Paying Medicare Private Plans by Competitive Bidding: Not the Same as Costs in Regular Medicare

Medicare Advantage plans are now paid $11 billion a year, and $150 billion over 10 years, more than costs in regular fee-for-service (FFS) Medicare. In the past two years there have been discussions about reducing MA payments to the level of 100 percent of average costs in FFS and using the savings to offset the costs of new Federal health initiatives such as health care reform. Earlier this year, OMB proposed reducing Medicare overpayments to private insurers through competitive payments. Under this proposal, MA plan payments would be based on an average of plans\u27 bids submitted to Medicare. This issue brief analyzes the new proposal using data on MA plan benchmarks, bids and rebates, and enrollment for 2009. Analysis of MA plan bids indicates that, while the national average of MA plan bids in the 3,140 counties in the US is 101 percent of FFS costs, the actual level of bids by plans in individual counties varies greatly. Under a bid-based MA payment system, plans would receive under payments - payments less than 100 percent of FFS – of $3.2 billion in approximately 800 counties. These under payments would be balanced with continued extra payments – payments greater than 100 percent of FFS - of $3.8 billion to plans in approximately 2,300 counties. Bid-based payments in eight states would average less than 100 percent FFS while in the other 42, the average would be greater than FFS costs. Most notably, bid-based payments in Florida would average 21 percent less than FFS costs, $2,200 per enrollee per year and a total of almost $2 billion a year. Bid-based payments in 11 states would continue to average more than $1,000 per enrollee per year over fee-for-service costs. Extra payments in both Oregon and Washington State would average 18 percent more than FFS costs and total $320 million a year in Oregon and $290 million in Washington