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Center for Health Policy Research, Department of Health Policy, School of Public Health and Health Services, The George Washington University


Health Administration/Organization; Medicare


Medicare Advantage (MA) plans are now paid $11 billion a year and $150 billion over 10 years more than costs in fee-for-service (FFS) Medicare. In the past two years there have been discussions about reducing MA payments to the level of FFS costs and using the savings to offset the costs of new Federal initiatives such as health care reform. These discussions have included a number of options on the specific new approach to pay plans including: average FFS costs in each county; a blend of local county FFS costs and national FFS average costs; and a regional system based on FFS costs in multi-county regions.

Setting MA payment equal to local county FFS costs would result in a national average of payments that is equal to FFS costs and eliminate extra payments to MA plans. The local/national blend option would pay plans nationwide an average of 99 percent of FFS costs. It would, however, leave plans in counties with FFS costs below the national average with extra payments of approximately 5 percent, while plans in counties with FFS costs above the national average would be paid as much at 10 percent less than FFS costs in the county.

A regional payment system would provide MA plans in suburban counties with FFS costs lower than the regional average extra payments of 10 percent or more and pay plans in many core urban counties with FFS costs higher than the regional average up to 10 percent less than FFS costs in the county. Because MA plan enrollment rates are higher in the core counties than the suburban counties, the overall effect of a regional blend payment system would be to reduce the national average of MA payments to less than 100 percent of FFS costs.


Funder: Commonwealth Fund.

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