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Home / News & IndustryManaged Care Insight and Analysis
Updated: May 5, 2009
Medicare Advantage Plans Increases Medicare Costs, Studies Report

Although Medicare Advantage’s (MA) private health plans have given beneficiaries more alternative ways to receive Medicare benefits, they have also created more complexity, generated negligible gains in quality and added to the costs of the Medicare program, researchers report in two studies.

By mid-2008, slightly more than 10 million Medicare beneficiaries, or 23 percent of the Medicare pool, were enrolled in the MA program or a similar private plan. That is nearly double the enrollment in private plans in 2003, when 5.3 million beneficiaries were enrolled. If expansion of enrollment in private plans was an important goal of Medicare Prescription Drug, Improvement and Modernization Act (MMA), it clearly has been attained, said Mathematica Policy Research senior fellow Marsha Gold, the author of one of the studies.

But expansion has come at a cost, as payment to private plans has contributed to higher Medicare spending. And the higher payment rates have financed "what is essentially a Medicare benefit expansion for MA enrollees, without producing any overall savings for the Medicare program," said Medicare Payment Advisory Commission (MedPAC) Analysts Carlos Zarabozo and Scott Harrison in another study.

The data show that Medicare pays MA plans 113 percent of what expenditures would have been underthe traditional Medicare program.

In her study, Mathematica’s Gold said that the expansion in plan choice has created more administrative complexity for the program. In 2008, the Centers for Medicare and Medicaid Services (CMS) had to review, approve and oversee almost 4,000 MA plans under more than 700 different MA contracts. "It is difficult to make the case that Medicare is more administratively efficient because of MMA," said Gold, adding that having so many plans competing to offer essentially the same product adds to costs and beneficiary confusion, with the average beneficiary asked to choose among 44 different MA plans.

Zarabozo and Harrison report that current policy has favored growth of certain types of plans. Plans are paid significantly more than they would have been under traditional Medicare, and while some of these payments are used to finance extra benefits for enrollees, the authors said that paying plans at this rate could affect the sustainability of Medicare and result in increased costs for taxpayers as well as beneficiaries.

The fastest-growing type of MA plans has been the private fee-for-service (PFFS) plans, which allow beneficiaries to see any provider who will accept the plan’s payment rates. These plans made up 48 percent of the total increase in MA enrollment after MMA’s enactment in 2003. In 2006, 11 firms offered a PFFS plan; by 2008, almost 50 did.

Since these kinds of plans dominate MA’s growth and were deliberately structured to minimize effects on care delivery, Gold said that "quality is unlikely to be better and could be worse if provider acceptance creates access problems." In addition, "PFFS’s advantages also seem to have made it harder for health maintenance organizations, the most tightly managed plan, to expand," she said. Special needs plans account for 24 percent of the growth in MA enrollment. Although these plans could improve care delivery for these vulnerable beneficiaries, Gold said that evidence to date suggests that only a minority of SNPs are being structured to achieve these gains.

"We spend a lot of money for the Medicare Advantage program, and it’s not clear what we get in return," Gold said. Although plan choice has increased, mainly in rural areas, many beneficiaries still have few local coordinated care plans (CCPs) available. Enrollment in CCPs appears to be growing slowly. This creates an environment that "does not favor care coordination and quality enhancement," added Gold.

More government oversight and accountability in the MA program are needed, she argues. Gold said that the federal government should set goals for the program and create a way to measure its success. This might include an annual report from the CMS to Congress on MA program performance using measures sufficiently detailed, targeted and consistent across plan types to allow diverse stakeholders to assess their merits and contribution to Medicare’s overall goals.

The studies were published on the Health Affairs Web site.

Addresses: Mathematic Policy Research Inc., 600 Alexander Park, Princeton, NJ 08540; (609) 799-3535, Medicare Payment Advisory Commission, 601 New Jersey Ave. NW, Suite 9000, Washington DC 20001; (202) 220-3700,

  This article was taken from:
The Executive Report on Managed Care

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