MedPAC Sees Managed Care Payments Averaging 107 Percent of FFS in 2012

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Medicare payments to managed care plans in 2012 will be an average of 107 percent of Medicare fee-for-service costs, according to a Jan. 12 presentation by staff of the Medicare Payment Advisory Commission.

Staff discussed the impact of the health reform law, which was supposed to bring overall Medicare Advantage payments down, and a quality bonus demonstration project that boosted some plans' reimbursements.

The quality bonus demonstration program, which offers 3 percent to 5 percent more to MA plans that are rated at three to five stars, “offset most of the [Patient Protection and Affordable Care Act] benchmark reductions that were scheduled for 2012,” according to the status report on MA presented by MedPAC staff.

Benchmarks are the maximum monthly amount in each county that Medicare will pay for required benefits in an MA plan's benefit package. PPACA required a change in adjustments to the MA benchmark calculation by county, which was expected to reduce plan payments by about $200 billion over 10 years. The change in the calculation was expected to reduce many benchmarks, with the goal of eventually bringing MA payments in line with fee-for-service costs.

For all MA plans, the benchmarks averaged 112 percent of fee-for-service in 2012.

The benchmarks in 2011, before the bonus program began, averaged 113 percent of fee-for-service, according to MedPAC's presentation a year ago.

However, if these bonus payments were put aside, the county benchmarks in 2012 would have averaged about 3 percentage points less than the benchmarks in 2011, staff said.


The original concept of the bonus program, as included in PPACA, was to give plans with at least a four-star rating (on a scale of up to five stars) an increase in their benchmarks.

However, after passage of PPACA, the Centers for Medicare & Medicaid Services instituted a three-year demonstration project that allows three-star plans to also receive a bonus.

MedPAC has criticized the three-star demonstration for various reasons, including that it was not budget-neutral and would result in “far greater program costs than the reward system enacted in PPACA.”

However, MedPAC found that, despite the level of benchmarks averaging 112 percent of fee-for-service in 2012, payments to plans will be 107 percent of FFS Medicare.

Impact of Bids on Payments

MA payments also are determined by plan bids—the amount a plan projects it will cost to provide required Medicare benefits—which are submitted to CMS each June for the following contract year.

For the first time, staff said, plan bids averaged less than 100 percent of Medicare fee-for-service.

The average bid in 2012 was 98 percent of fee-for-service spending for similar beneficiaries, with health maintenance organizations averaging the lowest bids—95 percent of fee-for-service.

The bids of the other plan types, such as preferred provider organizations, “are generally above fee-for-service but they are closer to fee-for-service than they were last year,” Scott Harrison, a MedPAC principal policy analyst, said.

Commenting on the lower bids, Harrison said the benchmark reductions in PPACA “may have encouraged plans to tighten costs and lower bids for 2012.”

As a result of the lower bids, plan payments in 2012—at 107 percent of fee-for service—are closer to fee-for-service than in 2011, “even after including the quality bonuses,” Harrison said.

In its status report for 2011, MedPAC projected plan payments to be 110 percent of fee-for-service.

The status report on the program, which will be included in the commission's March report to Congress, contained no recommendations.


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