In the past five years, Medicare Part B premiums have climbed about 60% for beneficiaries.  One of the causes for this astonishing increase is higher payments to private Medicare Advantage plans.  It makes no difference whether you are enrolled in one of these plans or not, (and only 15% of you are).  The cost, nevertheless, is figured into every Part B premium that’s deducted from your monthly Social Security check. 

The 2003 Medicare drug legislation, intending to expand the role of private plans in Medicare, sharply increased payments to private Medicare Advantage plans.  At the time, proponents of the incentive payments said the plans would save money.  A new report from The Commonwealth Fund, however, says that Medicare Advantage plans average 12.4% more than costs in traditional Medicare during 2005.  In addition. the authors of the reports said that cutting the extra payments to private plans could save Medicare a projected $30 billion over five years.  They point out that the funds could be used, among other things, to reduce the increase in the Part B premium by about $10 per month per beneficiary.  By my estimates, the savings of $10 per month could wipe out most, if not all, of the projected increase in the base Part B premium for 2008. 

Private Medicare Advantage Plans provide beneficiaries with all Part A (hospital) and Part B (doctors and hospital outpatient) coverage and must cover medically - necessary services.  Additional supplemental Medigap policies are not needed.  Medicare Advantage Plans generally offer extra benefits, and many include Part D drug coverage.  These plans often have networks, which means you may have to see doctors who belong to the plan or go to certain hospitals to get covered services.

A growing number of health policy experts, including both the Medicare Payment Advisory Commission and Medicare’s own Inspector General, say that Medicare Advantage Plans are overpaid for their services. When private Medicare Advantage plans are overpaid, a portion of that wasteful spending comes right out of your pocket.  Part B premiums are estimated on the average total amount that the government expects to spend per Medicare beneficiary.  Depending on income, beneficiaries pay at least 25% of the cost, and the federal government pays the rest.

Congress recently did away with a portion of the excess funding for Medicare Advantage plans, but turned right around and used the savings to prevent a reduction in payments to physicians.  The end result is no savings on Part B premiums.

TSCL supports recommendations to adjust reimbursements to these plans to a level that is supported by cost data.  If private Medicare Advantage Plans really can save money for Medicare and beneficiaries as proponents of the plans say they can, why give them the crutch of “incentive payments?”  Let private plans stand on their own.

Sources:  “Extra Payments To Medicare Advantage Plans Totaled $5.2 Billion in 2005,” The Commonwealth Fund, November 30, 2006. 

January 2007