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Medicare Advantage Rates to Rise Modestly in 2007

APRIL 3, 2006 -- The Centers for Medicare and Medicaid Services said Monday that payment rates for Medicare managed care plans will rise only modestly in 2007. While payment rates are set to rise an average of 4 percent next year, those rates will be subject to a technical adjustment for the way physicians code patients for billing purposes. That technical adjustment on average would leave plans with a payment rate increase of 1.1 percent assuming the overall health status of their Medicare enrollees stayed about the same between 2006 and 2007.

Small increases in the past have caused an erosion in benefits offered by the Medicare-managed care plans, now known as Medicare Advantage plans.

"No member of Congress will be able to conclude that plans are overpaid next year," said Karen Ignagni, president of American's Health Insurance Plans, the largest health insurance lobby.

Ignagni declined further comment on the impact on plans of the announced rates pending further analysis of the technical adjustments involved.

Medicare Advantage plans have been able to offer more generous benefits than in traditional Medicare, fueled by higher payment increases under the Medicare overhaul law (PL 108-0173) plus separate payments from the government for providing drug coverage.

CMS Administrator Mark B. McClellan emphasized that attractive coverage in a press release announcing the rate changes. He noted that enrollment in Medicare Advantage plans has grown by one million since the start of the year.

A big draw for the plans has been "zero premiums," meaning the plans do not charge a monthly premium for drug coverage. Receiving relatively large increases for other forms of care has made it easier for the plans to charge no premiums for drug coverage.

According to CMS, more than half of beneficiaries choosing a Medicare Advantage plan have enrolled in such zero premium coverage. And almost three-quarters of beneficiaries enrolling in Medicare Advantage plans with drug coverage have lower deductibles or at least some coverage in the "doughnut hole" gap in the Medicare drug benefit, where drug plan coverage stops after a beneficiary spends $2,250 and picks up again after $5,100.

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