Parallel Fights Against Privatization

Steve Early & Suzanne Gordon

WHEN POWERFUL PRIVATE interests obtain new profit-making opportunities feeding off of public programs, it becomes very hard to reverse the process. The parallel struggles over corporate profiteering that has undermined federally funded healthcare for 62 million seniors and nine million military veterans illustrate the political challenges involved — for labor, healthcare reformers, and the broader left.

At stake in both anti-privatization fights is the future of existing single-payer systems as a working model for future tax-supported medical coverage for all Americans.

If the ongoing assault on traditional Medicare and the public healthcare system operated by the Department of Veterans Affairs (VA) is successful, “Medicare for All” will become much harder, if not impossible, to achieve. And our best example of real “socialized medicine” in the United States, the VA, will be defunded, discredited and dismantled as well.

Corporate Democrats and conservative Republicans in Congress and policy-makers in the Bush, Obama, Trump, and now Biden Administrations have brought these political threats to the tipping point. To make matters worse, some of the advocacy organizations ostensibly devoted to the best interests of constituencies adversely affected by privatization are now embracing the trend instead of mobilizing against it.

Among those letting their members down are some major public sector unions, retiree organizations, and Veterans Service Organizations (VSOs) like the American Legion and Veterans of Foreign Wars, which in the past have been stronger defenders of the VA.

For single payer activists in the labor movement, this feels like déjà vu all over again. Past disagreements between unions, over the desirability of replacing job-based medical coverage for active workers with national health insurance, now take the form of internal disputes between some unions and their own retirees over whether the latter should be herded into private insurer-run “Medicare Advantage” plans, rather than the more cost-effective traditional Medicare coverage they prefer.

Organized labor’s mistaken embrace of Medicare Advantage plans has helped the healthcare industry convince millions of consumers that they will save money and get additional benefits if they switch to them.

Creating “market competition” for Medicare patients or those getting direct care at the VA has been a corporate-backed bipartisan project that got its greatest boost under the presidencies of George W. Bush and Donald Trump. When Democrats like Barack Obama or Joe Biden seek the White House, they may criticize the policies of their Republican predecessors or rivals but, once elected, don’t diverge much from them.

For example, during a 2008 presidential debate, Obama sharply disagreed with Senator John McCain over the merits of the “Medicare Modernization Act of 2003.” McCain strongly applauded this Bush initiative; his Democratic Party opponent denounced partial privatization as a costly and wasteful scheme, not beneficial to tax-payers or Medicare recipients.

Once in office, Obama forgot about his debate pledge to end Medicare Advantage. He focused instead on getting the Affordable Care Act (aca) passed, albeit without any “public option” that would have created unwanted competition for the private insurers benefitting from the ACA’s expansion of federally subsidized healthcare coverage.

By the end of Obama’s eight years in the White House, Medicare Advantage plans had greater “market share” than ever before. New Trump Administration appointees then gave them a further boost. “Despite having overhead costs almost seven times that of traditional Medicare (13.7 versus 2 percent), Medicare Advantage plans have grown rapidly,” The Nation reported in 2019. “They now cover more than one-third of Medicare beneficiaries, up from 13 percent in 2005.”

During Joe Biden’s first year in office, the Centers for Medicare and Medicaid Services (CMS) continued to facilitate the movement of millions of Medicare beneficiaries “into mostly commercial, for-profit plans, called Direct Contracting Entities,” that would “further waste taxpayer money” and “fully privatize Medicare,” according to Physicians for a National Health Program.

Like Obama before him, Biden has failed to restore the restore the primacy of “original Medicare.” Instead, his administration has replaced Trump’s DCE’s with what PNHP calls “a nearly identical program, called ACO REACH.” As a result, about 31 million Americans — about half of all Medicare recipients —are now covered by Medicare Advantage plans.

