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Newsletter Article


MedPAC Private Plan Costs Rise Compared to Traditional Medicare

By John Reichard, CQ HealthBeat Editor

DECEMBER 5, 2008 -- Federal outlays for the private health plans in Medicare will rise slightly next year compared to spending on the traditional fee-for-service part of the program, according to data released Friday by the Medicare Payment Advisory Commission (MedPAC).

While those plans say their higher payments generate enhanced benefits for Medicare beneficiaries, a commission analysis also found that the government pays as much as three dollars for every dollar in enhanced benefits beneficiaries receive from the plans.

The findings won't help bolster managed care industry arguments against likely efforts by congressional Democrats next year to trim payments to the plans, which collectively make up Medicare's Medicare Advantage (MA) program.

According to a presentation by MedPAC staffers Scott Harrison and Carlos Zarabozo, payment levels for MA plans next year will average 114 percent of payments to providers in the fee-for-service part of Medicare. In 2008, MA payments averaged 113 percent of fee-for-service reimbursements.

Payments for specific types of MA plan will average the following next year, compared to payment levels in traditional Medicare: HMOs, 113 percent; local PPOs, 118 percent; regional PPOs, 112 percent; and private fee-for-service plans 118 percent.

Arguably, MA plans collectively also became less efficient at delivering benefits to Medicare enrollees, the data suggest. In 2008, their bids to deliver benefits came in at a cost that averaged 101 percent of the cost of delivering care under the fee-for-service program; bids for 2009 averaged 102 percent of the expected cost of care under the fee-for-service program.

Robert Zirkelbach, a spokesman for America's Health Insurance Plans (AHIP), said the lobby is still reviewing the numbers released Friday by MedPAC but said MA is a vital option for seniors across the country. "They are benefiting from lower out-of-pocket costs and additional benefits such as hearing, vision and dental coverage. As policy makers look at the MA program they should consider the added value that these plans have for seniors." AHIP is the nation's largest health insurance lobby.

The commission has a standing recommendation to Congress that it trim MA payment rates so that they are at 100 percent of payment levels in the fee-for-service program. The House passed a measure in 2007 that would have lowered MA payments to that level, saving an estimated $160 billion or so over 10 years to fund wider coverage of uninsured children and block a Medicare payment cut to doctors, among other purposes.

AHIP countered that the cuts would raise out-of-pocket costs and reduce benefits for MA enrollees, particularly among those with modest incomes. The Senate did not go along with the cuts. Congress eventually passed other legislation in 2008 subjecting private fee-for-service plans in the MA program to new requirements expected to reduce spending on that type of plan relative to sums they otherwise would have received from Medicare.

Data released at Friday's commission meeting addressed the issue of how much it costs Medicare to obtain those enhanced benefits for enrollees. MedPAC's analysis showed that it will cost taxpayers an average of $1.30 for every dollar in enhanced benefits delivered by MA plans in 2009. Subsidy levels for enhanced benefits will vary by type of MA plan, according to the MedPAC analysis. Medicare will have to pay HMOs an added 97 cents for every one dollar in enhanced benefits they deliver; local PPOs $1.91; regional PPOs $2.23; and private fee-for-service plans in the MA program $3.26.

Originally, managed care plans in Medicare were paid at rates lower than fee-for-service levels, and they said their more efficient care allowed them to offer extra benefits while saving Medicare money at the same time.

Meanwhile, the MA program continues to grow at a healthy clip, according to enrollment data presented at the meeting. MA enrollment totaled 9.9 million as of November 2008, up 16 percent compared to November 2007. HMOs, the type of managed care plan that has operated the longest in the Medicare program, rose modestly in enrollment, rising 7 percent to 6.5 million. Private fee-for-service plans meanwhile grew 35 percent in enrollment, reaching a total of 2.3 million people.

In his presentation, Harrison also noted a wrinkle in MA payment policy that aroused concern on the part of commissioners but no policy recommendations, at least for now.

Harrison noted MA plans in the Miami-Dade area of Florida will collectively see an additional $150 million to $200 million in payments next year, and said that some of that increase can be attributed to fraudulent billing in the traditional fee-for-service program. Here's why: MA payment levels vary directly with spending levels in the fee-for-service program; a five-year average of fee-for-service payments in the Miami-Dade area included hundreds of millions of dollars of payments for claims later proven to be fraudulent. Medicare now has no authority to lower its “benchmark” figures used to set MA payment levels, so to the extent outlays for claims later identified as fraudulent were counted in setting the benchmark, it can't be lowered later by removing the fraudulently billed sum from the calculation.

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