Private fee-for-service Medicare Advantage plans will be paid, on average, 16.6 percent more in 2008 compared to what the same enrollees would have cost in the traditional Medicare fee-for-service program, according to a new report from The Commonwealth Fund.
New legislation will eliminate deeming authority and require PFFS plans in certain areas to offer provider networks in 2011. PFFS plans will also have the same reporting requirements as other MA plans. The Congressional Budget Office predicts that these new policies will reduce PFFS enrollment, but still estimates that about 40 percent more beneficiaries will be enrolled in these plans in 2013 than in 2008.
The new study, "Private Fee-for-Service Plans: Paying for Coordinated Care without the Coordination," follows an August report which found that private Medicare Advantage plans were paid 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, with total extra payments of $8.5 billion in 2008.
Report author Brian Biles, a professor of health policy at George Washington University, and his colleagues estimated that extra payments to PFFS plans will amount to $1,248 per beneficiary over traditional Medicare costs for each of about 2 million Medicare beneficiaries enrolled in PFFS plans, for a total of more than $2.5 billion in 2008.
Because they tend to locate in areas where MA payments are particularly high relative to costs in traditional Medicare, extra payments to PFFS plans are an average of 5 percent more than other MA plans - equivalent to $310 more per enrollee.
The bulk of these extra payments have resulted from rapid growth in PFFS enrollment, from 220,000 in December 2005 to nearly 2 million in February 2008. Additionally, the number of health insurance firms offering Medicare PFFS plans grew from four firms in 2004 to 70 in 2008.
"The legislation passed this year does not adequately address the overpayment problem in private fee-for-service Medicare Advantage plans," said Commonwealth Fund President Karen Davis. "While new requirements will eliminate some of the higher payments to plans and strengthen reporting requirements, we need to determine whether these plans are the best use of limited Medicare dollars."
"While some suggest that PFFS plans are important because of they are located in rural areas, PFFS enrollment and extra payments are heavily focused in urban areas," said Biles. "If new Medicare legislation fails to address these issues, we will continue to see PFFS plan enrollment centered on high extra payment urban areas and Medicare spending billions of dollars that unnecessarily deplete Federal resources."