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Modest Savings Seen in Extra Medicare Payments

Monthly premiums declined by $9 per person, study finds

FRIDAY, Dec. 10, 2004 (HealthDayNews) -- Although the U.S. government will make about $2.72 billion in extra payments to Medicare private health plans next year, two new reports say the savings to individual beneficiaries will be modest.

The reports focus on the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which provided private Medicare plans -- formerly known as Medicare+Choice but now called Medicare Advantage -- with increases in monthly payment rates that began in March 2004. Medicare Advantage is basically a health maintenance organization for those on Medicare.

The Commonwealth Fund, a private foundation that supports independent research on health and social issues, issued the reports Friday.

About half of the payment increases were used by the plans to reduce premiums for patients and enhance benefits, according to Lori Achman and Marsha Gold, of Mathematica Policy Research in Princeton, N.J. They co-authored one report.

"The payment increases were intended to stabilize the Medicare Advantage programs," Achman said. Some experts believe that investments to stabilize the private plan participation and increase enrollment will ultimately drive down overall Medicare spending due to the competition.

"We looked at the changes in the payments and premiums as a result of the government's payment increases," Achman said. "We found monthly premiums declined by an average of $9. It was a modest decrease, but they rolled back the premiums to the 2003 level." The average monthly premium dropped from $34 to $25.

Achman and Gold arrived at the statistics by analyzing the data available on the Medicare Advantage Health Plan Web site.

As a result of the mandated payment increases, health plans got a 7.4 percent increase over what they were originally slated to get this year, and a 10.9 percent increase over what they received in 2003.

The trend to cover only generic drugs was also reversed, the two noted in the report. But overall, levels of drug coverage were still restricted by yearly limits.

The second report found the price tag for the extra payments to the private Medicare plans will be $2.72 billion, and suggested that amount could be distributed more equally to improve benefits of all Medicare beneficiaries.

While the ultimate goal of funding the private plans is to reduce overall spending, the authors of the second report said Medicare costs will increase in 2005 and through at least 2013. Brian Biles, of George Washington University, and his co-authors noted that payments to the Medicare Advantage plan in 2005 will average 7.8 percent more than the costs of traditional Medicare -- or $546 for each of the 5 million Medicare beneficiaries in managed care.

"Medicare HMOs were designed to help slow the growth in Medicare spending," said Tricia Neuman, vice president of the Kaiser Family Foundation and director of its Medicare Policy Project. "And Medicare HMOs were considered a strategy for providing Medicare benefits at a lower cost."

But she added, "higher payments to Medicare HMOs reflect a policy decision to promote choice even though it will cost more."

More information

To learn more about the various government plans, visit the Medicare Web site.

SOURCES: Tricia Neuman, vice president and director, Medicare Policy Project, Kaiser Family Foundation, Washington, D.C.; Lori Achman, analyst, Mathematica Policy Research, Princeton, N.J., and co-author, Commonwealth Fund report, Are the 2004 Payment Increases Helping to Stem Medicare Advantage's Benefit Erosion?; Commonwealth Fund report, "The Cost of Privatization: Extra Payments to Medicare Advantage Plans -- 2005 Update
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