Adopting MedPAC Recommendations to Reduce Excessive Medicare Managed Care Plan Payments Could Yield Large Budget Reconciliation Savings
End Notes
[1] The Administration as well as Senate and House Republican leaders are apparently pushing for larger cuts in mandatory spending than the Congressional budget resolution requires. See, for example, David Wessel, “Bush Budget Aide Weighs Cut in Benefit Outlays,” Wall Street Journal, September 26, 2005; Jonathan Weisman, “GOP Divided Over Range and Severity of Spending Cuts,” Washington Post, October 6, 2005; and Carl Hulse, “Republicans in Congress Seek Budget Cuts for Storm Relief,” New York Times, October 7, 2005.
[2] While the Senate Finance Committee has exclusive jurisdiction over Medicare, the House Energy and Commerce Committee shares Medicare jurisdiction with the House Ways and Means Committee. The Energy and Commerce Committee has primary jurisdiction over Medicare Part B, which covers outpatient services, and shares jurisdiction over Medicare Part C, which involves private plans, and Medicare Part D, the new drug benefit. Ways and Means has primary jurisdiction over Medicare Part A, which covers hospital and nursing home care.
[3] See, for example, Peter Cohn and Emily Heil, “As Some in GOP Weigh More Cuts, Deficit Picture Improves -- For Now,” Congress Daily, October 7, 2005.
[4] Medicare Payment Advisory Commission, “Report to Congress: Issues in a Modernized Medicare Program,” June 2005. All of the recommended changes to Medicare Advantage payments that are discussed here were unanimously approved (with one member absent) by MedPAC, with the exception of the recommended elimination of the Preferred Provider Organization (PPO) stabilization fund. That recommendation was approved 15-1 with one member absent. Reducing Medicare Advantage reimbursements also would have the effect of reducing the Medicare Part B premiums that beneficiaries pay.
[5] For example, the regional PPOs could use the additional payments to reduce beneficiary cost-sharing or provide additional benefits not otherwise covered under Medicare.
[6] Steven D. Pizer, Roger Feldman, and Austin B. Frakt, “Defective Design: Regional Competition in Medicare,” Health Affairs, Web Exclusive, August 23, 2005. See footnote 6.
[7] Medicare Payment Advisory Commission, op cit.
[8] See Pizer, Feldman, and Frakt, op cit. This study raises the concern that regional PPOs will concentrate primarily on enrolling lower cost beneficiaries within the region they serve, even though the overall Medicare population in the region may have higher average costs. Since the benchmarks used in calculating regional PPOs payments are based on average costs across the counties served, weighted by the entire Medicare population, rather than being based on the average cost of the beneficiaries whom the PPOs actually enroll, the study estimates this practice could result in overpayments to regional PPOs of as much as $60 billion over ten years.
[9] See Pizer, Feldman, and Frakt, op cit. This study raises the concern that regional PPOs will concentrate primarily on enrolling lower cost beneficiaries within the region that they serve. Since the benchmarks used in calculating regional PPOs payments will be based on average costs across the counties served, weighted by the entire Medicare population, rather than being based on the average cost of the beneficiaries whom the PPOs actually enroll, the study estimates that 0this practice could result in overpayments to regional PPOs of as much as $60 billion over ten years.
[10] Medicare Payment Advisory Commission, op cit.