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GAO Report Cites High Costs in Medicare Advantage Plans

By Emily Ethridge, CQ Staff

December 15, 2008 -- Medicare Advantage private fee-for-service (PFFS) plans can cost beneficiaries more than other Medicare plans through higher cost-sharing fees and illegal "prenotification" obstacles, according to a report from the Government Accountability Office.

Medicare pays more for beneficiaries in PFFS than if they were in original Medicare fee-for-service plans--about 17 percent more in 2008, according to the Medicare Payment Advisory Commission. About 2.3 million beneficiaries were enrolled in PFFS plans as of June 2008, GAO said.

The higher costs to beneficiaries in PFFS plans affect the Medicare Advantage program as a whole. The federal government is projected to spend about $91 billion on the program in 2008, according to the December report.

Under PFFS plans, beneficiaries can be charged the entire service cost, whereas those in original FFS Medicare plans do not pay the entire cost unless the provider warns that Medicare may not cover it. PFFS plans are not required to protect beneficiaries from financial liability, unlike with Medicare HMOs and PPOs, the report said.

In addition, if beneficiaries do not notify the plan before receiving care, PFFS plans can charge them exorbitant cost-sharing, the report said. This prenotification cost could violate laws governing PFFS plans. For example, PFFS plans increased cost-sharing for hospital visits by as much as $500 per stay if patients did not contact the plan ahead of time, the GAO found.

In the report, Centers for Medicare and Medicaid Services (CMS) said it is examining PFFS coverage details and will continue to collect information from plans. It also will take steps to address inaccuracies in plans--following CMS guidance, the agency said.

"PFFS plans pose an imminent risk to the financial health of their enrollees," said House Energy and Commerce Chairman John D. Dingell, D-Mich. He had requested the GAO report along with four other Democratic lawmakers: Charles B. Rangel of New York, Henry A. Waxman and Pete Stark, both of California, and Frank Pallone Jr. of New Jersey.

The report recommended that CMS should investigate the PFFS' unexpected costs for failure to notify before receiving care, and ensure the plans are following CMS policy.

CMS officials told GAO they did not have data on the extent to which PFFS beneficiaries were faced with such costs. However, CMS guidance on this issue has been inconsistent and sometimes incorrect, GAO said.

PFFS plans seem to be more unpopular with enrollees than other Medicare plan options, according to the report. The GAO found 21 percent of beneficiaries in PFFS plans leave the plans during a year, far more than the 9 percent disenrollment rate for other private Medicare plans. Beneficiaries who left PFFS plans were sicker compared with all beneficiaries in PFFS plans, the report found, suggesting that the plans are not helpful for sick enrollees who need to use their benefits.

CMS said in the report that it recently awarded a contract to gather disenrollment rates by late 2009.

CMS is required to share disenrollment rates with beneficiaries. However, the agency has not been mailing the disenrollment information, and the information on Medicare's Web site comes from 2004 and 2005 disenrollment rates, the report said, which may not accurately reflect plans available in 2008.

The report recommended that CMS provide beneficiaries with updated, timely disenrollment rate information both through both the mail and on the Medicare Web site.

Although CMS has outlined the steps it is taking to respond to the report's other recommendations, it has not addressed how it would distribute disenrollment rate information, the report said.

PFFS plans remain an important coverage option for many seniors, especially those in rural areas, said Robert Zirkelbach, strategic communications director for America's Health Insurance Plans. They offer additional services and benefits such as hearing and vision coverage that other Medicare plans may not, he said.

"Seniors have been very attracted to these plans," he said, and have "continually expressed very high satisfaction in the plans."

But some members of Congress do not agree that the plans should continue. Pallone called for the incoming Obama administration to eliminate them.

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