The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

NEW YORK, Jan 27 (Reuters Breakingviews) - Sometimes amputation, however gruesome, is the best option. The White House prescribed some strong medicine for the ailing U.S. healthcare system, but surgery would be far more effective without even hurting the patient.

There are too many maladies to count in a country that spends far more than its peers treating citizens, and with only mediocre outcomes to show for it. One clear way to get more for less would be to eliminate Medicare Advantage, the privately run government program that covers half the elderly population, and use a traditional fee for service approach instead.

President Donald Trump's administration walloped insurers running Medicare Advantage on Tuesday with a proposal to increase payments by less than 1% in 2027. The final amount may change, but the recommendation shocked an industry anticipating up to 6% more. The unexpectedly tiny $700 million bump cost UnitedHealth UNH.N, Cigna CI.N and Humana HUM.N more than $80 billion in combined market value.

The plan should help reduce federal spending, as will another remedy. Insurers receive extra money for accepting sicker patients, but no longer will for unreported diagnoses or ones that don't also include additional services. Mehmet Oz, who runs the Centers for Medicare and Medicaid Services, has called companies that do this scoundrels, a deserved criticism.

Healthcare insurance providers will retain other perverse incentives, as they are essentially paid a set amount per patient with bonuses for more enfeebled enrollees. As a result, they cherrypick healthier people and “upcode” them to seem less well. The Medicare Payment Advisory Commission, an independent congressional agency, estimated in January that spending on Medicare Advantage patients was $76 billion more than it would have been under standard Medicare. The result? More than a $1 trillion of additional spending by 2035.

More changes and lower payments, like the ones unveiled this week, would also help, but insurers keep finding clever workarounds to extract payments while aggressively lobbying Washington for more funds. The program, in fact, has never saved the government money, according to MedPAC, while most economic studies find no appreciable differences in quality between the privately and publicly administered versions of Medicare, according to a 2022 review by health policy nonprofit group KFF.

The mind-numbing complexity of U.S. healthcare makes any upheaval difficult, as evidenced by the Obama administration's Affordable Care Act. In the case of Medicare Advantage, however, the prescription is all too clear.

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CONTEXT NEWS

U.S. healthcare insurance stocks were hit hard on January 27, after the Trump administration proposed an unexpectedly small increase in 2027 payments for Medicare Advantage, a privately run government program for the elderly.

Under the proposal, Medicare Advantage payments would increase 0.09%, or $700 million, far less than up to 6% forecast by analysts. The administration also said that diagnoses not reported or associated with services would not be considered for risk adjustments, which are extra payments for sicker patients.

UnitedHealth shares were down about 20%, CVS's 13% and Humana's 12% at 1200 ET.

(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on CYRAN/robert.cyran@thomsonreuters.com; Reuters Messaging: robert.cyran.thomsonreuters.com@reuters.net))