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Study Finds Private Fee-for-Service Plans Fuel Medicare Advantage Growth

By CQ Staff

May 18, 2007 -- As congressional scrutiny of Medicare private fee-for-service (PFFS) plans increases, a new study suggests the plans are not worth the additional costs to beneficiaries and the Medicare program.

The report, published as a Health Affairs Web exclusive, finds that while the Medicare drug law (PL 108-173) has increased beneficiaries' choice among Medicare Advantage plans, much of that growth has been in PFFS plans, especially in rural areas.

While advocates of PFFS plans say they include features such as nurses working with beneficiaries to better understand treatment options, report author Marsha Gold said the plans are not worth the additional cost to beneficiaries and taxpayers.

"The additional PFFS plan choices essentially allow firms to 'piggyback' on Medicare's existing investment and policies and do relatively little to improve care management," Gold said in a news release. "To the extent that PFFS enrollment grows, Medicare's risk pool is fragmented, and the program's purchasing power with providers is diluted."

Of the approximately 8.5 million Medicare beneficiaries enrolled in Medicare Advantage plans, about 1.5 million are in the PFFS plans, almost a twentyfold increase from March 2005 and almost a sixtyfold increase from the 26,000 beneficiaries who were enrolled in PFFS plans at the end of 2003, when the Medicare drug law was enacted. The plans must provide both Medicare Part A (hospital) and Part B (physician and outpatient) services and may provide Part D prescription drug coverage as well.

At a May 16 Senate Aging Committee hearing, state insurance regulators joined panel chairman Herb Kohl, D-Wis., in saying that Medicare officials are failing to properly oversee the marketing of private plans in Medicare, with Kohl revealing the results of a congressional investigation he said found "countless" cases of seniors being preyed upon by unscrupulous insurance agents. Industry representatives said they were taking steps to prevent such abuses.

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