Medicare Advantage overpayments face ax

April 1, 2009

MedPAC reports 2009 MA payments will be 14% above fee-for-service rates.

In a January interview, President Obama criticized MA as an example of "programs that don't work." The White House's 2010 federal budget plan unveiled in February proposed to reduce "overpayments" to private Medicare plans by more than $175 billion over 10 years. The strategy is to switch to a competitive bidding system instead of basing payments on administratively determined benchmarks that generally run above the cost of providing comparable fee-for-service benefits.

In addition, CMS recently signaled that the Obama administration would start imposing curbs on MA payments that don't require Congressional action. CMS took a big swipe at MA rates in February by authorizing an unexpectedly low 0.5% increase in the MA per capita growth rate for 2010-much less than the expected 4% hike. Insurers responded that such a low increase could result in a 5% drop in MA plan reimbursement, which could lead to higher premiums or more limited benefits for seniors.

BIDS AND BENCHMARKS

The Medicare Payment Advisory Commission (MedPAC) supports these changes based on mounting evidence that the government overpays private plans. According to MedPAC's March 2009 report to Congress, Medicare will pay MA plans 14% more per enrollee this year compared with FFS beneficiaries, up from 13% extra in 2008.

But different from the White House bidding proposal, the Commission proposes to set MA rates at 100% of FFS, which would achieve financial neutrality between the two programs. Under this approach, HMOs, which still often bid below FFS costs, could do well, while more costly private FFS plans might not survive. Insurers object that in some areas of the country, FFS costs are so low that plans cannot bid any lower and would have to drop out.

With lower benchmarks and payments, one can assume that "there will be fewer MA plans, and that generous benefit plans will be less generous," said MedPAC Executive Director Mark Miller at a recent briefing. He says that the MA payment system encourages inefficient plans, but that those plans able to document quality care should be rewarded through pay-for-performance initiatives. Insurers point to extra benefits as justifying higher payments. Miller counters, though, that the government pays $3 for each $1 in extra benefits, a heavy subsidy shouldered by Medicare and by beneficiaries not enrolled in MA plans.

Congressional Democrats appear ready to implement some of the MedPAC and White House proposals. Ron Pollack, executive director, Families USA, sees a consensus developing between the White House and Congress that plans have to achieve economies to justify higher payments. "How deeply cuts go, remains to be seen," he says.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.