Medicare managed care payments targeted to fund other health goals

Washington -- Competition is fierce for federal health care funding this year. Some Capitol Hill lawmakers are looking to squeeze Medicare's managed care plans to find more dollars for physicians, children's health care and the uninsured.

In the eyes of many Democratic legislators, Medicare Advantage plans get extra federal funds that should be used to pay for other health care priorities. But insurers are making it clear that they won't allow the government to cut those funds without a fight.

Since control of Congress shifted to Democrats in January, leaders have seized on statistics showing that Medicare's private plans received payments in recent years that were more generous than rates paid under fee for service for comparable beneficiaries. In 2006, pay to Medicare Advantage plans averaged 112% of what the traditional program paid, said the Medicare Payment Advisory Commission.

This occurred because Medicare in each county established a maximum payment, called a benchmark, for insurers that was significantly higher on average than the fee-for-service amount. Even if plans submitted bids to provide basic benefits at lower rates than the maximum, they received part of the difference in the form of rebates designed to pay for additional benefits. In past years, lawmakers have legislated higher benchmarks in their districts as a way to retain local Medicare plans and provide more generous coverage options for their constituents.

But this has strained the federal pocketbook, said Mark E. Miller, PhD, MedPAC executive director. "Setting benchmarks well above the cost of traditional Medicare signals that the program welcomes plans that are more costly than traditional Medicare."

Because of this phenomenon, congressional leaders are pushing for legislation ensuring that Medicare pays the same amount for a beneficiary's care regardless of what coverage option he or she chooses.

The American Medical Association supports this policy change. "The commission that advises Congress on Medicare ... has called for financial neutrality between Medicare fee for service and Medicare Advantage plans, and the AMA agrees," said AMA Board of Trustees Chair Cecil B. Wilson, MD.

Insurers questioned MedPAC's methodology. The average payment figure does not take into account certain graduate medical education expenses or geographic adjustments designed to boost benefits and access in underserved areas, they said.

If Congress were to limit Medicare Advantage payments to fee-for-service levels, the federal government would save roughly $65 billion over five years, according to the Congressional Budget Office. Some lawmakers already have big plans for how to use this money.

For example, physicians face a nearly 10% across-the-board cut in Medicare payments starting in January 2008 if Congress does not find the money to prevent it. Also, the State Children's Health Insurance Program is up for renewal this year, and many lawmakers want to use the opportunity to boost its federal funding.

"Between the physician payment issue, the need to reauthorize and improve SCHIP, and the need to manage and oversee Medicare, everything must be on the table -- doctors' payments, hospital payments, post-acute payments, drug plan payments and, yes, Medicare Advantage payments, too," said House Ways and Means health subcommittee Chair Pete Stark (D, Calif.).

He and a number of other key Democratic players, including House Ways and Means Committee Chair Charles Rangel (D, N.Y.) and Senate Finance Committee Chair Max Baucus (D, Mont.), have indicated that expanding SCHIP to cover all uninsured kids would be the most appropriate use for the money saved by trimming Medicare Advantage rates.

The AMA and other physician organizations support expanding SCHIP. But Medicare managed care savings also could benefit another physician priority -- preventing next year's 10% cut to doctor pay.

The new congressional leadership has pledged to follow "pay as you go" rules that avoid increasing deficits by requiring reductions elsewhere in the federal budget any time spending is boosted in a particular area. By freeing up tens of billions of dollars from Medicare Advantage, lawmakers might be in a better position to spend the tens of billions it could cost to boost physician reimbursements, congressional aides said.

Insurers ready for battle

Proponents of the managed care reductions still face a tough road. Medicare Advantage insurers, represented in Washington by America's Health Insurance Plans, are readying a lobbying and advertising campaign against proposals to slash funding.

The group has strong allies in the Bush administration and the Republican party in Congress. Administration officials, including Health and Human Services Secretary Michael Leavitt, already have come out against cutting Medicare Advantage this year.

Many lawmakers will come to realize that beneficiaries will suffer if Congress cuts the program, said AHIP President and CEO Karen Ignagni. The association supports SCHIP reauthorization, but not if lawmakers pay for it on the backs of insurers and the patients they cover, she said.

Many Medicare Advantage plans use rebates to offer needed benefits, such as vision and hearing care, that beneficiaries would not be able to receive from traditional Medicare. The association argued that some of these benefits would disappear if their funding stream dried up.

"The discussion in Washington will not be about mathematics, it will be about people," Ignagni said.

Most physicians don't want to see Medicare Advantage cut because they fear what will happen to beneficiaries, she said. More than 80% of the 400 doctors responding to a survey by AHIP last fall preferred Congress to pay for physician reimbursement boosts either by cutting non-Medicare programs or by raising taxes. Only 7% said Medicare Advantage should receive reductions that would offset higher physician pay.