Outsourcing VA Care

Six years after John McCain lost to Obama, he helped open the door for privatization of the nation’s largest public healthcare system — the network of hospitals and clinics operated by the VA. McCain and Mitt Romney, the Republican candidate defeated by Obama in 2012, both favored a Cato Institute plan to replace VA-delivered care with vouchers that veterans could take to any private doctor or hospital, who would then get Medicare-style reimbursement from the government.

In 2014, McCain insisted that any big Obama Administration increase in funding and staffing for VA direct care be accompanied by an experiment in outsourcing treatment in places where VA wait times for appointments were too long. (The VA had always referred patients outside its own system, based on medical need, when in-house care was not available.)

The resulting compromise with McCain — brokered with then Senate Veterans Affairs Committee Chair Bernie Sanders — resulted in passage to the Veterans Choice Act of 2014. It did provide much-needed funding for VA’s national network of 171 medical centers and 1,112 outpatient sites.

But the Choice Act also opened the door for diverting billions of dollars from the VA’s direct care budget to pay private doctors and for-profit hospitals to treat veterans at greater cost and with less effectiveness.

When Choice Act provisions related to outsourcing were due to expire, a Democrat was no longer in the White House and the Veterans Affairs Committee was now chaired by Senator John Tester (D-MT) rather than a strong VA defender like Sanders.

Tester worked with Republican allies and fellow corporate Democrats to hand Donald Trump one of his biggest bipartisan victories  — the VA MISSION Act of 2018. Critics like Sanders predicted, accurately, that it would lead to “the draining, year after year, of much-needed resources from the VA,” setting the stage for hospital closings and disruption of a highly integrated system of coordinated care.

During his 2020 run for the presidency, Joe Biden dutifully echoed this critique. He accused Trump of trying “to privatize and dismantle the VA” and pledged that he would never “defund” the nation’s largest public health care system, whose nine million patients get treatment that is “specialized, supportive, and second to none.”

Despite Biden’s campaign vow not to “de-fund” the VA, during his first year in office, $18 billion — or 20 percent of the agency’s entire clinical care budget — was used to reimburse private medical practices, for-profit hospital chains, and other outside contractors.

In March, 2022 his Secretary for Veterans Affairs Denis McDonough unveiled a VA restructuring plan so drastic that even Tester and others on the Veterans Affairs Committee refused to confirm a Biden-nominated “Asset and Infrastructure Review Commission” that was ready to approve McDonough’s facility closing recommendations.

In June of that year, McDonough informed the Senate Veterans Affairs Committee that outsourcing was now costing his agency more than $30 billion dollars a year, nearly one third of the VA’s entire direct care budget.

This growth rate — a seven percent increase over the previous fiscal year — was not sustainable. It would soon result in nearly half of all veterans’ care being delivered outside their own system, a tipping point which McDonough warned “threatens to harm the VA’s training, research, and emergency preparedness missions.”

At the same time, McDonough stuck to his neoliberal insistence that the VA and its outside contractors are engaged in a “healthy competition to be the best, most accessible highest quality option” for patients. As a result, he refused — and still refuses — to revise the Trump-era patient referral rules, promulgated under the MISSION Act, that have opened the floodgates for outsourcing.

The Downside of Privatization

Former Communications Workers of America researcher Matthew Cunningham-Cook has done a series of investigative reports for The Lever documenting the downsides of what critics now call “Medicare Disadvantage” plans.

As Cunningham-Cook explains, the Medicare system was set up to make set payments directly to healthcare providers. It “was founded on the principle that seniors should get the care they need without an insurer middleman.” In contrast, Medicare Advantage plans utilize “provider networks that force patients to choose health care providers selected by the insurance company, or else they face potentially enormous financial penalties.”

As Cunningham-Cook points out, these “private insurers have an inherent incentive to deny care. The less medical attention they provide beneficiaries, the more government money they can pocket as profits.”

As a cost control measure, Medicare Advantage plans require pre-authorization for many services. A February, 2023 study by the Kaiser Family Foundation found that two million prior authorization requests had been denied by Medicare Advantage plans in 2021, more than triple the denials just two years earlier.

