Medicare Advantage plans on the ropes

August 1, 2008

In enacting legislation to delay a reduction to Medicare physician fees, Capitol Hill Democrats demonstrated their intent to undermine the role of private insurers in providing care to seniors. Although all sides agreed to avoid a big cut in Medicare payments to doctors, Republicans fought efforts to fund the fees by reducing payments to Medicare Advantage plans.

Senate Finance Committee Chairman Max Baucus (D-Mont.) described the MA reductions as "cutting the fat" from fees to private plans. All MA plans will lose payments to cover the cost of indirect medical education at teaching hospitals. Private fee-for-service (PFFS) plans face new requirements to establish provider networks and report quality measures, which will make it difficult for them to operate in many areas.

These and other MA funding changes will reduce Medicare spending by $13.8 billion over five years (2009 to 2013) and by nearly $50 billion over 10 years, according to the Congressional Budget Office (CBO).

PFFS LOSES EXEMPTION

A main target of reformers is the fast-growing PFFS plans, which enjoy higher payments and reduced regulatory requirements compared with other MA plans. The Medicare bill requires PFFS plans to form provider networks by 2011, except those plans operating in areas with less than two MA plans. PFFS plans also will have to report certain quality data to the Centers for Medicare and Medicaid Services (CMS), a difficult task without provider contractual arrangements. These provisions are expected to force private fee for service out of many markets. Instead of attracting 5 million beneficiaries by 2013, CBO now projects 3.2 million seniors in PFFS plans, up from 2.3 million today.

Many health policy experts as well as MA opponents applaud this outcome. CBO and others claim that PFFS plans are paid too much-17% more than comparable costs for patients in traditional Medicare and higher than other MA plans. At a July conference sponsored by the Center for Studying Health System Change (HSC), Wall Street analyst Christine Arnold questioned whether it's fair to "deplete the Medicare trust fund by overpaying these plans."

PFFS "was never intended to be a long-term product," observed analyst Robert Laszewski at the HSC conference. The idea was to help establish these plans in underserved areas and then make them compete with other plans and providers. Laszewski considers the Medicare bill a "reasonable approach" to MA reform by giving plan sponsors several years to establish networks and by retaining "deemed status" for plans in rural areas.

Health Policy Expert Alexander Vachon questions why Republicans have fought for PFFS plans and laments that they and insurers missed a "huge opportunity . . . to establish MA as sustainable, uncontested high-value improvement over original FFS Medicare."

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