. They have been the fastest growing type of plan, responsible for most of the recent increase in cost of the MA [Medicare Advantage] program.

Medicare Advantage plans were originally created to save Medicare money.  See my post 1996-and-tucson-medicare-hmos. The future of Medicare Advantage is in HMO’s that can manage care and control costs.  PFFS plans turned out to be an expensive experiment that failed the cost control test for Medicare and the insurance companies running them. This is why PFFS plans are being canceled – not the Affordable Care Act.