A report last year by the Department of Health and Human Services’ own inspector general  found that such plans had wrongly denied 1.5 million payment claims — 18% of the total — in 2019.

Traditional Medicare only covers about 80 percent of care costs. So nearly all Medicare patients purchase “Medigap” coverage — or have such supplementary coverage on a group basis, often as union retirees.

As Cunningham-Cook reports, due to a loophole in federal law, Medigap plan providers in most states “are allowed to reject patients or discriminate against them by charging them far higher premiums on the basis of preexisting conditions after they have elected for a Medicare Advantage plan…. So once a patient enters the Medicare Advantage system, they typically cannot afford to leave.”

As one healthcare economist told The New York Times last year, “The whole idea of Medicare Advantage was supposedly to give people more choice, not less…It really takes away choice.”

The VA system — before the Choice and MISSION Acts — was a true outlier in U.S. health care, providing high-quality care to a patient population predominantly poor and working class. Like caregivers employed by the National Health Service in Britain, VA doctors, nurses, therapists and other professional and nonprofessional staff are salaried and mission driven. They don’t work for investor-owned hospital chains or medical practices which get reimbursed by private insurers, Medicare or Medicaid on a “fee for service” basis, which often leads to fragmented and uncoordinated care.

The VA has about 120,000 union members, making it one of the most heavily unionized healthcare networks in the country. One third of the VA’s 300,000 staff members are veterans themselves. This helps create a unique culture of empathy and solidarity between patients and providers that has no counterpart in American medicine.

The VA plays a critical “teaching hospital” role in training tens of thousands of new doctors, nurses and other healthcare professionals. As demonstrated during the Covid-19 pandemic, the VA during local or national crisis situations also serves as a backup system to private healthcare facilities overwhelmed by their civilian patient load.

Even Secretary McDonough’s own reports to Congress confirm what many scientific studies have long documented: “VA direct care has been consistently shown to outperform most private sector hospitals in core measures of inpatient quality of care.” McDonough also acknowledges that veterans “trust the VA to provide equal or better care than the community” and “find accessing direct care easier than accessing community care.”

Has incremental privatization of the VA, since 2015, improved veterans’ healthcare delivery in any way? According to McDonough himself, some patients “are driving further or waiting longer for that care than they would if V.A. provided that care … Veterans are also experiencing fragmentation of care, duplicative testing, and unnecessary and improper billing from community providers.”

Thousands of VA staffers hired to treat patients have been forced to become managers of non-VA care that is costlier and less effective, and often requires longer waits than if patients had remained in-house.

A recent RAND report confirmed that the quality of outsourced care is difficult for VA staff to monitor. Outside providers, who now number 1.2 million, are eager to be paid promptly but are often slow to provide documentation of their services or share necessary information with in-house care coordinators.

Feeding at the Trough (And Helping Them Do it)

Some VA contractors have definitely engaged in fraudulent billing practices, according to the agency’s Office of the Inspector General (OIG). In FY2020, the VA was billed for nearly $80 million in medical services that were never actually provided or whose cost was inflated through the fraudulent billing practice known as “up-coding.”

As part of the privatization process, the VA has also paid billions to two private insurance companies, TriWest and Optum, a subsidiary of UnitedHealth Group, to serve as third-party administrators of its MISSION Act-mandated network of outside providers.

When TriWest along with another private insurer, Health Net, served as the third-party administrator for the predecessor program created by the Choice Act, the OIG found that the two companies were responsible for improper billing of their own.

Health Net, owned by a Medicare Advantage plan provider called Centene, had to repay the federal government nearly $100 million. TriWest had to return $179.7 million because of its overcharging, yet that didn’t stop Trump appointees (and now Biden’s) from continuing to use the firm as an outsourcing network administrator.

