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GW Study Says Overhaul Measure Erases Medicare Advantage Payment Edge

By John Reichard, CQ HealthBeat Editor

March 25, 2010 -- The new overhaul law combined with the package of fixes that may be finally cleared by Congress this evening would essentially level the playing field payment-wise between private health plans in Medicare and the traditional fee-for-service side of the program, according to a George Washington University study.

As such, it would fulfill the goal set by set by Barack Obama as a presidential candidate and the recommendation of the Medicare Payment Advisory Commission, said the study by GW researchers Brian Biles and Grace Arnold.

Private health plans in Medicare are known as Medicare Advantage, or "MA" plans.

"The total effect of this new MA payment policy would be to reduce payments to MA plans from a national average of 113 percent of fee-for-service costs in 2009 to an average of 101 percent of fee-for-service costs when fully phased in in 2016," the study said.

Medicare payments to MA plans totaled an estimated $98.9 billion. "If the new payment policy had been fully implemented in 2009, we estimate that MA payments would have been $88.2 billion," the authors said. That's a savings of $10.7 billion.

Under the new policy, all 3,140 counties in the nation would be ranked from lowest to highest by average fee-for-service costs and divided into four "cohorts" of 785 counties. Payments to MA plans would be set at different percentages of fee-for-service costs depending on the cohort. Thus payments would be set at 115 percent, 107.5 percent, 100 percent, and 95 percent of fee-for-service costs, depending on the cohort.

Plans that performed well on quality ratings would see a boost of five percentage points in their payments relative to fee-for-service costs. So if, for example, they were in the 100 percent cohort, they would receive 105 percent of fee-for-service costs.

The new payment policy also reduces the amount the government gives back to a plan if it bids to offer services at a level below its payment benchmark relative to fee-for-service costs. Now those "rebates" (to be used by the plan to add to benefits or lower out of pocket costs for beneficiaries) total 75 percent of the sum bid below the benchmark, with the other 25 percent going to the Treasury. Most plans would see the rebate fall to 50 percent, with more going to the Treasury. Plans with higher quality ratings would see rebates up to 70 percent.

Plans that will receive 95 percent of fee-for-service costs are overwhelmingly located in urban counties. Ninety-three percent of the enrollment in plans in the 95 percent cohort is in urban counties. Forty percent of the enrollment in plans in the 115 percent cohort are in rural areas.

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