Extra Payments to Private Fee-for-Service Medicare
Advantage Plans to Reach $2.5B in 2008
Medicare Advantage Plans proving costly to government
compared to traditional Medicare - early report found all MA plans cost
extra $8.5B
Oct. 21, 2008 - Private fee-for-service (PFFS)
Medicare Advantage plans will be paid an average 16.6 percent more in
2008 compared to what the same enrollees would have cost in the
traditional Medicare fee-for-service program, according to a new report
from The Commonwealth Fund. Although Congress made significant revisions
to policies that affect how PFFS plans operate in 2011 and thereafter,
the legislation is expected to slow enrollment in PFFS plans but not
stop the overpayment for each enrollee.
This study follows an August 2008 report, which
found that overall, private Medicare Advantage (MA) plans were paid 12.4
percent more per enrollee in 2008 compared to what the same enrollee
would have cost in the traditional Medicare fee-for-service program,
with total extra payments of $8.5 billion in 2008. (See sidebar for link
to story.)
In the new report, Brian Biles, professor of health
policy at George Washington University, and colleagues estimate that
extra payments to PFFS plans will amount to $1,248 per beneficiary over
traditional Medicare costs for each of about 2 million Medicare
beneficiaries enrolled in PFFS plans, for a total of more than $2.5
billion in 2008.
Because they tend to locate in areas where MA
payments are particularly high relative to costs in traditional
Medicare, extra payments to PFFS plans are an average of five percent
more than for other MA plans—equivalent to $310 more per enrollee.
The bulk of these extra payments have resulted from
rapid growth in PFFS enrollment—from 220,000 enrollees in December 2005
to nearly 2 million in February 2008. Additionally the number of health
insurance firms offering Medicare PFFS plans grew from four firms in
2004 to 70 in 2008.
"The legislation passed this year does not
adequately address the overpayment problem in private fee-for-service
Medicare Advantage plans," said Commonwealth Fund President Karen Davis.
"While new requirements will eliminate some of the higher payments to
plans and strengthen reporting requirements, we need to determine
whether these plans are the best use of limited Medicare dollars."
● Created by the Balanced Budget Act of 1997,
PFFS plans currently receive preferential treatment over other MA plans:
● Unlike other MA plans, PFFS plans are not
required to have a contract or other network arrangement with
physicians, hospitals and other providers. Instead, PFFS plans are
allowed to pay providers with which they have no contracts at Medicare
fee-for-service rates, called "deeming authority."
● Pans are currently exempt from quality
reporting and disclosure requirements to which other plans are subject.
● PFFS plans are not subject to bid review or
negotiation with Medicare.
● Providers treating PFFS plan enrollees may
directly charge patients co-insurance of up to 15 percent more than the
plan payment amount.
As a result, PFFS plans can aim their marketing at
counties with levels of MA payments that are very high relative to costs
in traditional fee-for-service Medicare, according to the authors of the
report, Private Fee-for-Service Plans: Paying for Coordinated Care
without the Coordination.
The new legislation will eliminate deeming
authority and require PFFS plans in certain areas to offer provider
networks in 2011. PFFS plans will also have the same reporting
requirements as other MA plans.
The Congressional Budget Office predicts
that these new policies will reduce PFFS enrollment—but still estimates
that about 40 percent more beneficiaries will be enrolled in these plans
in 2013 than in 2008.
"The intention of the Medicare Advantage program
was to save the program money through the use of private plans. Instead,
these plans are costing Medicare billions in overpayments.
And while
some suggest that PFFS plans are important because of they are located
in rural areas, PFFS enrollment and extra payments are heavily focused
in urban areas," said Biles.
"If new Medicare legislation fails to address these
issues, we will continue to see PFFS plan enrollment centered on high
extra payment urban areas and Medicare spending billions of dollars that
unnecessarily deplete Federal resources."
Editor’s Note:
The Commonwealth Fund is a private foundation
supporting independent research on health policy reform and a high
performance health system.
Keep up with the latest news for senior citizens, baby
boomers
Oct. 21, 2008 - Private fee-for-service (PFFS)
Medicare Advantage plans will be paid an average 16.6 percent more in
2008 compared to what the same enrollees would have cost in the
traditional Medicare fee-for-service program, according to a new report
from The Commonwealth Fund. Although Congress made significant revisions
to policies that affect how PFFS plans operate in 2011 and thereafter,
the legislation is expected to slow enrollment in PFFS plans but not
stop the overpayment for each enrollee. 