Medicare Advantage overpayments to total $8.5B in 2008
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, according to a new report from the Commonwealth Fund.

Even if the payment reductions to MA plans mandated by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) had been fully in place in 2008, MA plans still would have been paid 10.6 percent more than expected fee-for-service costs, according to the report. MIPPA is scheduled to take effect in 2010.

Brian Biles, professor of health policy at George Washington University in Washington, D.C., and colleagues estimated that extra MA plan payments will amount to $986 more than fee-for-service costs for each of about 8.7 million Medicare beneficiaries enrolled in the plans, for a total of more than $8.5 billion in 2008. This is up from $3.9 billion in extra payments, or $795 per MA enrollee in 2004. Extra payments to MA plans between 2004 and 2008 will total nearly $33 billion, the authors wrote.

The bulk of these extra payments were mandated by the Medicare Modernization Act of 2003, which was intended to expand the role of private plans in Medicare in an effort to reduce growth in Medicare spending. Since 2004, MA plan enrollment has increased from 4.8 million to the current 8.7 million, the report said.

The authors of the report, The Continuing Cost of Privatization: Extra Payments to Medicare Advantage Plans in 2008, noted that eliminating extra payments to private plans could be used to offset the costs of Medicare policy improvements, which may include: slowing the increase in the Part B premium that Medicare beneficiaries pay, increasing eligibility for low-income subsidies in Medicare, or improving benefits and financial security for all beneficiaries.

"Medicare Advantage was intended to save the program money through the use of private plans. However, extra payments to these plans combined with rapidly increasing enrollment, has resulted in $33 billion in additional spending over the past five years," Biles said. "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."