The Health Care Blog: Health Reform and Medicare: Part I

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By THOMAS L. GREANEY

For today’s reformers, there is both opportunity and risk. Medicare pays far more to private plans than it would pay if they stayed in traditional Medicare. (The Commonwealth fund estimates that these extra payments will amount to $11.9 billion, or $1,100 per enrollee, in 2009). Some private plans do little to contain costs: so-called “private fee for service” plans offer no provider networks and simply funnel higher payments to intermediaries. But other plans, primarily HMOs, do provide care at lower costs than traditional fee for service plans. Such plans introduce market pressures on providers that are sorely lacking under fee for service payment. Importantly, under the MMA one must return a large part of that differential to beneficiaries in the form of additional services (such as vision or hearing) or reduced cost sharing or reduced premiums.

So what is the net of cost control incentives, subsidies to private plans, and enhanced benefits? Economist Austin Frakt’s study of extra payments to Medicare Advantage plans suggests that on balance they have not produced net benefits:

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