Medicare Advantage Payments

Publication Date: September 2004

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

Medicare has a long-standing history of offering its beneficiaries managed care coverage through private plans as an alternative to the traditional fee-for-service (FFS) program, in which a payment is made for each Medicare-covered service provided to a beneficiary. Beginning in the 1970s, private health plans were allowed to contract with Medicare on a cost-reimbursement basis. In 1982, Medicare's risk contract program was created, allowing private entities, mostly health maintenance organizations (HMOs), to contract with Medicare. Then, in 1997, Congress passed the Balanced Budget Act of 1997 (BBA, P.L. 105-33), replacing the risk contract program with the Medicare+Choice (M+C) program. Most recently, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA, P.L.108-173) which included provisions to create the Medicare Advantage (MA) program offering a variety of managed care options for Medicare beneficiaries. The MA program replaces the M+C program.

The newly created MA program offers a new payment structure and provides more options than its predecessor, the M+C program. In addition to the immediate payment increases to plans, beginning in 2006 the MA program will change the payment structure and introduce regional plans that operate like Preferred Provider Organizations -- a popular option in the private health insurance market. The MA program provides financial incentives for plans to participate in this new regional option. Additionally, in 2006 beneficiaries will have access to a Medicare Part D prescription drug plan whether they are in fee-for-service Medicare or enrolled in Medicare managed care. Finally, beginning in 2010, for a six-year period, a limited number of geographic areas will be selected to examine enhanced competition among local MA plans and competition between private plans and FFS Medicare.

This report focuses on MA payments. For a discussion on the effect of the MMA on Medicare managed care, see CRS Report RS21761: Medicare Advantage: What Does It Mean for Private Plans Currently Serving Medicare Beneficiaries? This report will be updated as necessary to reflect significant changes to the program.