Medicare Compliance & Reimbursement

According to a May 20 Commonwealth Fund report, Medicare private plans will receive per-enrollee payments in 2004 averaging 8.4 percent above fee-for-service cost.

For each Medicare Advantage enrollee, the government will pay $552 more than it would were the same beneficiary in the FFS arm of the program, say researchers Brian Biles and Lauren Hersch Nicholas of George Washington University and Barbara Cooper of the Commonwealth Fund. All told, they conclude, the private plans will cost Medicare an additional $2.75 billion in 2004.

"Some of that $2.75 billion will result in additional benefits for the elderly and disabled in Medicare Advantage plans," the researchers say, but they point out that the additional benefits will not help many beneficiaries, notably the more than 40 percent who do not have access to a Medicare Advantage plan. Applied uniformly, the $2.75 billion would "be nearly sufficient to eliminate the Part B premium for every Medicare beneficiary for one month in 2004," Biles and his coauthors write.

The report reflects the effect of last year's Medicare Modernization Act, which pushed Medicare Advantage payment rates up considerably. Rates for the plans jumped 10.3 percent in 2004, and on May 10 the Centers for Medicare and Medicaid Services said 2005 rates for plans in 80 percent of counties would be up an additional 6.6 percent, which "represents the estimated increase in per capita Medicare costs for all beneficiaries for 2005."

Plans in the remaining counties are slated for even bigger increases, averaging 7.1 percent, CMS said. Rates for these plans will be increased to match their county's per capita FFS spending levels.

The Commonwealth Fund report is in line with many previous studies. Most recently, the Medicare Payment Advisory Commission reported in April that Medicare Advantage plans get 7 percent more than it would cost to cover the same beneficiaries in FFS Medicare. Moreover, both MedPAC and Biles'team explicitly ignored numerous expert findings that beneficiaries in the private plans are healthier on average than those in FFS. Adjusting for this health difference would have magnified the overpayments to private plans described in the reports, although CMS noted in announcing the new Medicare Advantage rates that 50 percent of plan payments will be risk-adjusted in 2005, as opposed to 30 percent in 2004.

The agency also said that the difference in risk scores between plan and FFS enrollees is only 8 percent, lower than the 12 percent previously believed.

In estimating the cost of last year's Medicare Modernization Act, both CMS'Office of the Actuary and the Congressional Budget Office estimated that the act's provisions promoting private plans would increase costs. The CMS actuaries put the ten-year cost at $46 billion, more than three times CBO's $14 billion, because they estimated that more beneficiaries would join the plans.