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Health Care Costs; Medicare


The Medicare Modernization Act of 2003 (MMA) included provision intended to increase the role of private health plans in Medicare. These provisions, building on policies adopted earlier in 1997 and 2000, set Medicare Advantage (MA) plan benchmark rates at levels higher than average costs in tradition free-for-service Medicare in every county in the nation. The total amount of extra payments to Medicare Advantage plans resulting from these policies total over $8.5 billion in 2008 and over $82 billion over the five year period between 2009 and 2013.

This briefing paper outlines the three major Medicare policies that generate these extra payments to Medicare Advantage Plans.

  • MMA 03 statutory county benchmark rates and the MA bidding process;
  • Indirect Medical Education double payments that increase the county benchmark rates;
  • Potential payments from the regional PPA stabilization fund.

This briefing paper presents the amount of MA extra payments in 2008 that result from each of these policies and projects extra payment amounts through the years 2009 to 2013.

In view of the recent Congressional pay-as-you-go rule (PAYGO) that requires all legislation that increases Federal spending to include provisions that reduce Federal spending by an equivalent amount, the amount of extra payments to MA plans may be important in 2008 and 2009. In particular, changes to MA payments policies to reduce extra payments to private plays by more than $8 billion a year may be a source of cost savings needed to pay for a modification of Medicare's Sustainable Growth Rate (SGR) policies so that Medicare payments to physicians do not decline by 10 percent in July 2008, for a reduction in out-of-pocket Medicare costs for the elderly and disabled, or for an extension of the State Children's Heath Insurance Program (SCHIP). The five year costs for a two year SGA fix are estimated at $20 billion or more, reductions in out-of-pocket costs for low-income Medicare beneficiaries are estimated at $10 billion or more, and the extension of the SCHIP program at over $35 billion.


Funder: The Commonwealth Fund.

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