REPORT: The Costs Of ‘Extra Payments To Medicare Advantage’

money.jpgThis summer, when Republicans initially resisted curbing the excessive federal reimbursements to Medicare Advantage plans, the Wonk Room argued that the government’s overpayments to Medicare Advantage “raise costs for beneficiaries in the traditional program.” This is because Medicare premiums increase with Medicare costs, and overpayments by Medicare “drive premiums higher than they otherwise would be.” As a result, the millions of seniors enrolled in traditional Medicare “are charged higher premiums each month to help subsidize the cost of these overpayments.”

And while the bill that passed reduced the extra reimbursements to private plans, it did not completely eliminate “those extra payments.” According to a new study by Commonwealth Fund, the government is still spending billions subsidizing private insurance companies:

– “Private Medicare Advantage (MA) plans will be paid an average 12.4 percent more per enrollee in 2008 compared to what the same enrollee would have cost in the traditional Medicare fee-for-service program.”

Medicare costs increased by $33 billion “in the five years since 2004 because of extra payments to MA private plans.”

– “In 2008, for each of the 8.6 million Medicare enrollees in managed care, Medicare will spend an average of $986, or 12.4 percent, more than it would for comparable beneficiaries in traditional fee-for-service Medicare, with total extra payments to MA plans exceeding $8.5 billion.”

As the report notes, “these overpayments put pressure on both Medicare and the federal budget, drain resources from other, potentially more productive, uses, and dilute the incentive for Medicare Advantage plan efficiency—which was one of the original reasons for including a private plan option in Medicare.”