Medicare Private Health Plans versus Medicare Savings Programs: Which Is the Better Way to Help People with Low Incomes Afford Health Care?
Editor's Note. The following article is reprinted and adapted for the Care Management Journals with permission from the Medicare Rights Center.
Medicare Rights Center
As Congress debates whether to cut the extra payments Medicare makes to private health plans, the insurance companies offering these plans have argued that the overpayments they receive help lower the out-of-pocket costs (premiums, copayments, and deductibles) for low-income people with Medicare, especially Blacks and Latinos.
But an analysis by the Medicare Rights Center of Medicare private fee-for-service plans reveals that people with low incomes and minority communities often pay more compared to their wealthier neighbors and receive fewer benefi ts when they join these private plans. The payment rates for Medicare private health plans (known as Medicare Advantage plans) are set county by county using a complex set of formulas that do not take into account whether the county has a high proportion of people with low incomes who need assistance. That has led to plans with higher per-member reimbursement in some of the nation's most affl uent counties.
In Ohio, for example, one plan is free in one wealthy county and costs $69 per month in a county with almost double the proportion of families living in poverty and median household income that is 24% lower. In Colorado, a leading plan costs $35 per month in one county but twice as much in a county with three times the proportion of families living in poverty and where the median household is 61% lower.
As our review of county private plan payment rates and private fee-for-service plan benefi ts shows, a far better health care deal for low-income people with Medicare is the Medicare savings programs, which subsidize premiums, copayments, and other out-of-pocket expenses. In addition, no private health plan alone matches what the federal low-income assistance program Extra Help offers: copayments of $5.35 or less for each prescription, no monthly premiums, no deductible, and no gap in coverage. People enrolled in a Medicare Savings Program automatically get Extra Help.
A better way to spend the $65 billion in overpayments the insurance companies will be getting over the next fi ve years would be to expand enrollment in the Medicare savings programs (MSPs). Income and asset eligibility criteria for MSPs should be raised to match those of the Extra Help program. In this way lawmakers can target fi nancial assistance to those who need it most.
The Medicare Payment Advisory Commission (MedPAC) reports that, in 2006, Medicare Advantage plans were paid an average of 12% more than the average cost of caring for an individual in the same locality under original Medicare. 1 Private fee-for-service (PFFS) plans, which have experienced a surge in enrollment far above growth in traditional health maintenance organizations (HMOs) and preferred provider organizations (PPOs), receive payments that average 19% above original Medicare costs. 2 New research shows Medicare Advantage overpayments have grown and now average around $1,000 extra per enrollee per year. 3 The Congressional Budget Offi ce estimates that setting Medicare Advantage payment benchmarks to costs under original Medicare would save $54 billion over four years, starting in 2009.
In trying to protect their overpayments, plans have exaggerated the proportion of low-income and minority people with Medicare that they cover. Private plans argue that curbing the overpayments would harm low-income and minority people with Medicare, whom they claim rely disproportionately on Medicare Advantage for supplemental coverage. Analysis by the Center on Budget and Policy Priorities, however, found those claims to be based on misleading use of data. 4
This report analyzes whether the current payment structure for Medicare Advantage plans is an effective way to provide fi nancial assistance to low-income people with Medicare, and Blacks and Latinos in particular. …