The Continuing Cost of Privatization: Extra Payments to Medicare Advantage

September 5, 2008 | Volume 43

Authors: Brian Biles, M.D., M.P.H., Emily Adrion, M.Sc., Stuart Guterman, M.A.
Editor: Steven J. Marcus


Medicare Advantage


The Medicare Modernization Act of 2003 explicitly increased Medicare payments to private Medicare Advantage (MA) plans. As a result, every MA plan in the nation is paid more for its enrollees than they would have been expected to cost in traditional fee-for-service Medicare. The authors calculate that payments to MA plans in 2008 will be 12.4 percent greater than the corresponding costs in traditional Medicare—an average increase of $986 per MA plan enrollee, for a total of more than $8.5 billion. Over the five-year period 2004–2008, extra payments to MA plans are estimated to have totaled nearly $33 billion. Although Congress recently enacted modest reductions in MA plan payments, these changes will not take effect until 2010. Moreover, while the new legislation removes a few factors contributing to the extra payments, a number of other factors remain unaffected.


B. Biles, E. Adrion, S. Guterman, Continuing Cost of Privatization: Extra Payments to MA Plans in 2008, The Commonwealth Fund, September 2008.