Medicare Private Plans Paid More Than Fee-For-Service, MedPAC Study Shows

A Medicare Payment Advisory Commission report released to Congress on Thursday shows that CMS pays Medicare private health plans an average of 107% of what it would cost to care for the same beneficiaries under the traditional fee-for-service program, the New York Times reports. Congress had "once assumed" that it could convince private plans to maintain their participation in Medicare by giving them payments equal to 95% of the cost of fee-for-service Medicare, "but experience showed that was not enough," the Times reports.

According to the report, Medicare payments to private plans are as high as 116% of the fee-for-service payments in some cities and 123% in rural counties. The estimates do not include $10 billion in special bonus payments to private plans that the new Medicare law set aside as an incentive for the plans to enter or stay in the market from 2007 to 2013. Congress had requested the report, CMS spokesperson Peter Ashkenaz said.

"Numerous federal studies" have indicated that the 4.7 million Medicare beneficiaries enrolled in Medicare private plans "are, on average, somewhat healthier than those in traditional Medicare, so, in theory, it should cost less to care for them," according to the Times.

MedPAC said Medicare should try to realize such savings, but the money was redistributed to private plans in 2004 and did not contribute to a reduction in "aggregate payments to plans," the Times reports. Medicare spending could be reduced by $50 billion over the next decade by paying private plans 100% of what it pays for fee-for-service coverage, according to the office of the chief Medicare actuary, the Times reports.

MedPAC member Dave Durenberg, who as a Republican senator previously had expressed his support for managed care, said, "There appears to be no good reason why private plans should be given more money per capita than is given through the traditional fee-for-service system."

But CMS Administrator Mark McClellan said that private plans can offer "tremendous savings" through lower out-of-pocket costs and more benefits than those provided under traditional Medicare plans. According to McClellan, beneficiaries in fee-for-service Medicare plans and no supplemental insurance had out-of-pocket costs averaging $2,631 in 2003, compared with average out-of-pocket costs of private plan beneficiaries was $1,964.

Karen Ignagni, president of America's Health Insurance Plans, said private plans need the extra payments to pay doctors and hospitals in rural areas, where providers can be reluctant to join private plan networks.

"Several" lawmakers on Thursday "vowed" to end the "overpayments" to private plans, the Times reports. "The majority of seniors in traditional fee-for-service Medicare should not subsidize the minority of seniors in private plans," Sen. Olympia Snowe (R-Maine) said. Sen. Jeff Bingaman (D-N.M.) said the new Medicare law included "large overpayments to HMOs," and he asked why fee-for-service beneficiaries should be forced to pay the cost of such "subsidies." Sen. Bob Graham (D-Fla.) also asked why "[t]he federal government is dramatically overpaying HMOs" (Pear, New York Times, 9/17).