Medicare Boosts HMO Payments

May 19, 2004
Critics lost no time attacking the Centers for Medicare & Medicaid Services' newly announced Medicare Advantage (formerly Medicare + Choice) payment rates for 2005.

"The Medicare Rights Center's analysis shows that the Administration is on track to subsidize private insurance companies with $83 billion in overpayments over the next ten years. The $83 billion is the excess payments above what it would cost Original Medicare to provide coverage to the same targeted populations," said Robert Robert M. Hayes, president of the Medicare Rights Center.

Medicare managed care plans will receive a 6.6% increase in payments in 2005 -- an additional $1.3 billion in payments over two years, when coupled with the 10.3% increase in 2004. An April report by the Medicare Payment Advisory Commission revealed that the government was paying 7% more to Medicare managed care plans than costs for treating beneficiaries in traditional Medicare. In some cases, payments exceeded traditional Medicare expenses by more than 20%.

"Medicare Advantage offers more comprehensive benefits at a lower cost for Medicare beneficiaries, leading to lower costs for our health care system," Health and Human Services Secretary Tommy G. Thompson said.

"It's no wonder that millions of beneficiaries, particularly those with limited means and no access to subsidized Medigap coverage, depend on these plans. They struggle the most to pay for their medical needs, and they need our help in getting reliable, affordable health care options now more than ever," Thompson said.

But critics said the higher rates accomplish nothing more than increasing insurance companies' profits.

"It is senseless to continue extravagant over-payments to the for-profit insurance industry. It is absurd to defend these overpayments on the ground that private plans are more cost-effective than Original Medicare," Hayes said.

"Seniors worry how to pay for their drugs, while HMOs continue to reap financial rewards," said Ruben Burks, secretary-treasurer of the Alliance for Retired Americans. "Increasing payments to HMOs to lure seniors will undermine traditional Medicare. This shameless corporate giveaway comes at the expense of America's seniors and they deserve better."

Only 10% of Medicare's 41 million beneficiaries are enrolled in managed care plans. But Medicare officials hope the increased payments will encourage Medicare's managed care plans to maintain and expand their services, particularly since the 2003 Medicare prescription drug legislation requires a larger role for private insurance companies in Medicare.

"The new funding is expected to help ensure that Medicare beneficiaries who count on Medicare Advantage plans will have reliable access to the additional benefits and significantly lower out-of-pocket costs typically provided by these plans," CMS said in releasing the payment rates.

CMS also issued a report showing the impact of Medicare Advantage plans in Medicare and the plans’ impact on Medicare beneficiaries. The report claims that beneficiaries in Medicare Advantage spend, on average, 34 percent less than beneficiaries in traditional fee-for-service Medicare.

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