Thursday, April 5, 2007

The Medicare Advantage program is at a crossroads. Democrats in Congress want payments to private health care companies to go down as Medicare spending spirals out of control, but a lower payment rate could mean reduced health benefits and a return to more costly insurance.

The Medicare Advantage program allows private-sector corporations to offer additional health benefits beyond traditional Medicare for a higher reimbursement rate.

About 8 million Medicare beneficiaries are enrolled in some type of Medicare Advantage plan, and recent data from the Congressional Budget Office shows that the government is paying the private companies 12 cents more on the dollar than standard Medicare.

Payments to private health plans in the Medicare Advantage program increased from about $40 billion in 2004 to about $56 billion in 2006 and the Congressional Budget Office projects those payments will increase to $75 billion this year.

“These guys are making money hand over fist. I just don’t see how the plans come out unscathed this year,” said a House Democratic aide. “This payment rate increase is a reminder. They are having stock rallies on Wall Street as we begin the process to cut them.”

One solution to the increased spending on these private plans that Congress is considering is to wipe out, or modify, so-called Medicare private fee-for-service plans.

These plans, which are generally concentrated in rural areas receive even higher payments from the government than other managed care plans, usually between 19 percent and 21 percent more than traditional Medicare plans.

“I hear very quietly that they [lawmakers] want them to be stopped,” said the Democratic aide. “Private-fee-for-service plans are out of hand.”

Private fee-for-service plans closely resemble traditional fee-for-service Medicare but share few characteristics with other private plans, such as health maintenance organizations or preferred provider organizations. Private fee-for-service plans, which accounted for 18 percent of the Medicare Advantage enrollment in 2007, are exempt from Medicare requirements for HMOs and PPOs, such as employing provider networks.

Tom Scully, former administrator of the Centers for Medicare and Medicaid, who devised the payment formula for the Medicare Advantage program, says eliminating the plans would be a bad idea.

“The reason we have these private plans is because I was trying to get rid of MediGap, which costs too much for a bad insurance,” he said.

To slow this spending Congress is expected to a pass Medicare Advantage cuts that will reduce Medicare spending by an estimated $65 billion over five years. The cutback will likely force plans to cut benefits. The reduced health benefits could fall disproportionately on low-income people because 57 percent of Medicare Advantage enrollees have incomes between $10,000 and $30,000, compared with 46 percent of those in the government plan.

And the issue is heating up as the Senate Finance Committee scheduled a hearing on the Medicare Advantage program for April 11. That hearing follows a House Ways and Means subcommittee hearing last month.

• Health care runs Fridays. Contact Gregory Lopes at 202/636-4892 or

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