Medicare Advantage plans under attack

Rising pressure to reduce federal spending for Medicare has put the spotlight on payments and policies governing the Medicare Advantage program. MA plans are "vastly overpaid," according to Rep. Pete Stark (D-Calif.), chairman of the House Ways & Means Health subcommittee, largely because they sign up more healthy beneficiaries. Senate Finance Committee chairman Max Baucus (D-Mont.) is looking closely at whether "funneling dollars into private plans gets us the most bang for our healthcare buck."

These and other Congressional leaders launched a campaign to curb MA plan "overpayment" at hearings last month on the Bush budget for 2008 (see News Analysis.). In response, Leslie Norwalk, administrator of the Centers for Medicare and Medicaid Services (CMS), explained that MA plans earn their fees by providing broader benefits and better care for low-income and minority seniors.


Consultant John Gorman prefers to regard the current overpayment to MA plans as an "investment in infrastructure" needed to build a more efficient alternative to the traditional Medicare program. To keep seniors with high-cost multiple chronic conditions in an unmanaged FFS program is "fiscal suicide," Gorman commented. He believes that the phase-in of full-risk adjustment for MA payments this year will address charges of adverse selection.


While these experts are optimistic that well-run MA plans can improve the Medicare program, they share a general concern about the rapid growth in private FFS plans, which now receive fees averaging almost 20% more than prevailing FFS cost. This relatively new MA option was designed for rural areas with fewer providers who often refuse to contract with private insurers. To get around this, private FFS plans do not have to establish provider networks, yet they can pay hospitals and doctors at prevailing Medicare FFS rates. Consequently, private FFS plans have become very profitable, but are attracting criticism in the process.

However, some 1 million seniors now enjoy added benefits and low rates from these plans, and influential senators from rural areas won't kill this attractive coverage choice.

CMS may do some "tweaking" of MA rates, such as cutting more of the $10 billion MA stabilization fund established in 2003 to attract regional PPOs into Medicare. Or there may be revisions in formulas for covering indirect medical education payments. The Bush administration moreover envisions big savings from more accurate MA rates based on improved tracking of beneficiary eligibility and terminations.

Stark plans to examine more closely CMS's methods for calculating benchmarks and capitation rates. But while there may be some rate adjustment, even Stark is not predicting any big changes.

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