Surge in PFFS plans requires push for regulations (More on Special Report, Sep. 2007)

Private fee-for-service (PFFS) plans are the fastest growing, and most controversial, aspect of the Medicare Advantage (MA) program. They account for approximately 18% of total enrollment, and according to MedPAC, they are receiving payments that average 19% more than payments to traditional Medicare.

Private fee-for-service (PFFS) plans were created by the Balanced Budget Act of 1997 (BBA), and then modified by the Medicare Modernization Act of 2003 (MMA). They resemble a privately-administered version of traditional fee-for-service Medicare. They're exempt from many of Medicare's requirements for HMOs and PPOs; they are not required to create provider networks. While they receive capitated payments, they pay providers on a fee-for-service basis.

In recent years, PFFS plans have grown dramatically. From December 2005 to February 2007, enrollment in HMOs and PPOs increased from 5.1 million to 6 million, a growth rate of 18%. During the same period, enrollment in PFFS plans increased from 208,990 enrollees to 1.3 million, a growth rate of 535%. Most of this growth focused on counties with rural or urban floors, where the difference between federal payments for traditional Medicare and MA is greatest.

In June, the Centers for Medicare and Medicaid Services announced that seven insurers (representing 90% of the non-group PFFS market) had voluntarily agreed to suspend marketing of PFFS plans. The suspension will be lifted for each plan only after CMS verifies that the plan has appropriate systems and management controls in place, including verification of the beneficiary's intent to enroll, and documented training of marketing agents and brokers. Legislation has been introduced in Congress that would allow state insurance commissioners to develop standardized marketing regulations for Medicare Advantage plans.