Medicare Advantage plans engage in similar billing fraud and financial abuse on a much larger scale. Their backers include firms like UnitedHealth, an insurer worth $450 billion, which is already feeding at the VA privatization trough. UnitedHealth made more than $14 billion in profits in 2022, while the other three largest for-profit Medicare Advantage insurers earned an additional $10 billion.

According to a Kaiser Family Foundation study, these firms generate twice as much gross profit from their Advantage plan business as from their sale of other types of insurance. Last year, Humana generated more than 80 percent of its revenue from five million Medicare Advantage customers. Yet as the Times reported:

“Eight of the 10 biggest Medicare Advantage insurers — representing more than two-thirds of the market — have submitted inflated bills, according to federal audits. And four of the five largest players — UnitedHealth, Humana, Elevance, and Kaiser — have faced
federal lawsuits alleging that efforts to over diagnose their customers crossed the line into fraud.”

In 2020, this “upcoding” drained $12 billion from the Medicare Trust fund. According to PNHP’s latest study of Medicare Advantage plans, based on 2022 federal spending on them, over-billing is now costing U.S. taxpayers between $88 billion and $140 billion each year. Even the group’s lower estimate is a sum large enough to add dental, hearing, and vision benefits to traditional Medicare, an improvement that would benefit every American over 65.

Given the political clout of big healthcare insurers, it’s no surprise that Medicare Advantage remains popular with a bipartisan majority in Congress. Just last year, 80% of all House members signed a letter declaring they were “ready to protect the program from policies that would undermine it” — despite little action by the Biden Administration to better regulate the Medicare Advantage market and its many deceptive practices.

The industry’s bamboozling of seniors and rip-offs of the U.S. Treasury have, unfortunately, been aided and abetted by consumer and labor groups which partner with Medicare Advantage plan providers, and share in their profits.

The biggest offender is the AARP (formerly known as the American Association of Retired Persons), which claims to have 38 million dues paying members. In 2021, as a result of its lucrative partnerships with UnitedHealth and other for-profit firms, the AARP collected $814 million in “royalties” — an amount twice its dues revenue that year, according to the national AFL-CIO began advertising its own “Medicare Advantage group plans…available exclusively to retired union members” via the “comprehensive coverage” provided by Anthem, a giant private insurer. Like the AARP, the Alliance for Retired Americans, a much smaller retiree group linked to the AFL-CIO, has avoided any public criticism of Medicare Advantage plan problems.

Among national veterans’ organizations, a similar betrayal of the interests of members dependent on VA care has occurred over the past decade, as some of these groups have become more dependent on corporate largesse.

Veterans Service Organizations — including the American Legion, Veterans of Foreign Wars, AMVETs and Iraq and Afghanistan Veterans of America (IAVA) — welcomed the Choice Act of 2014. Four years later — despite mounting evidence that outsourcing was undermining the VA — they backed the even more damaging MISSION Act of 2018.

As we document in a new book Our Veterans, the “corporatization of veterans affairs” is personified by IAVA, which has supplemented its very limited dues income with Wall Street donors like TriWest and Cerner Corp., the recipient of a troubled $16 billion VA contract awarded by President Trump.

Another IAVA benefactor is Cigna, the giant private insurer whose foundation received one of IAVA annual Corporate Leadership Awards. Other past IAVA donors include the Pharmaceutical Research and Manufacturers of America and several of its affiliated biotechnology firms.

Not to be outdone by IAVA, AMVETS has partnered with Humana, the nation’s third largest for-profit insurer. Both Cigna and Humana have been implicated in Medicare Advantage plan abuses.

Who is Pushing Back

The AFL-CIO’s embrace of Medicare Advantage has aroused the ire of longtime single-payer activists, a growing number of central labor bodies, and, most importantly rank-and-file groups like the NYC Organization of Public Service Retirees, which opposes a top-level labor-management deal putting 250,000 pensioners in a for-profit Medicare Advantage Plan run by Aetna.

