When Humana, one of the biggest private insurers offering richer Medicare plans to the elderly, sent out a letter warning senior citizens that a government revamp of health insurance could eliminate their benefits, the government told the insurer to keep its mouth shut—or face an enforcement action.

That set off an explosive fight in Congress with charges the White House is effectively sanctioning a gag order against Humana.

Meanwhile, flying under the radar screen as this fight picks up speed as fast as a California wildfire, is a letter from the non-partisan Congressional Budget Office to Democrat Senator Max Baucus, dated Sept. 22 which should concern all families if this version of health reform is enacted.

The CBO, which scores the cost of legislation, shows that under the Senate Finance's version of health insurance reform, families would pay more for health insurance premiums that would yield less benefits—and that families would pay less for more coverage without this reform (see below).

The Humana-Baucus fight started with both sides not defining what the terms they are using really mean, which is making the skirmish even crazier and wholly divorced from reality.

Is the Baucus cutback to Medicare Advantage aimed squarely at just cutting waste fraud and abuse? Or is Humana right, that it really is a cutback in benefits?

The hamhanded enforcement threat against Humana by the Center for Medicare & Medicaid Services [CMS], the government oversight body of these programs as well as Medicare Advantage options, set off an explosive fusillade of press releases in Congress, with Democrats Sen. Max Baucus and House Speaker Nancy Pelosi on the one side and Senate Minority leader Mitch McConnell on the other.

At issue is the letter sent by Humana to some patients enrolled in its Medicare Advantage plans. These are the private options that about one in five Medicare beneficiaries enroll in.

Private Medicare plans must by law use additional money they get above their costs for a minimum, guaranteed package of benefits to provide extras for things like wheelchairs, hearing aids, and eyeglasses, which the standard program doesn't offer (here is a version of the letter that The Huffington Posthas, which you can read here.)   

Chronology of the Fight

First, on Sept. 16, Doug Elmendorf, head of the non-partisan Congressional Budget Office, sent this letter to Sen. Baucus scoring his version of health insurance reform.

In the letter, on page six, you'll see that the CBO says the Baucus plan will create "savings" (meaning, cuts) of $123 bn over a ten-year period.

It doesn't specifically say the Baucus plan will cut benefits, though that is the implication.

The CBO says: “Setting payment rates in the Medicare Advantage program based on the average of the bids submitted by Medicare Advantage plans in each market" would yield "savings of an estimated $123 bn...over the 2010–2019 period.”

Is moving toward an average of the bids aimed at curtailing the widespread fraud and abuse believed to be riddled through the Medicare Advantage plan?

That's not noted here.

The Humana Letter

Then Humana sent out this letter to seniors from its chief medical officer, Philip Painter, M.D., in which he wrote:

“Leading health reform proposals being considered in Washington, D.C., this summer include billions in Medicare Advantage funding cuts, as well as spending reductions to original Medicare and Medicaid."

Painter adds: "While these programs need to be made more efficient, if the proposed funding cut levels become law, millions of seniors and disabled individuals could lose many of the important benefits and services that make Medicare Advantage health plans so valuable.”

The CMS Threat

Then, on Sept. 18, Teresa DeCaro, acting director of Medicare's Drug and Health Plan Contract Administration Group, shot this letter to Humana execs Gail Miller, vice president of strategy and product development, and Laura Kelley, Medicare compliance officer, in which she wrote:

“CMS is concerned that, among other things, this information is misleading and confusing to beneficiaries, represents information to beneficiaries as official communications about the Medicare Advantage program, and is potentially contrary to federal regulations and guidance," adding, “we are instructing you to end immediately all such mailings to beneficiaries and to remove any related materials directed to Medicare enrollees from your website.”

DeCaro's letter then threatened: “Please be advised that we take this matter very seriously and, based upon the findings of our investigation, will pursue compliance and enforcement actions.”

Baucus Takes Responsibility For Humana Gag Order?

Sen. Baucus then fired off this press release, in which he notes he pretty much asked CMS to issue the gag order.

Headlined, “AT BAUCUS' URGING, CMS CRACKS DOWN ON INSURANCE COMPANY SCARE TACTICS," Sen. Baucus says: 

“It is wholly unacceptable for insurance companies to mislead seniors regarding any subject – particularly on a subject as important to them, and to the nation, as health care reform,” said Baucus, adding: “The health care reform bill we released last week strengthens Medicare and does not cut benefits covered under the Medicare program – and seniors need to know that.”

Baucus goes on to say that the “America's Health Future Act” reforms “payments so that they appropriately reimburse insurers for their costs” since the “independent Medicare Payment Advisory Commission (MedPAC) has found that even after the cost of delivering benefits, of marketing, and of profits, Medicare Advantage plans are paid 14% more, on average, than traditional Medicare.”

So are the $123 bn in cuts how aimed at the insurers' 14% profit swing? Or waste fraud and abuse? Again, Baucus doesn't say.

Sen. McConnell Rides to Humana's Defense

Then Republican Senate Minority leader Mitch McConnell attacked the crackdown on Humana on Wednesday, calling it a "federal gag order" that seeks to silence a health provider that disagrees with reform plans.

McConnell said he's called for a complete legal justification of the probe. Humana is based in Louisville, Kentucky, a state McConnell represents.

"This is so clearly an outrage," McConnell said on the Senate floor. "For explaining to seniors how legislation might affect them, the federal government has now issued a gag order on that company, and any other company that communicates with clients on the issue, telling them to shut up -- or else.”

McConnell adds: "This is precisely the kind of thing Americans are worried about with the administration's health care plan. They're worried that government agencies which were created to enforce violations even-handedly will instead be used against those who voice a different point of view," he said.

Pelosi Fires Back

Then House Speaker Nancy Pelosi chimed in with a press release entitled “Health Insurance Reform Mythbuster,” this one taking aim at House Republican leader John Boehner's claim that the President asked for the gag order.

In it, the House Speaker said that “CMS issued the directive because of the likelihood that seniors and people with disabilities would believe this information [from Humana] to be ‘official communication about the Medicare Advantage program' rather than the opinion of the health insurance company.”

Even though the insurer's initial missive clearly carries the letterhead “Humana.”

Anyway, Speaker Pelosi notes that “insurance companies earning taxpayer dollars were spending money to lobby against specific legislative initiatives—using claims about Medicare cuts which have been widely discredited by independent news media.” Pelosi then instructs readers who want to learn more to go here.

What the CBO Found Should Concern You

A later letter (click here) from the CBO to Baucus, dated Sept. 22, shows health care insurance premiums would actually rise if the Senate Finance Committee's proposal is enacted—and that family premiums would stay low without reform. This analysis was unearthed by Fox analyst James Farrell:  

- The fees which the legislation would impose on manufacturers and importers of brand name drugs and medical devices, health insurance providers, and clinical laboratories would actually raise insurance premiums by approximately 1% in 2016.  As the CBO notes, the $10 bn in fees collected in 2016 "would be passed on to purchasers and would ultimately raise insurance premiums by a corresponding amount."

- A family of four with annual income of $102,100 would face annual premiums for a government "silver" plan (which covers 70% of expenditures) of $14,400 (14.1% of income). 

- However, under current law (i.e., without the Baucus reform), the same family of four with employer-based coverage would pay less money for better insurance: only $13,000 for coverage that would cover 88% of the family's health care costs (an actuarial value of 88%).