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Study Says MA Plans Will Cost Medicare 12.4 Percent More this Year

By Neda Semnani, CQ Staff

September 5, 2008 -- Government payments to Medicare Advantage (MA) plans will continue to strain public coffers even after planned reductions go into effect as part of recent Medicare legislation (PL 110-275) blocking physician payment cuts, according to a new Commonwealth Fund report.

Payments to MA plans combined with rapidly increasing enrollment has resulted in $33 billion in additional spending over the past five years, or $795 per Medicare beneficiary in 2004, the study's author and lead researcher, Brian Biles, said in a news release. The funds could be spent in other ways, such as slowing the rate of increase in Medicare Part B premiums or increasing eligibility for low-income Medicare subsidies, the study concluded.

A spokesman for the health insurance industry said the report does not reflect that MA beneficiaries receive more benefits at less cost when compared with Medicare's traditional fee-for-service program. Robert Zirkelbach of America's Health Insurance Plans (AHIP) also noted that the cost of the Medicare drug benefit has been less than previously estimated.

Earlier this month Medicare's actuary estimated that the Part D program will cost $37.2 billion in 2008 and $46.4 billion in 2009. When Congress debated the drug benefit, the actuary estimated the benefit would cost $68 billion in 2008 and $74 billion in 2009.

Zirkelbach also noted beneficiaries' satisfaction with Medicare Advantage. An AHIP survey released June 2008 found that 88 percent of seniors enrolled in MA plans report being satisfied with their coverage.

Critics of Medicare Advantage questioned the wisdom of overpaying private insurance companies by an average of the 12.4 percent per enrollee, or by 10.6 percent under the changes in the Medicare physician payment legislation. "Policymakers should carefully examine whether extra payments to Medicare Advantage plans are the best use of dollars for the beneficiaries the program is designed to serve," said Commonwealth Fund president Karen Davis.

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