The Big Push for Private Medicare Plans

Plus - US Navy’s $7 billion destroyer is 6 years overdue

The Big Push for Medicare Advantage

Medicare is shaping up as one of the most important issues in the 2020 election, with several leading Democrats offering proposals that would significantly expand the program. President Trump jumped into the fray with an executive order last week that he claimed would protect and improve the Medicare system, in part by promoting broader use of private Medicare Advantage plans. Those plans are quite lucrative for the private insurers that sell them, Bloomberg’s John Tozzi said Wednesday, and they’ll be pushing hard to sell more of them when Medicare enrollment begins next week.

Enrollment in Medicare Advantage has more than tripled in the last 20 years, and now about a third of all Medicare beneficiaries get coverage through private plans. If current trends continue, more than half of all beneficiaries will be in Medicare Advantage by 2025, according to Tozzi.

How it works: Those who sign up for Medicare Advantage pay the same monthly premiums as regular plans but agree to certain limits imposed by the insurers, such as a restricted network of doctors, and also receive a wider range of benefits, which can include drugs plans and dental care. Insurers get a fee from the government for each person who signs up and are responsible for managing their plans to ensure a profit. In 2019, the average fee for each of the roughly 22 million participants was $11,545 – which comes to a total of about $254 billion.

Big numbers for insurers: Insurers see Medicare Advantage as “as a lucrative market they can’t afford to pass by,” Tozzi said, especially as sales of traditional, employer-based insurance plans slow. Medicare is now the biggest part of UnitedHealthcare’s business and the insurance giant is expanding to reach 90% coverage of the market next year. Other major players including Humana and Aetna are also expanding their coverage, and competition in the space is growing.

More generous benefits: Recent rule changes have allowed private insurers to offer new benefits within Medicare Advantage, such as meal delivery, air-conditioners and in-home help. Regular fee-for-service Medicare doesn’t offer such options due to concerns about fraud.

The political battle ahead: Insurers increasingly rely on the revenues and profits from Medicare Advantage and can be expected to fight any effort to restrict – or, as some Democrats are calling for, eliminate – the existing private system. And as the plans become more generous – and, as critics have pointed out, more expensive for the government – seniors are likely to resist changes as well, complicating any Democratic effort to enact sweeping changes in the Medicare system.

Number of the Day: $34 Billion

That’s how much President Trump’s tariffs have cost U.S. companies so far, according to data from a coalition of anti-tariff groups provided to Axios Wednesday. The total is likely higher, too, since the “hit that U.S. companies have taken from the Trump tariffs doesn't include the 15% tax on $112 billion worth of Chinese imports — including clothes and shoes — that went into effect on Sept. 1,” Axios said.

Are We Asking the Wrong Question About Trump's Tax Cuts?

Most economists say it will take years to fully evaluate the effectiveness of the Tax Cuts and Jobs Act, but Greg Leiserson, director of tax policy at the Washington Center for Equitable Growth, isn’t one of them. Writing as part of the American Enterprise Institute’s ongoing series on the 2017 tax legislation, Leiserson says that in-depth analyses by multiple non-partisan sources based on extensive historical data predicted that the TCJA would be regressive and would drive up the deficit – and that’s more or less what we’ve seen since the law went into effect.

Here’s Leiserson:

“Future studies of the TCJA will certainly nuance — and potentially change — economists’ understanding of taxation. The labor share of the corporate tax assumed by economists at the Joint Committee on Taxation might be too high or too low. They may have assumed that the extent to which corporations shift profits abroad for tax purposes would respond by too much or too little. Economists at the Congressional Budget Office may have assumed that the location of investment decisions was too sensitive — or not sensitive enough — to the incentives the corporate tax system created.

Yet over a wide range of possible assumptions on all these points, the same conclusion would result: The legislation was a regressive, deficit-increasing tax cut. Indeed, that’s part of the reason that analysts from the left, right, and center have all concluded that the law was exactly that.”

The most important question, Leiserson says, is not how the TCJA has affected economic growth – through the evidence seems pretty clear that the effects have been relatively modest, at best – but how the legislation performs relative to other possible policy options. For example, would the roughly $2 trillion in revenues lost to the tax cuts, which overwhelming benefited upper income households, have been better used to invest in infrastructure or public health?

“These are some of the alternative choices that Congress could have made instead of enacting the TCJA,” Leiserson writes. “And it’s only by comparing the law to one of these alternative uses of the funds that a reasoned judgment can be made about whether it was desirable.”

Chart of the Day: Gambling on Revenue

States have turned to gambling over the last few decades in search of new revenues, a trend documented in an analysis of so-called “sin taxes” by the Urban Institute’s Lucy Dadayan. Most of the gambling revenue comes from three sources – lotteries, casinos and racinos – but Dadayan says that despite their growing popularity, “with a few notable exceptions these revenues are a minor source of funding for most states.”

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Navy’s $7 Billion Destroyer Is Now 6 Years Overdue

The U.S. Navy’s Zumwalt-class destroyer program has experienced one problem after another, from a failure to maintain power while at sea to a gun that requires munitions so expensive that the Navy has decided not to use it.

Costs for the stealth warship have been rising steadily for more than a decade, and the Navy now estimates that the bill to acquire three ships – a huge reduction from the original planned fleet of 32 – will come to more than $13.2 billion. And that doesn’t include the roughly $10 billion in development costs that push the overall program price tag north of $23 billion.

Bloomberg’s Anthony Capaccio reports Wednesday that the first ship in the class has been delayed yet again. The USS Zumwalt, which is now estimated to cost $7.8 billion, won’t be fully combat ready until next year – six years behind schedule, and 10 years after construction began.

“The additional delay in final delivery of the destroyer, designated the DDG-1000, may increase doubts the Navy can build, outfit and deliver vessels on time and within cost targets,” Capaccio says.

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