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Hearing on Medicare Advantage Heats Up in the House

By Drew Armstrong, CQ Staff

March 21, 2007 -- After several years spent lusting for oversight of Medicare's private insurance plans, known as Medicare Advantage, House Democrats started sharpening their knives on Wednesday with a first hearing on the plans' higher payment rates and the benefits they offer to enrollees.

Democrats have long eyed the plans as a potential source of billions of dollars in offsets that they could use to pay for other health priorities.

The Congressional Budget Office (CBO) gave the panel an estimate of possible savings from cuts to the plans, which could prove appetizing as lawmakers look for ways to pay for other programs.

Rep. Pete Stark, D-Calif., led his Ways and Means Health Subcommittee in grilling the head of the Centers for Medicare and Medicaid Services (CMS) on the private plans.

"Let me be clear, we have no intention of eliminating the Medicare Advantage program," Stark said in his statement. But "everything must be on the table—doctors' payments, hospital payments, post-acute payments drug plan payments and, yes, Medicare Advantage payments, too."

Rather, Democrats might be more inclined to follow the recommendations of the Medicare Payment Advisory Commission (MedPAC) and bring the private plans—known as Medicare Advantage—payments more in line with traditional Medicare.

According to the CBO, the government could save $64.8 billion over five years if Medicare Advantage payments were brought down to 100 percent of traditional Medicare fee-for-service.

If they decide to cut the plans' payment rates, Democrats could be slightly gentler and preserve some of the higher payment rates in rural areas meant to attract the plans to those regions. Typically, the cost of providing care to rural areas is higher, and the plans are given maximum payment rates as high as 140 percent of traditional Medicare.

According to the CBO estimate given to the committee, limiting private plan payments to no more than 120 percent of traditional Medicare would save $18 billion over five years. Limiting payments to 110 percent of traditional Medicare would save $38 billion over five years.

Reducing the payments would drive more people out of the private plans, likely back into traditional Medicare. The CBO estimated that reducing private plan payments to the levels of traditional Medicare would drive about half of the private plan enrollees out of the program.

Currently, the government sets a ceiling on private plan payments about 12 percent higher than traditional Medicare, on average. Private plans make bids at or below that rate, and the government gives the plans a rebate of the difference between their bid and the payment ceiling for their region.

The plans then have to invest three quarters of the funds back into benefits for the enrollees, and give the remaining quarter back to the government.

MedPAC's advice has long been that reducing the payments will force plans to find efficiencies if they want to provide the extra benefits and attract new enrollees.

On the other hand, the insurance industry often cites the additional benefits as a major advantage of the private plans.

MedPAC has argued that since the extra benefits are being paid for out of additional government payments—not from efficiencies found by the private plans—the higher payment rates should be reduced to put financial pressure on the plans to perform better.

In one of the hearing's few heated exchanges, Stark questioned CMS Acting Administrator Leslie V. Norwalk why her agency did not track plan enrollees use of the extra benefits.

"It is my understanding that you receive absolutely no data on service utilization," Stark lectured Norwalk. "To even suggest you know what kind of extra benefits are being used is fallacious!"

Norwalk told Stark that the plans had an incentive to get beneficiaries to use the benefits. "It certainly is in their best interest to," she said.

Stark quickly fired back, cutting off Norwalk, "Wait—what's in their best interest is profit!" he said.

Stark has long been critical of the plans and the private health insurance industry, questioning the data they have provided.

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