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MedPAC: Medicare Pays Private Health Plans 10 Percent More Than Traditional Providers

By John Reichard, CQ HealthBeat Editor

November 5, 2010 -- A Medicare payments to private health plans will be an average of 10 percent higher next year than those to providers in the traditional Medicare fee-for-service program, the Medicare Payment Advisory Commission (MedPAC) said this week.

The private health plan side of Medicare is known as the Medicare Advantage program.

Medicare began contracting with private health plans in the 1980s in an effort to bring its spending down. But over time the payments to the plans, which originally were below those made to providers in traditional Medicare, edged higher.

The increases followed complaints by some lawmakers in the 1990s that their constituents lacked access to Medicare's private plans. Complaints also came from the plans themselves who said that they couldn't make any money.

Dozens of plans dropped out of Medicare a decade ago as a result. During the Bush administration Republican lawmakers reacted by boosting payments and fueling steady enrollment gains.
MedPAC issued a series of yearly recommendations that payment levels to private health plans be made the same as for providers in traditional Medicare. But by 2009, rates paid to plans were 113 percent of those in traditional Medicare.

The commission said Medicare could ill afford to pay more given its troubling fiscal outlook.

Congress finally moved earlier this year in the health care overhaul law (PL 111-148, PL 111-152) to shrink the differential and move toward equal payment levels in 2017. The savings, however, don't go to Medicare, but rather to finance subsidies to help the uninsured buy coverage.

Data presented by MedPAC staff Thursday at the commission's Nov. 4-5 meeting show that the highest overpayments will go to two types of Medicare Advantage plans: "private fee-for-service plans" and local PPOs. Their payments next year will average 114 percent of traditional fee-for-service.

The corresponding percentages for HMOs are 109 percent and for regional PPOs 110 percent.

MedPAC data also show a dramatic decline in access to the private fee-for-service plans in the Medicare Advantage program. This year, every enrollee in the Medicare program had access to the plans, but next year only 63 percent will.

Fewer insurers are offering those plans because of requirements in a 2008 law that they establish networks of providers to better coordinate treatment services.

The new data also show a decline in the average number of Medicare Advantage plans from which seniors can choose: 12 plans next year compared to 21 this year. Republicans will cite the data as evidence that options are shrinking while Democrats will say the drop helps seniors who now face a confusing number of choices and plans that too often are not distinct from each other.

The MedPAC figures show that Medicare Advantage enrollment climbed 5 percent this year to 11.4 million, up from 10.9 million in 2009. Twenty-four percent of Medicare beneficiaries are now in Medicare Advantage plans.

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