Payment and Participation: A Renaissance for Medicare’s Private Health Plans?

Medicare Brief No. 12 ~ May 2005

Introduction:
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA, Public Law 108-173) provides about $14 billion over 10 years in new federal funding to encourage private plans to participate in Medicare Advantage.1 Historically, private plan participation in Medicare has fluctuated. Continuing changes in Medicare’s funding policies and program requirements have hindered private health plans from meeting conflicting expectations. Over time, Congress established multiple goals for private plans: containing costs, improving benefits, and increasing plan participation and beneficiary enrollment in an effort to increase health care choices. Proponents of private plans tout the recent funding increase as the needed jumpstart to the program; skeptics claim that these new payments are excessive. Despite polarizing views about their potential, the history of Medicare’s private health plans indicates that rising health care costs and constraints in Medicare payments result in private health plan withdrawal from Medicare. Early signs indicate that private health plans are interested in participating in Medicare Advantage, but only time will tell whether Congress will continue supporting higher payment levels to plans, and whether the plans’ interest will be sustained. It also remains to be seen if the competitive bidding model adopted by the MMA will provide beneficiaries with more benefits at lower premiums.