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Government Funding; Medicare


The Medicare Modernization Act of 2003 (MMA) and the Deficit Reduction Act (DRA) of 2005 include provision intended to increase the role of private health plans in Medicare. These provisions set Medicare Advantage plan payment rates at levels higher than average costs would be 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 provisions is projected to total over $8 billion in 2008 and $70 billion over the five year period, 2008 to 2012.

This briefing paper outlines the specific MMA and DRA provisions that generate these extra payments and presents opportunities for revised policies that can reduce Medicare spending in excess of fee-for-service costs. The options explored here address the four bases for Medicare Advantage play extra payments: MMA statutory provisions, including county benchmark extra payment rates and Indirect Medical Education payments that increase the county benchmark rates; budget neutral risk adjustment payments; and payments from a regional PPA stabilization fund.

In view of the recent Congressional adoption of a 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 2007.

In particular, these funds may be a source of the cost savings needed to pay for an extension of the State Children's Health Insurance Program (SCHIP), a modification of the Sustainable Growth Rate (SGR) policies so that Medicare payments to physicians do not decline by 10 percent in 2008, or a reduction in out-of-pocket Medicare costs for the elderly and disabled. Five year costs for the extension of the SCHIP program are estimated at $50 billion, a two year SGA fix is estimated at $30 to $40 billion, and reductions in out-of-pocket costs for low-income Medicare beneficiaries is estimated at $10 billion or more.

Furthermore, reductions in extra payments to Medicare Advantage plans may be seen as appropriate, as these extra payments clearly run county to the oft-stated purpose of increasing the enrollment of Medicare beneficiaries in private plans: to lower total Medicare costs.


Funder: The Commonwealth Fund.

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