June 2007 Whose Advantage? Billions in Windfall Payments Go to Private Medicare Plans For the full report Click here.

When lawmakers added private plans to Medicare, they claimed that such plans would save money and provide better care. Proponents of these plans, now called “Medicare Advantage” plans, argued that because they would foster “coordination of care” and inject the “efficiency of the private market” into Medicare, these plans would result in savings for taxpayers and better health care for beneficiaries. The truth is, these private plans have never saved money. In fact, private Medicare Advantage plans now cost billions of dollars more than traditional Medicare—even though they may do little or no coordination of care.

In 2003, Congress passed the Medicare Modernization Act (MMA), which pumped substantial new funding into Medicare’s private plans and increased the windfall payments that these plans receive. While proving to be very lucrative for insurance companies, who have since increased their enrollment and thus their profits, this change has come at a high cost to taxpayers, and it has weakened the Medicare program as a whole. According to the Medicare Payment Advisory Commission (MedPAC), Medicare Advantage plans are paid an average of 12 percent more than traditional Medicare to provide the same care. MedPAC estimates that the resulting overpayments will add up to $54 billion over five years and $149 billion over 10 years.

The task of correcting these overpayments to Medicare Advantage plans has taken on extra urgency this year. One reason is that Congress, which must reauthorize the State Children’s Health Insurance Program (SCHIP), is considering extending SCHIP coverage to all eligible but unenrolled children. This expansion of coverage would require about $50 billion in new funding. Although there are several options for coming up with this additional funding, reducing overpayments to Medicare Advantage plans could deliver a substantial share of the funds necessary to expand SCHIP to eligible children. The funds saved by reducing these overpayments could also be used to improve Medicare coverage for low-income seniors by strengthening Medicare Savings Programs and the Part D low-income subsidy.

This report takes a closer look at how Medicare Advantage has evolved over the years and addresses the following issues:

• Medicare Advantage plans are heavily subsidized, to the tune of billions of dollars a year, and these dollars come out of the pockets of Medicare beneficiaries and taxpayers;
• Four out of five beneficiaries remain in traditional Medicare, but Medicare Advantage enrollment has grown substantially since 2003, especially in the least efficient plans; and
• The “better benefits” promised to Medicare Advantage enrollees may not be as good as promised.

Conclusion

Medicare’s private plans were introduced decades ago in the hope that they would control spending and increase the coordination of care. Today, Medicare Advantage plans are paid more than ever, and PFFS plans, which do not even attempt to coordinate care, have seen the overwhelming majority of growth in enrollment. This has resulted in billions of taxpayer dollars being spent on private coverage without any of the promised efficiency. Meanwhile, millions of seniors and people with disabilities who rely on traditional Medicare are paying extra money out of their own pockets to subsidize these plans. Reducing these costly overpayments to Medicare Advantage plans would strengthen Medicare, and it would generate substantial savings that could be used to improve programs that serve America’s low-income seniors and fund health coverage for uninsured children. The choice before Congress is clear: a continued—and growing—windfall to insurance companies, or health coverage for low-income children and seniors?

For the full report Click here.