Bloomberg’s “Medicare ‘Rip-Off’ Hits Elderly as Obama Maps Changes” reports that Humana (HUM), Health Net and UnitedHealth (UNH) are all changing their strategies for offering Medicare Advantage plans to eligible seniors. Princeton political economy professor Uwe Reinhardt told Bloomberg: “The insurers’ dream was that maybe 80 percent of the elderly would enroll in Medicare Advantage and then traditional Medicare would just die, and these private health plans could do what they want.” Now President Obama wants to extract 15% in excessive fees that the Advantage plans cost over traditional Medicare.

Seniors get $96 per month deducted from their Social Security to pay for Basic Medicare. At the start of the Advantage program, private insurers were rebating part or the entire Basic premium to lure senior membership. Now the rebates have ended and premiums with annual increases are common. In addition to the $100B the government pays private insurers for Medicare Advantage, the seniors contribute $5B in premiums.

Reinhardt concludes that the absence of premiums was “unsustainable”, a “come-on” to get things started. Advantage plans now enroll about 23% of Medicare participants, but seniors are beginning to rebel against the higher premiums. Most Advantage plans have raised their premiums to as high as $50 per month, but UnitedHealth has taken a different path. Instead of raising premiums, UnitedHealth dropped its plans for the chronically ill and increased the remaining policies’ out-of-pocket costs. UnitedHealth hopes to gain the membership that the others lose.

It takes careful shopping for seniors to get value from the Advantage plans, which is no different from anyone shopping for health insurance. But being the government is paying the majority of the bill, it also must get value for its money. It seems as though the added benefits in the Advantage plans are coming at the government’s expense. When the government starts refusing to pay extra for outsourcing Medicare, it is unlikely the Medicare participants will. This spells trouble for the health insurance companies, who are rapidly losing private membership.