V I E W P O I N T

Health Care Reform Would Improve Medicare By Reducing Medicare Advantage Overpayments

Opponents of health care reform are trying to convince seniors that it will destroy Medicare. The truth is that benefit cuts are not included in any of the current reform proposals. However, in an effort to eliminate wasteful Medicare spending and to strengthen the program, important savings from Medicare are included in H.R. 3200, America's Affordable Health Choices Act, and are being considered by the Senate Finance Committee. This wasteful spending includes the billions of dollars in subsidies - $11 billion in 2009 alone - that are being paid to Medicare Advantage plans. Reducing these overpayments to private insurance plans, so they are not paid more than it costs to treat beneficiaries in traditional Medicare, would strengthen the solvency of the Medicare program and reduce the rate of increase in Part B premiums for all Medicare beneficiaries.

Medicare Advantage Overpayments

Under current law, private Medicare Advantage plans are paid on average 14 percent more per enrollee than it costs to provide comparable care in traditional Medicare. The Medicare Modernization Act of 2003 created these extra subsidies to entice more private insurers into the market because most private companies do not want to insure older people - a situation that generated the need for Medicare in the first place. These extra subsidies are paid for in part by taxpayers and in part by all beneficiaries, whether or not they are enrolled in a private plan, in the form of higher premiums. It is estimated that every couple receiving Medicare will pay about $90 in additional Part B premiums next year to subsidize those in the private plans.

Historically, Medicare Advantage plans have passed on only a portion of these subsidies to their beneficiaries in the form of extra benefits or reduced cost-sharing while a significant portion has gone to insurance company profits. In addition, many plans concentrate these offerings in relatively lower-cost benefits, while expensive services such as chemotherapy are shortchanged. Often beneficiaries do not realize what their out-of-pocket costs will be for lengthy hospitalizations, skilled nursing facility care, home health care and other services until the need arises.

Health Care Reform Proposals

The health care reform bills now being considered in the House of Representatives and the Senate would reduce overpayments to Medicare Advantage plans as one way to strengthen Medicare and to protect the program and its beneficiaries from unaffordable costs.

H.R. 3200, America's Affordable Health Choices Act, which is being considered in the House of Representatives, would reduce wasteful Medicare spending by phasing in a reduction of Medicare Advantage overpayments to 100 percent of the costs in traditional fee-for-service Medicare. The reductions would be made over a three-year period in order to minimize disruption to beneficiaries whose private plans decide their profit margins are no longer sufficient to continue their current plan offerings. The legislation would also protect beneficiaries in private plans from higher cost-sharing requirements, which are often imposed for high-cost services such as chemotherapy, than are imposed under traditional Medicare. In addition, private plans would still be required to provide all Part A and B benefits that are covered in traditional Medicare.

The Senate Finance Committee is considering health care reform legislation that will also reduce overpayments to private Medicare Advantage plans using a competitive bidding method. Under this method, payments to Medicare Advantage plans would be based on the average bids that private plans in an area submit to Medicare. Reducing overpayments to private Medicare Advantage plans, by either method, are estimated to save well over $100 billion in ten years which will strengthen the financing of the Medicare program.

NATIONAL COMMITTEE POSITION

• Medicare should level the playing field between traditional Medicare and private Medicare Advantage plans. The National Committee supports the approach in the House legislation to reduce Medicare Advantage payments to traditional Medicare levels on a county-by-county basis. We are concerned about the competitive bidding approach given that in many areas there is a lack of competition because plan enrollment is concentrated in very few plans.
  
• Savings from eliminating overpayments to private plans should be used to improve Medicare's standard benefit package by improving coverage and limiting out-of-pocket costs for beneficiaries.
  
• Private plans that can compete with traditional Medicare based on cost and quality should be able to continue to enroll Medicare beneficiaries. Many good private plans, particularly HMOs, flourished for decades without the overpayments enacted in the Medicare Modernization Act of 2003.

Government Relations and Policy, September 2009

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