Want to expand Medicare? You’ll need to hire the insurance companies, not fire them

If you think we can expand Medicare and destroy the health insurance industry at the same time, there is a good chance you need better information on how Medicare actually operates. 

Medicare may be the most successful public-private partnership in American history. For over 50 years, the program has been delivered almost exclusively by the private sector under government oversight, so there is no obvious way to significantly expand Medicare as we know it without relying on private industry, very much including the insurance companies.

The depth and scope of Medicare’s reliance on for-profit companies is hard to understand from the outside.

Are you a medical supplier who wants to start serving Medicare patients? That means you will need to apply through Medicare’s web-based Provider Enrollment Chain and Operating System (PECOS) program — designed by a software company under a $72 million contract.

But once your application is accepted as complete by PECOS, it will be handed off for evaluation to another system, the National Supplier Clearinghouse (NSC). The $52 million NSC contract is held by NCI, part of the mammoth H.I.G. Capital private equity empire.

But if you’re a durable medical equipment provider or otherwise deemed high risk, you’ll be routed to the Fingerprint Based Background Check Contractor (FBBC), currently Accurate Biometrics.

If you’re lucky enough to have your application approved, it’ll soon be time to service your first Medicare client, and put in your very first claim. It will be handled by one of the regional Medicare Administrative Contractors (MACs), hired to process Medicare claims.

All of the MACs are health insurance affiliates; for instance, your MAC may have been National Government Services, a 2,000-employee company dedicated exclusively to servicing Medicare and other federal health programs. NGS is a subsidiary of Anthem, the health insurance giant with a 10-year stock performance of over 500 percent.

Now let’s say the MAC denies your claim; you object, to no avail. Well, no worries, just file an appeal with one of the Qualified Independent Contractors (QIC) who hear the second level of Medicare appeals. Your QIC may be Maximus Inc., a long-standing government contracting shop with more than 30,000 employees and its own impressive 10-year stock run-up of almost 700 percent.

I could go on and on — for instance by mentioning the armada of 17 companies that collectively were recently awarded contracts worth over $5 billion to support innovative Medicare demonstration projects, under a program called, you guessed it the Research, Measurement, Assessment, Design & Analysis (RMADA) — contract. This rich bullion-bearing RMADA includes capitalist flagships such as a UnitedHealth Group subsidiary (10-year stock performance of close to 900 percent), Booz Allen Hamilton (10-year performance: over 300 percent), and General Dynamics (10-year: about 300 percent).

QICs, MACs, PECOS, FBBC, RMADA — this alphabet soup array of contractors is many things — dizzying to be sure; and maybe even a bit comical at times (although there’s nothing funny about how the system’s low administrative expenses put the private health carriers to shame). 

But one thing it is not, is socialist

Yes, the Medicare program is government-funded, but as the above round up of one tiny slice of the Medicare delivery world shows, this ecosystem is profoundly profit-driven and capitalist to its core.

In fact, Medicare’s quiet but massive private-industry based business model has not only created many vast family fortunes such as Ross Perot’s, but also has been an important engine behind the explosive wealth creation and economic growth in the greater D.C. metro area over the past generation. 

So when we talk about substantial Medicare expansion of any kind, let’s be clear about how it will work. Sure, there will be some federal job growth, but even if the agency were to double from its current surprisingly tiny size of 6,200 employees, it would still have fewer workers than UnitedHealth care’s California operation alone — nowhere near enough to run a new nationwide health coverage system. 

Under Medicare’s time-tested business model — which by the way none of the reform plans on the table proposes to tinker with — the mission of any expanded Medicare agency will be not to run the new program so much as to hire for-profit companies to do so. And this will generate a private sector business opportunity and job growth wave of historic proportions.

Medicare at bottom is just a giant non-profit health insurance company, so expansion is going to require a huge number of workers skilled in the entire arcane array of health insurance functions, from claims processing, to anti-fraud activities, to actuarial analysis, to call center services.

There is only one place in the economy where an expanding Medicare agency on short notice will be able to find hundreds of thousands of people steeped in these dark arts: the health insurance industry.

Now, none of this is to downplay the corporate cultural and management transformations needed to pivot the health insurance industry completely to a Medicare service model. The most open, nimble and aggressive companies are the ones who will thrive best. (It’s worth noting, though, that most of the carriers have a head start on turning this corner, since their government segments are already among their fastest-growing and most profitable).

But if you support any significant expansion of Medicare’s successful 50-year old business model, make no mistake, when it comes to the insurance companies, what you are actually proposing is to hire them, not fire them.

Ted Doolittle J.D. is currently the health-care advocate for the State of Connecticut. He is a former federal prosecutor and serves as the deputy director of the Center for Program Integrity at Centers for Medicare & Medicaid Service.