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How will reducing subsidies to Medicare Advantage plans affect me? - page 1 / 7

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Healthreform.GOV

| Health Insurance Reform and Medicare: Making Medicare Stronger for America’s Seniors

|1

President Obama is committed to protecting and strengthening Medicare for America’s seniors. Medicare is a sacred trust with America’s seniors and the President’s health insurance reform plan will ensure that trust is never broken.

Health insurance reform will improve the quality of care in Medicare, reduce costs for seniors, and make sure Medicare is there for them in the future. Unfortunately, many seniors have heard misinformation regarding health insurance reform. This report sets the record straight.

How will reducing subsidies to Medicare Advantage plans affect me?

Problem with the Status Quo:

The government is overpaying private insurance companies. Part of the recent rise in Medicare costs – and in premiums for seniors – stems from extra subsidies to private insurance companies. Medicare Advantage is part of the Medicare program that allows beneficiaries to receive services via private plans. Policy changes, particularly in 2003, ratcheted up payment levels to private plans. The federal government pays private insurance companies on average 14 percent more for providing coverage to Medicare Advantage beneficiaries than it would pay for the same beneficiary in the traditional Medicare program. This overpayment is as high as 20 percent in certain parts of the country.1

The overpayments do not improve quality.

There is no evidence that this extra

payment leads to better quality for Medicare beneficiaries.2 Insurers, not seniors or the Medicare program, determine how these overpayments are used – and this includes marketing, profits, and other administraive costs.3 This means that seniors do not always get the full overpayments back in the form of extra benefits or improved quality care. In fact, because Medicare Advantage plans have flexibility to determine their own cost-sharing arrangements, seniors can end up spending more out-of-pocket under a Medicare Advantage plan, not less.4,5

Private plans contend that low-income and minority Medicare beneficiaries disproportionately rely on Medicare Advantage for benefits and that eliminating the overpayments would hurt them. In fact, most low-income, minority seniors obtain additional coverage through Medicaid, not Medicare Advantage. These “dual eligible” beneficiaries receive cost-sharing protection and extra benefits through the Medicaid program.6

All seniors in Medicare subsidize private insurance companies. Overpayments to Medicare Advantage plans are a burden for all of America’s seniors. All Medicare beneficiaries pay the price of these excessive overpayments through higher premiums – even the 78 percent of seniors who are not enrolled in a Medicare Advantage plan.7 In fact, these subsidies will add $3.60 per month to premiums for all Medicare beneficiaries in 2010.8 This means that a typical couple in traditional Medicare will pay on average nearly $90 more next year to subsidize private insurance companies that do not provide their Medicare benefits.

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