Private Medicare Advantage Plans Increase Cost, Complexity of Program Without Evidence of Improving Care, Studies Find

Private Medicare Advantage plans are increasing costs for Medicare but not necessarily improving care, according to two studies published on Monday in the journal Health Affairs, the New York Times reports. Nearly 25% of all Medicare beneficiaries, or about 10.1 million people, currently are enrolled in private plans, the Times reports.

In the first study, Marsha Gold, a senior fellow at Mathematica Policy Research, wrote that private MA plans "are now widely available nationwide," including in rural areas, since a 2003 overhaul of the program. However, the study noted that 48% of the new enrollees are covered under private fee-for-service plans, which mimic traditional Medicare plans and do not adequately coordinate care. Enrollment in private fee-for-service plans has increased from 26,000 in December 2003 to 2.3 million, the Times reports.

In the second study, Medicare Payment Advisory Commission analysts Carlos Zarabozo and Scott Harrison found that increased enrollment in the private plans had, in turn, raised costs because the federal payment rate to private plans on average is 13% higher than what it would be for the same beneficiaries in traditional Medicare. Zarabozo and Harrison wrote, "The higher payment rates have financed what is essentially a Medicare benefit expansion for Medicare Advantage enrollees, without producing any overall savings for the Medicare program, and with increased costs borne by all beneficiaries and taxpayers."

Zarabozo and Harrison added that "[p]ayment increases have been so large that plans no longer need to be efficient to offer extra benefits." HMOs on average were paid 12% more than what would have been paid for traditional Medicare beneficiaries, while payments to private fee-for-service plans were 17% higher, the authors found.

President-elect Barack Obama has called for eliminating the higher payments to MA plans. In a debate on Oct. 15, Obama said the higher payments to MA plans are "just a giveaway" to private insurers. In addition, former Sen. Tom Daschle (D-S.D.), whom Obama reportedly has chosen as secretary of HHS, has expressed similar views. In a book published this year, Daschle wrote, "Medicare's solvency is now threatened by overpayments to private insurers." MedPAC has recommended that payments to MA plans be reduced to the level of traditional Medicare.

Defense of Private Plans
Acting CMS Administrator Kerry Weems said, "Medicare Advantage plans are offering an average of over $1,100 in additional annual value to enrollees in terms of cost savings and added benefits." Karen Ignagni, president of America's Health Insurance Plans, said that HMOs and PPOs offered recognizable benefits by coordinating care, which has facilitated early detection of diseases and fewer patient visits to hospital emergency departments.

However, HMOs and PPOs "are not the types of plans that have been growing most rapidly," Gold wrote, adding that private fee-for-service plans continue to grow in popularity though they "are not set up to coordinate care" (Pear, New York Times, 11/24).

An abstract of the first study is available online.

An abstract of the second study also is available online.