Medicare cost plans face uncertain future

Insurers cite potential difficulty in converting these Medicare HMOs to Medicare Advantage plans as required by law, a GAO report says.

By Chris Silva — Posted Jan. 12, 2010

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Under federal law, the more than 20 Medicare cost plans operating in areas deemed to have sufficient competing Medicare Advantage options for beneficiaries must shut down by 2011 or else convert to Medicare Advantage plans themselves. But a December 2009 report from the Government Accountability Office said some insurers are worried about the effects those conversions would have on the program.

Insurers who manage cost plans cited planned future reductions to Medicare Advantage payments and increased financial risk as their primary concerns about converting the products. Officials from more than half of the organizations offering cost plans also worried about the potential disruption to beneficiaries caused by transferring them from one plan to another, GAO said.

Cost plans are special types of Medicare HMOs that are paid based on the reasonable costs of delivering covered services. They enroll a small number of beneficiaries compared with Medicare Advantage plans, which accept financial risk if their costs exceed fixed payments. Another key difference between cost plans and Medicare Advantage is that cost plans allow beneficiaries to see out-of-network physicians through the fee-for-service portion of the program.

Despite their relatively small enrollment, cost plan sponsors stress the importance of having such options in areas where there are few Medicare Advantage plans, GAO said.

Beneficiaries who were in poor health generally had lower average out-of-pocket expenses in Medicare cost plans compared with fee-for-service and competing Medicare Advantage plans, GAO reported. Conversely, beneficiaries reporting good or excellent health generally had higher expenses in cost plans.

The GAO report is available online (link).

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