Medicare managed care payments targeted to fund other health goals

Average health plan pay was 12% higher than spending under Medicare's traditional fee-for-service model. Equalizing rates would free up an estimated $65 billion.

By David Glendinning, AMNews staff. April 16, 2007.

Washington -- Competition is fierce for federal health care funding this year. Some Capitol Hill lawmakers are looking to squeeze Medicare's managed care plans to find more dollars for physicians, children's health care and the uninsured.

In the eyes of many Democratic legislators, Medicare Advantage plans get extra federal funds that should be used to pay for other health care priorities. But insurers are making it clear that they won't allow the government to cut those funds without a fight.

Since control of Congress shifted to Democrats in January, leaders have seized on statistics showing that Medicare's private plans received payments in recent years that were more generous than rates paid under fee for service for comparable beneficiaries. In 2006, pay to Medicare Advantage plans averaged 112% of what the traditional program paid, said the Medicare Payment Advisory Commission.

This occurred because Medicare in each county established a maximum payment, called a benchmark, for insurers that was significantly higher on average than the fee-for-service amount. Even if plans submitted bids to provide basic benefits at lower rates than the maximum, they received part of the difference in the form of rebates designed to pay for additional benefits. In past years, lawmakers have legislated higher benchmarks in their districts as a way to retain local Medicare plans and provide more generous coverage options for their constituents.