November 2nd, 2009

Reports the Pittsburgh Post-Gazette:

The federal government pays private insurers to administer advantage plans, but it’s paying them 14 percent more, on average, than it does for Medicare. Those subsidies could be cut in congressional health care reform legislation to help fund a historic expansion of health insurance coverage.

But bringing advantage spending back in line with traditional Medicare could mean increases in premiums or a decrease in services — and given the popularity of the programs, that’s perilous political territory.

…

Medicare Advantage began in the 1970s, when seniors gained the option to enroll in a private health maintenance organization plan rather than the traditional Medicare fee-for-service model. HMO plans offer more in terms of health management, but only within a preselected “network” of physicians, while fee-for-service plans provide comprehensive acute care.

The federal government funded the private plans at 95 percent, on average, of what it was paying for Medicare.

The system allowed people who enjoyed their current health insurance company to stick with it in retirement. Medicare Advantage tends to be used by middle-class seniors, as those with the highest incomes often have health benefits included in their pensions and low-income seniors are covered by Medicaid. Premiums are comparable among Medicare and Medicare Advantage plans.

Medicare Advantage hit a turning point in 1997 when Congress passed the Balanced Budget Act, which increased the private-plan options. Over the next several years, Congress increased payments and expanded the range of advantage plans — which now include fee-for-service plans and hybrid plans called Preferred Provider Organizations.

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The result has been an explosion of seniors using advantage plans. According to Kaiser, the number of Medicare beneficiaries in private plans nearly doubled from 2003 to 2009. As of March, 10.2 million people — 22 percent of all Medicare recipients — were enrolled in advantage plans.

As enrollment has grown, so have government reimbursements for the private plans. Instead of saving money for Medicare, advantage plans now are more expensive for the government.

“The broader policy question is whether or not Medicare can afford to sustain a program that loses money, erodes the hospital insurance trust fund and increases premiums for all beneficiaries in the current fiscal environment,” Ms. Neuman said.

Find out more at the Post-Gazette.