Medicare+Choice

The net effect of payment revisions under the Balanced Budget Act of 1997 has been to reduce, but not fully eliminate, excess payments to health plans. Some provisions, such as the reduced annual updates, have been implemented while others, such as the health-based risk adjustment system, are still to be phased in. Sweeping amendments to the act are not yet warranted for three reasons. First, the net effect of reforms on plans has been modest. Cuts in rate increases, for example, have held down per capita payment growth by only a little more than one percent. Second, at least some plans can provide the traditional Medicare package of benefits, offer some additional benefits, and make a profit even if they are paid less than they are today. For example, plans serving the Los Angeles area can provide the traditional Medicare package of benefits for about 79 percent of what they are currently paid. Third, the withdrawals GAO observed this year were not a reaction to the act's rate reductions alone. Market forces appear to have played a larger role. The acts health plan payment reforms will reduce aggregate excess payments and, as a result, some Medicare+Choice plans may reduce their supplemental benefits and rethink their participation in Medicare. The continuing challenge for Congress is to strike the appropriate balance between containing Medicare spending and fostering growth in Medicare+Choice.

GAO noted that: (1) the net effect of BBA payment revisions has been to reduce but not fully eliminate excess payments to health plans; (2) some of the provisions, such as the reduced annual updates, have already been implemented, while others, such as the health-based risk adjustment system, will be phased in over time; (3) despite industry alarm over the increase in plan withdrawals in 1999, GAO's work suggests that sweeping amendments to the BBA are not yet warranted for several reasons; (4) the net effect of BBA reforms on plans has been modest to date; (5) cuts in rate increases have held down per capita payment growth by only a little more than 1 percent; (6) data submitted by plans themselves indicate that at least some plans can provide the traditional Medicare package of benefits, offer some additional benefits, and make a profit even if they are paid less than they are today; (7) according to their own data, plans serving the Los Angeles area can provide the traditional Medicare package of benefits for about 79 percent of what they are currently paid; (8) the withdrawals GAO observed this year were not a reaction to BBA rate reductions alone; (9) market forces appear to have played a larger role; (10) because of cuts in rate increases and expected improvements in risk adjustment, the BBA's health plan payment reforms will reduce aggregate excess payments; (11) as a consequence, some Medicare Choice plans may reduce supplemental benefits and rethink their participation in the Medicare program; and (12) the continuing challenge for Congress is to strike the appropriate balance between containing Medicare spending and fostering growth in Medicare Choice.