Ed Grystar, a former labor council president in Western Pennsylvania and healthcare union contract negotiator, is one of many “Medicare for All” advocates who’ve been forced to wage a defensive fight on behalf of Medicare, as championed by the AFL-CIO in the mid-1960s.

Says Grystar: “Even as labor negotiations continue to be inhibited by rising healthcare costs, labor refuses to expose the corruption and waste within the ongoing privatization of Medicare, harming its members, reducing union credibility, and contributing to the downward spiral of health benefits for all.”

As he reports, state and/or local labor federations in New York, Vermont, Maine, Washington, Kentucky, Texas, and California have passed resolutions or joined petitions against privatizing the administration of Medicare benefits.

The Labor Campaign for Single Payer has sounded the alarm as well, and urged its affiliates to remind AFL-CIO President Liz Schuler and President Biden that “Medicare provides bedrock coverage for retired and disabled union members and serves as a template for fulfilling labor’s historic commitment to making healthcare a right for everyone.” But as Labor Campaign co-chair Mark Dudzic warns, “allowing insurance companies and hedge fund managers to be the gate-keepers for retiree healthcare is a recipe for disaster.”

Nobody has organized against this “disaster “more aggressively than retired union members in New York City like Marianne Pizzitola, a former Fire Department Emergency Medical Services staffer. She agrees that “labor should never support privatizing healthcare or stripping retirees of vested earned benefits.”

That’s why Pizzitola helped create the Public Service Retiree group that has tried to prevent AFSCME District Council 37, the New York United Federation of Teachers, and other city unions from scrapping what Labor Notes calls “the best retiree health coverage in the country.”

In the course of this ongoing struggle, hundreds of retirees have filed lawsuits, marched and protested, made creative use of social media, enlisted City Council allies, and targeted Medicare Advantage plan promoters like NYC Mayor Eric Adams.

As healthcare policy expert and retired City University professor Len Rodberg explained earlier this year: “The city has taken a hardball position that it won’t negotiate new contracts until the unions same them $600 million by moving forward with Medicare Advantage plans.”

While union heavyweights in New York City embraced privatization, the much smaller Vermont State Employees Association (VSEA) waged a model campaign against Republican Governor Phil Scott’s unilateral attempt to steer 10,000 retired state workers into Medicare Advantage plans.

The governor claimed that the state and retirees would together save $9 million a year, while keeping the same level of coverage and paying smaller Medi-gap coverage premiums.

By educating and mobilizing active and retired members, and enlisting support from a Democratic-controlled state legislature, the VSEA succeeded in blocking Scott’s move earlier this year. “We want to maintain collective bargaining [over this issue] and not privatize this benefit out to an industry that is renowned for denying healthcare services to people when they need them the most,” said VSEA Executive Director Steve Howard.

The unions representing more than 300,000 VA employees threatened by privatization include the American Federation of Government Employees (AFGE), National Nurses United, the IAM-affiliated National Federation of Federal Employees, NAGE/SEIU, and SEIU Local 200 in upstate New York. They came together most effectively in March, 2022 to resist the Biden Administration’s abortive VA facility closing plan.

The proposed downsizing of hospitals and clinics across the country triggered strong grassroots resistance from VA caregivers, their patients, some veterans’ groups, and elected officials in cities and states threatened with a reduction in medical services.

Union members and their community allies, like Veterans for Peace, organized rallies, press conferences and picket lines demanding improvements in VA staffing and infrastructure, not layoffs and hospital closures. They highlighted the threat to jobs and healthcare access in rural areas with few private sector alternatives to VA care.

The adverse impact of costly and unnecessary outsourcing was documented more recently in an AFGE-backed report called Disadvantaging the VA: How VA Staff View Agency Privatization and other Detrimental Policies. Based on a survey of several thousand VA caregivers and interviews with their patients, this 2023 study warned that veterans’ hospitals and clinics remained understaffed, deprived of resources, and, in some cases, at risk of being closed.

Unfortunately, even AFGE — the largest federal employee union and most active campaigner against VA privatization — has bought into the AFL-CIO’s promotion of a “Member Benefit Medicare Advantage” plan.

