Private Medicare plans may face cuts

Published May 30, 2007

WASHINGTON - When Doug Morris joined Medicare last spring, the retired college professor went to work reading the handbook that explained his benefits, expenses and rights.

All 107 excruciating pages.

The music theory and music history professor chose a private insurance plan over traditional Medicare. He liked the extra benefits in the private plan, including a free annual physical and eye exam.

Increasingly, older and disabled people are making the same decision. Yet in the months ahead, these Medicare Advantage programs could become less attractive. Congress will consider lowering payments to the insurers. If that happens, insurers could respond by cutting benefits.

Members of Congress seem particularly focused on a program under Medicare called private-fee-for-service. The government spends substantially more for the people in these plans than it does for patients in traditional Medicare.

"All provider payments must be reviewed and are subject to change, " Rep. Pete Stark, D-Calif., head of the House Ways and Means subcommittee on health, said last week. "They're at the top of my list."

That is the kind of plan that Morris joined. These plans allow members to go to any doctor, hospital or other provider that has accepted the plan's terms. In other types of managed care, patients can see only doctors in their plan's network, and they pay more if they go outside.

Cap is a comfort

Morris, who lives in Middleton, Wis., says the plan gives him peace of mind. If he has a heart attack or other major illness, he has a $3, 950 cap for his out-of-pocket expenses for the year. By comparison, the traditional program doesn't have a limit on out-of-pocket costs, unless the beneficiary also bought a supplemental insurance policy.

The fee-for-service plans are, by far, the fastest growing of the four types of managed care offerings under Medicare. Enrollment in such plans surged from 210, 000 in December 2005 to 1.35-million in January.

In Medicare Advantage, the government pays insurers a set amount per beneficiary. The insurer then reimburses doctors and other providers for treating plan members. Overall, Medicare covers about 43-million people; about 18 percent are in managed care plans.

The plans are heavily subsidized by the government; last year, they received $56-billion. In exchange, they assume the risks and costs of covering people's health needs.

The Medicare Payment Advisory Commission, which advises Congress, recommends against subsidizing managed care at a higher rate than the original program.

The commission says all taxpayers and people in Medicare are paying for the extra benefits enjoyed by the 18 percent in private plans. AARP, an advocacy group for older people, says it's unfair to subsidize one program over another.

The Congressional Budget Office estimates that paying insurers rates equal to the rate paid directly to health care providers in traditional Medicare would save $54-billion over five years and $149-billion over 10 years. Also, Medicare's chief actuary said that equalizing the payments would extend the solvency of the program's Part A trust fund by two years.