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Private Plans Not a Good Deal for All Seniors

The Medicare Advantage (MA) program is intended to increase the role of private health plans in Medicare. The program's creators envisioned that seniors would opt out of fee-for-service Medicare to take advantage of the lower premiums, lower cost-sharing, and additional benefits available in private plans.

In a new Fund issue brief, Medicare Beneficiary Out-of-Pocket Costs: Are Medicare Advantage Plans a Better Deal?, Brian Biles, M.D., Ph.D., of George Washington University and colleagues examine out-of-pocket costs for beneficiaries in good, fair, and poor health throughout the country. They found that, in 2005, annual out-of-pocket costs for Medicare Advantage plan members ranged from under $100 for beneficiaries in good health to over $6,000 for those in poor health. Costs for beneficiaries in poor health would actually have been higher than fee-for-service in 19 of the 88 plans examined.

The authors conclude that the private plans may not always be a good deal for sicker beneficiaries who use more health services.

"These findings raise questions about what Medicare is achieving with extra payments to private Medicare Advantage plans, which totaled more than $2.7 billion in 2005 over fee-for-service costs," says Fund president Karen Davis. "While the payments were designed to help improve benefit packages, the most vulnerable enrollees in Medicare Advantage plans are facing high cost burdens for their care."

Making it easier for enrollees to change plans, standardizing the benefit packages, improving the accuracy of payment rates, and limiting the vulnerability of enrollees to out-of-pocket costs would improve the plans, the authors suggest. And, should a more comprehensive benefit package be made available as part of traditional Medicare, it might well be able to compete with Medicare Advantage on an equal footing.

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