Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Medicare Advantage: To Cut or Not to Cut?

By Mary Agnes Carey, CQ HealthBeat Associate Editor

April 11, 2007 --Expressing concern about access for rural and other beneficiaries, lawmakers at a Senate Finance hearing Wednesday signaled the chamber may take a cautious approach to reducing Medicare Advantage reimbursement rates.

Lawmakers from both sides of the aisle also said plans that are operating efficiently and improving care should not have their payments cut.

The Medicare Payment Advisory Commission (MedPAC) and Congressional Budget Office (CBO) have found that on average, Medicare Advantage plans are paid 112 percent of the rates paid in traditional Medicare, and in some counties that differential can be as high as 50 percent. Insurers have disputed those estimates.

CBO Director Peter R. Orszag told the panel that equalizing Medicare Advantage and fee-for-service payment rates would save $54 billion over five years and $149 billion over 10 years.

Previously, CBO had estimated five-year savings of $65 billion, but the budget office said its new estimate assumed equalization would take effect in 2009 rather than in 2008 because plans have already begun the process of filing bids for 2008. Its previous 10-year estimate of $160 billion in savings was reduced to $149 billion for the same reason.

Finance Chairman Max Baucus, D-Mont., said reducing Advantage payments "could also result in many plans leaving the program, and mass disruptions to beneficiaries." Other Democrats, including House Energy and Commerce Chairman John D. Dingell of Michigan, have suggested that cutting Advantage payments could help finance an expansion of the State Children's Health Insurance Program (SCHIP), which is up for reauthorization this year.

Iowa Sen. Charles E. Grassley, the Finance panel's ranking Republican, said paying Medicare Advantage and fee-for-service plans the same amount "sounds like an easy thing to do, but I don't think that it's as simple as it seems."

Grassley, who like Baucus served on the conference committee that drafted the law that created Medicare Advantage, said taking such as a step would "undo policies supported by members on both sides of the aisle to promote the availability of Medicare coverage choices, especially for beneficiaries in rural areas."

Finance Democrats Ron Wyden of Oregon and Maria Cantwell of Washington expressed concern about across-the-board cuts in Advantage payments. "Seems to me all Medicare Advantage plans are not cut from the same mold," Wyden said, adding that his state's plans "have historically not been reimbursed in the appropriate fashion" and that Medicare should collect data on a regional rather than national basis to judge the plans' efficiency. Cantwell said Advantage payment reductions would be a "pretty blunt instrument" that would hurt more efficient private insurers in Medicare.

While the majority of Medicare recipients are enrolled in traditional fee-for-service programs, enrollment in Advantage plans has steadily increased. In 2004, 13 percent of beneficiaries were enrolled in the plans. That number has increased to 19 percent and will be 26 percent in 2017 if trends continue, Orszag told the panel.

Rapid growth in private fee-for-service plans has fueled much of the Advantage growth. Of the approximately 8.3 million Medicare beneficiaries enrolled in Advantage plans, 1.3 million are in the private fee-for-service plans.

MedPAC Chairman Glenn M. Hackbarth said rapid growth in private fee-for-service plans was "a warning light" because the plans largely duplicate traditional Medicare fee-for-service but are paid at much higher rates. "Prices send signals," Hackbarth said. "Right now, Medicare is sending the signal that they want private plans even if they cost more than fee-for-service." The signal Medicare should send instead, he said, is that it rewards efficiency.

Health insurers are fighting to prevent any payment cuts, saying they would harm beneficiaries and that the plans provide better care at less cost. "Medicare Advantage plans meet a critical need by offering care coordination and management for diseases that commonly afflict the elderly," said I. Steven Udvarhelyi, senior vice president and chief medical officer of Independence Blue Cross, a Philadelphia company that offers a variety of private health plans to Medicare recipients.

But other witnesses said there is little data to prove those claims and that all Medicare plans—including the traditional fee-for-service program—should be required to report more outcomes to help judge the plans' efficiency.

The Center on Budget and Policy Priorities said in a telephone press briefing after the hearing that certain Medicare Advantage private plans do little or nothing to coordinate care, naming private fee-for-service plans and preferred provider organizations as examples. Certain HMOs such as those that hire their own doctors—"staff-model" HMOs such as those found in the Pacific Northwest, for example—can be more efficient, said Robert Berenson, an Urban Institute researcher who spoke on behalf of the left-leaning center.

But the 12 percent more paid on average to Advantage plans is likely to grow even larger relative to the traditional program because of projected enrollment increases in private fee-for-service plans, the center said. Those plans are paid 119 percent of fee-for-service rates, according to MedPAC.

Berenson says the government is now paying private insurers in Medicare Advantage almost $1,000 more per beneficiary than it would cost to keep the beneficiary in traditional Medicare, as a way of hastening the privatization of the program, he said.

Berenson said Medicare is being privatized virtually without the public knowing it, and without ever putting the issue up to an up-or-down vote, by using taxpayer money to favor private plans and regulation to disadvantage the traditional program. At some point the ballooning expense of Medicare will lead government to switch to giving seniors fixed dollar vouchers to pay for private plans rather than continue the current entitlement, he said.

Robert Greenstein, the Center's executive director, said an expensive lobbying campaign by insurers to block payment cuts threatens to force Democrats to scale back their efforts to enroll children who are eligible for but unenrolled in SCHIP, or "blow a hole" in congressional efforts to stick to budgeting rules requiring offsets for program expansions.

Some lawmakers favor tobacco taxes to pay for SCHIP expansion, but even a 60-cent increase in cigarette taxes would only raise $25 billion to $30 billion over five years to fund wider SCHIP coverage, Greenstein said. "They're not going to do 60 cents a pack," he said. "I think that's beyond what's politically feasible."

--John Reichard contributed to this report.

Publication Details