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Medicare Advantage: Private Health Plans in Medicare 1 (June 2007)

handle is hein.congrec/cbo9313 and id is 1 raw text is: A series ofissue summaries from the Congressional Budget Office JUNE 28, 2007 Medicare Advantage: Private Health Plans in Medicare Medicare provides federal health insurance for 43 million people who are aged or disabled or who have end-stage renal disease. Most receive services through the tradi- tional fee-for-service (FFS) part of the program, which pays providers a set fee for each covered service (or bundle of services). Participants can choose their providers and are not required to obtain prior authorization for any covered service. Medicare beneficiaries have the option of enrolling in Medicare Advantage-the program through which pri- vate plans participate in Medicare-rather than receiving their care through the FFS program.1 They may choose to do so because such plans provide additional benefits beyond those available within traditional Medicare, including coverage for services not covered by FFS Medi- care (for instance, dental services) and cash rebates of pre- miums or reduced cost-sharing. As of June 2007, about 18 percent of beneficiaries are enrolled in Medicare Advantage plans.2 This brief describes how those private plans function, how they are paid, how their costs com- pare with the costs of traditional Medicare, and how those costs vary by geographic area. In summary: Enrollment in Medicare Advantage is growing rapidly, particularly in a relatively unmanaged type of plan called private fee for service (PFFS). Medicare's payments for beneficiaries enrolled in Medicare Advantage plans are higher, on average, than what the program would spend if those beneficiaries were in the FFS sector-so shifts in enrollment out of the FFS program and into private plans increase net Medicare spending. 1. Medicare Advantage is also called Part C. Previously, the program had been called Medicare+Choice. 2. Another 1 percent of beneficiaries are enrolled in other types of group plans, including cost-reimbursed plans, health care prepay- ment plans, a program of all-inclusive care for the elderly, and demonstration plans. The difference in costs relative to those for the tradi- tional FFS program is particularly large for PFFS plans. The additional cost to the government for Medicare Advantage plans subsidizes the beneficiaries who enroll in such plans, which fuels the plans' growth in enrollment and raises costs for Medicare beneficiaries who do not participate in Medicare Advantage. Reducing the payment differential between Medicare Advantage and the FFS program could result in substantial savings to the Medicare program. But it would also diminish the supplemental benefits and cash rebates that Medicare Advantage plans can offer to enrollees and lessen enrollment in those plans. Lowering payments to those plans would slightly reduce the standard premiums for Part B of Medicare (Supplementary Medical Insurance) and delay the exhaustion of the trust fund that supports Part A (Hospital Insurance). This brief was written by J. Timothy Gronniger and Robert A. Sunshine. Related publications include these testimonies: The Medicare Advantage Program, before the House Budget Committee (June 28, 2007), The Medicare Advantage Program: Enrollment Trends and Budgetary Effects, before the Senate Committee on Finance (April 11, 2007), and The Medicare Advantage Program: Trends and Options, before the Subcommittee on Health of the House Committee on Ways and Means (March 21, 2007). All are available on the Congressional Budget Office's Web site (www.cbo.gov). Peter R. Orszag Director

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