News | November 30, 2006

Private Plans Boost Medicare Spending

Efforts to include more private insurers in Medicare may be costing the agency more money, new research shows.

On average, private Medicare Advantage (MA) plans were paid 12.4 percent more per enrollee in 2005 than what the same enrollees would have cost the traditional U.S. Medicare fee-for-service program, says a report released Thursday by the Commonwealth Fund, a private foundation that supports independent research on health and social issues.

"While encouraging enrollment in private plans was billed as a way to reduce costs for the program, Medicare Advantage, in fact, costs Medicare money because of the extra payments," report author Brian Biles, professor of health policy at George Washington University, said in a prepared statement.

The report authors estimated that extra payments to MA plans in 2005 totaled more than $5.2 billion over fee-for-service costs for about 5.6 million Medicare beneficiaries enrolled in MA plans. That works out to about $922 more per person.

Most of those extra payments were required under the Medicare Modernization Act of 2003, which was meant to expand the role of private plans in Medicare.

Eliminating extra payments to private plans could save Medicare about $30 billion over five years, the report authors estimated. These savings could be used in a number of ways, including filling in the coverage gap (the so-called doughnut hole) in the Part D drug benefit and reducing the increase in the Part B premium in 2007 by about $10 per month for each beneficiary.

"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 payments," Biles said.

More information

The American Academy of Family Physicians offers information about health insurance.

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