Medicare Compliance & Reimbursement

Mandated extra MA payments may be dragging down the entire program.

The federal government shelled out more than $5.2 billion in extra payments to Medicare Advantage (MA) plans over what it paid for traditional Medicare fee-for-service (FFS) plans, a new report reveals. This staggering amount of extra costs for Medicare could have government officials re-thinking the mandates in the Medicare

Modernization Act of 2003 that created the extra-payment provision for MA plans.

Extra payments to MA plans were $922 more than FFS costs for each of the approximately 5.6 million MA beneficiaries -- which is an average 12.4 percent more in costs for an average MA enrollee versus an enrollee in a Medicare FFS plan, researchers estimate in a new report that Commonwealth Fund released on Nov. 30. The mandates that allow for these extra payments to MA plans "were intended to expand the role of private plans in Medicare," the report explains.

But the report's authors, Brian Biles of George Washington University and his colleagues, project that if Medicare eliminated these extra payments to private plans, the program could save $30 billion over five years.

"Medicare 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," Fund president Karen Davis said in a Nov. 30 statement. "These payments could instead be used to provide better benefits and reduce out-of-pocket costs for seniors and the disabled."

Indeed, the billions of dollars that Medicare could save by getting rid of the extra MA payments can help to provide coverage in the Medicare Part D "doughnut hole," ease the 2007 increase in benes' Part B premiums by approximately $10 per month for each bene and "create a viable alternative to the ineffective sustainable growth rate mechanism currently used to determine the physician payment update," the report points out.

"If traditional Medicare and private plans are ever to compete fairly, they need to compete on a level playing field, which would require the elimination of these extra ayments," Biles maintains.

Fund's Data Is 'Flawed,' AHIP Contends

Despite the researchers' troubling calculations about MA plan costs, at least one major industry organization has rejected the data. "The report's findings are based on flawed analyses that overestimate the difference between MA payment rates and Medicare FFS costs, neglect the longer term investment Congress attributed to certain features of the program and fail to recognize the value health plans provide to beneficiaries and taxpayers," charges an America's Health Insurance Plans (AHIP) statement.

In addition to the Fund report's "flawed methodology," the report doesn't take into account the recent cost-saving changes to the MA program, AHIP's president and CEO Karen Ignagni says in the Nov. 30 statement. "For example, by using 2005 as the basis of its analysis, the study does not consider approximately $2.1 billion in savings generated by Medicare Advantage plans for the federal government in 2006," she notes. "Moreover, this study loses sight of the commitment Congress made to ensure all beneficiaries a choice of plan and to encourage program savings through greater competition."

According to the Centers for Medicare & Medicaid Services, MA benes are saving $82 per month on average, compared to what they would spend under Medicare FFS, Ignagni contends.

The Fund report, entitled "The Cost of Privatization: Extra Payments to Medicare Advantage Plans -- Updated and Revised," is available online at www.cmwf.org/publications/publications_show.htm?doc_id=428546.