This contradictory union stance angered Robert Bonner and Colleen Evans, two retired VA nurses and former AFGE local presidents in Pittsburgh. In an open letter to AFGE President Everett Kelly and other national executive board members, they urged the union to stop promoting Medicare Advantage plan enrollment.

“The waste, fraud, and corruption of the insurance industry are well documented,” Bonner and Evans wrote. “These are the same forces seeking privatization of the VA and not an entity we should embrace. As a public employee union, we should consistently defend and promote the growth of the public sector.”

They received no response from AFGE headquarters.

Political Solution or Stealth Agenda?

Over the past three years, PNHP and other healthcare reform groups have enlisted progressives in Congress, like U.S. Rep Pramila Jayapal, in their grassroots efforts to pressure the Biden Administration to save Medicare from further privatization.

Last October, two House progressives Ro Khanna (D-CA) and Mark Pocan (D-WI) introduced the “Save Medicare Act.” This legislation would bar private insurers from using the word “Medicare” in their often deceptive marketing of Medicare Advantage products.

“Only Medicare is Medicare,” Pocan argues. “It’s one of the most popular and important services the government provides. We should be working to expand this service to include dental, vision, and hearing care…rather than allowing ‘Medicare Advantage’ programs to provide pale alternatives to what Medicare does.”

Faced with an industry-backed lobbying and advertising blitz, the Biden Administration opted instead for a three-year phase in of minor reforms of the Medicare Advantage program. Jayapal criticized this April, 2023 decision because it doesn’t “stop price gouging by insurance companies,” immediately.

“It’s now clear that Medicare Advantage is simply a profiteering venture that hurts patient care,” Jayapal says. “Without a complete overhaul, it will be impossible to stop bad actors. These plans have spent years scamming seniors and overcharging the government to pad their own profits.”

On the veterans’ healthcare front, Biden’s Secretary of Veterans Affairs has been even more timid than his Health and Human Services Secretary about rewriting Trump-era administrative rules that facilitate profiteering.

Denis McDonough has had three years to revise patient referral standards developed by his pro-privatization predecessor, under the VA MISSION Act of 2018. Now his failure to do so has given a coalition of corporate Democrats and conservative Republicans in Congress the opportunity to pass the Veterans’ Health Empowerment, Access, Leadership, and Transparency for Our Heroes (HEALTH) Act.

This measure could codify Trump’s VA outsourcing rules and make them reversible only by statute. If enacted this fall, the HEALTH Act would force the VA to divert an even bigger share of its $128 billion annual budget from direct care to Medicare-style reimbursement of private-sector doctors and hospitals.

Sadly, the American Legion and the Veterans of Foreign Wars have both signed on as HEALTH Act endorsers, even though — in their official statements — neither favors privatization, and the VFW has, in the past, objected to the outsourcing guidelines that may now become much harder to repeal.

VA healthcare and Medicare have been partially privatized under the guise of saving money and giving seniors and military veterans more “choice.” But the corporate interests and right-wing politicians which favor privatization have a hidden agenda, which is to undermine both of these tax-supported programs.

By disrupting the federal government’s ability to provide direct care to veterans or public insurance coverage for 62 million Americans in a cost-effective manner, they hope to discredit “government run healthcare” in any form.

As Paul Sullivan, a Gulf War combat veteran and former deputy secretary of the California Department of Veterans Affairs, points out, “The forces against quality healthcare for all Americans know that a fully funded and staffed VA would set a shining example for the national healthcare they bitterly oppose.”

Likewise, a well-run Medicare program — not yet saddled with unnecessary costs and tainted by private insurer involvement — was long our best advertisement for “Medicare for All.” Defenders of the VA and traditional Medicare now face an uphill fight to prevent each form of single payer healthcare from becoming an engendered species in the United States, rather than a model for universal access to affordable care.

November-December 2023, ATC 227