Wednesday, Dec. 15, 2004, 12:01 a.m EDT

Jon Gardner, Health Affairs,


Medicare Modernization Act Undermines Fee-For-Service Program
By Overpaying Managed Care Plans, Health Affairs Article Says

Rules Favoring Medicare Advantage Plans Aim To Build ‘Alternative Infrastructure,’
But Deficits May Trigger Cuts To Managed Care Fees

BETHESDA, MD — Congress and the Bush administration expressed a clear preference for Medicare managed care plans over the traditional fee-for-service program when they resumed overpaying the private plans, but it is unclear whether the higher payments can continue in the face of growing budget deficits, according to a new article published today on the Health Affairs Web site.

Medicare managed care plans, now called Medicare Advantage (MA) plans under the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), will receive overpayments amounting to 16 percent in 2004 because of payment levels mandated in MMA and because enrollees in MA plans are healthier, and therefore less costly, than the average Medicare beneficiary, writes Robert Berenson, senior fellow at the Urban Institute in Washington and a onetime administrator of the Medicare managed care program. Berenson’s paper was supported by the Commonwealth Fund.

Meanwhile, proposals to open MA pricing to competitive bidding in the future, as well as to create regional or national preferred provider organizations — even without the traditional fee-for-service program being part of the bidding process — are unlikely to bring market forces to bear on the payments to MA plans, Berenson says.

“It seems clear that many still envision a formally structured competition between private health plans of various types and the traditional Medicare program,” Berenson says. “One way, then, to understand the overpayments for local MA plans and the special provisions for establishing and sustaining regional PPOs is for the purpose of building an alternative infrastructure for head-to-head competition with, and ultimately replacement for, traditional Medicare.”

Berenson cautions, however, that rising budget deficits may make Congress reluctant to support the MA plans through the current overpayments. “Without the extra payments, the current ‘wait and see’ attitude of health plans, which showed reluctance in 2004 to jump back into Medicare, will have proved prescient,” Berenson says.

In an accompanying Commonwealth Fund–supported paper, Brian Biles, a professor in George Washington University’s Health Policy Department, and two colleagues list six challenges facing MA: simplifying health plan choices for beneficiaries; enrollment of sick beneficiaries as well as the healthy beneficiaries that the managed care plans have attracted in the past; benefit and plan stability; plan “lock-ins” that could force cognitively impaired beneficiaries to stay in plans that do not serve their needs; geographic inequities in plan choice and benefits; and the cost to the Medicare program.

Biles’s coauthors are health policy consultant Geraldine Dallek, and Lauren Hersch Nichols, a doctoral candidate in Columbia University’s School of Social Work.

Berenson’s article can be read at

Biles’s article can be read at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.586.




Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Additional peer-reviewed papers are published weekly online as Health Affairs Web Exclusives at www.healthaffairs.org. Health Affairs Web Exclusives are supported in part by a grant from the Commonwealth Fund.

©2004 Project HOPE–The People-to-People Health Foundation, Inc.