NCPA - National Center for Policy Analysis


August 30, 2006

Hundreds of thousands of seniors are signing up for a type of privately run Medicare plan that delivers traditional benefits without the usual restrictions on access to doctors and hospitals.  In turn, some of the nation's biggest health insurers are launching more such plans and marketing them in more areas, says the Wall Street Journal.

  • The plans, called private fee-for-service, are a type of privately run Medicare alternative known as Medicare Advantage.
  • Advantage plans wrap physician and hospital services in one; instead of paying beneficiaries' claims directly, the federal government pays insurance companies to manage the care, with the hope of reducing Medicare spending.
  • To entice seniors to sign up, costs for private plans are cheaper on average than those for traditional government-run Medicare.

But recently such plans have become an even better deal, says the Journal: 

  • As part the sweeping law that created the new Medicare prescription-drug benefit, Congress raised the government's reimbursement rates to companies offering Medicare Advantage plans to about $10,000 per enrollee per year.
  • That has led insurers, eager to bring in the new business, to offer Advantage plans with lower premiums but often more benefits, such as vision or prescription drugs.

Of all the private Medicare options, it is private fee for service that is seeing the most explosive growth.  These plans accounted for about half of the recent growth in Advantage-plan enrollment, according to Avalere Health LLC, a health-care advisory firm that analyzes Medicare data. 

As of July, more than seven million people were in some form of Advantage plan, or about 17 percent of all Medicare beneficiaries, says Avalere, up from 14.3 percent in December.  Enrollment in private fee-for-service plans alone jumped to 802,068 as of August 1, from just 20,000 three years ago.

Source: Jane Zhang and Vanessa Fuhrmans, "Seniors Flock to Private Medicare Plans;

Flexible Fee-for-Service Policies Spur Growth in Alternatives To Government-Run Coverage," Wall Street Journal, August 29, 2006.

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