WASHINGTON – According to a new report, Medicare Advantage plans – private health insurance plans that enroll Medicare beneficiaries – will be paid $11 billion in 2009, or $1,140 more per enrollee than it would cost to care for the same number of beneficiaries under traditional fee-for-service (FFS) Medicare.

As a presidential candidate, Barack Obama supported paying Medicare private plans the same amount per enrollee as is paid for fee-for-service Medicare. In early 2009, the Office of Management and Budget (OMB) proposed a competitive bidding system in which payments to MA plans would be based on the average of all MA plan bids submitted to Medicare in an area, as a way to reduce overpayments to MA plans.

The Congressional Budget Office projects that the proposed bid-based payment system would pay MA plans an average of 101 percent of FFS costs nationally, which would result in federal savings of more than $150 billion over the next 10 years.

However, a new study by The George Washington School of Public Health and Health Services' Department of Health Policy, titled "Paying Medicare Private Plans By Competitive Bidding: Not the Same as Costs in Regular Medicare," found that the new system proposed by the OMB would not achieve President Obama's goal of paying MA plans "the same amount as it would cost to treat the same patients under regular Medicare."

Brian Biles, MD, lead author of the study, funded by The Commonwealth Fund, found that while the average of MA payments would be 101 percent of FFS costs nationally, the level of payments relative to local FFS costs would vary greatly in local areas across the nation.

In 11 states – such as Oregon, Rhode Island, Washington, and Wisconsin – Medicare payments to MA plans would average more than 10 percent and $1,000 more per enrollee per year than average costs in FFS Medicare.

In Florida, payments to MA plans would be 20 percent, or $2,100, less than average FFS costs in the state. Overall, payments to Florida MA plans would be nearly $2 billion a year less that local FFS costs.

"MA Plans in over 2,000 counties would continue to be paid more than regular FFS Medicare, in many cases as much as the $1,140 national average of annual extra payments," said Biles. "These counties are mostly in rural and smaller urban areas. On the other hand, plans in many large urban areas such as Los Angeles, New York City, Miami and Houston would be paid significantly less than local FFS costs."

"The irony of this approach is that it continues overpayments only where private plans are less efficient than FFS Medicare and institutes a new policy of underpayments for precisely those plans that are the most efficient relative to FFS Medicare," he said.