WASHINGTON - When Doug Morris joined Medicare last spring, the retired college professor went right to work reading the handbook that explained his benefits, expenses and rights. All 107 excruciating pages.
Using the analytical approach from his academic career, he chose a private insurance plan over traditional Medicare. He liked the extra benefits in the private plan, including a free annual physical and eye exam.
Increasingly, older and disabled people are making the same decision. Yet in the months ahead, these Medicare Advantage programs could become less attractive. Congress will consider lowering payments to the insurers. If that happens, insurers could respond by cutting benefits.
Members of Congress seem particularly focused on a program under Medicare called private-fee-for-service. The government spends substantially more for the people in these plans than it does for patients in traditional Medicare.
"All provider payments must be reviewed and are subject to change," Democratic Rep. Pete Stark of California, head of the House Ways and Means subcommittee on health, said last week. "They're at the top of my list."
That is the kind of plan that Morris joined. These plans allow members to go to any doctor, hospital or other provider that has accepted the plan's terms. In other types of managed care, patients can see only doctors in their plan's network, and they pay more if they go outside.
Morris, who lives in Middleton, Wis., says the plan gives him peace of mind. If he has a heart attack or other major illness, Morris has a $3,950 cap for his out-of-pocket expenses for the year. By comparison, the traditional program doesn't have a limit on out-of-pocket costs, unless the beneficiary also bought a supplemental insurance policy.
"These Medicare Advantage plans are exploding in popularity because they're good," said Morris, who taught music theory and music history at Ripon College.
In Medicare Advantage, the government pays insurers a set amount per beneficiary. The insurer then reimburses doctors and other providers for treating plan members. Overall, Medicare covers about 43 million people; about 18 percent are in managed care plans.
The plans are heavily subsidized by the government; last year, they received $56 billion. In exchange, they assume the risks and costs of covering people's health needs.
The fee-for-service plans are, by far, the fastest growing of the four types of managed care offerings under Medicare. Enrollment in such plans surged from 210,000 in December 2005 to 1.35 million in January.
There is a reason the plans are popular.
Payments to the plans are 19 percent greater on average than what the government spends on behalf of comparable patients in traditional Medicare.
Insurers use that money to offer extra benefits not normally available through the traditional program; dental coverage is one example. Or they lower their customers' monthly premiums. Federal officials place the value of those extra benefits at about $63 a month.
The Medicare Payment Advisory Commission, which advises Congress, recommends against subsidizing managed care at a higher rate than the original program.
The commission says all taxpayers and people in Medicare are paying for the extra benefits enjoyed by the 18 percent in private plans. The AARP, the advocacy group for older people, says it's unfair to subsidize one program over another.
"The reason we were moving to managed care was that it could supposedly deliver health care more cheaply than Medicare," said David Certner, AARP's legislative policy director. "If the plans can't, the question is why should we give them excess payments."
Leslie Norwalk, who oversees the Medicare program, said managed care improves the quality of life for older people.
It does a better job than the traditional program of providing preventive care, such as mammograms, she said. It also does a better job of making sure health care providers work together to avoid duplicate tests and appointments for their patients, Norwalk added.
"It's clearly better health policy to prevent something and to help someone lead a better quality of life, without regard to what it cost the Medicare program," Norwalk said.
The Congressional Budget Office estimates that paying insurers rates equal to the rate paid directly to health care providers in traditional Medicare would save $54 billion over five years and $149 billion over 10 years. Also, Medicare's chief actuary said that equalizing the payments would extend the solvency of the program's Part A trust fund by two years.
The large pot of money identified by the CBO has become a particularly enticing target for lawmakers looking for $50 billion to pay for expanded health coverage for poor children.
But supporters of the private plans say payment cuts will not necessarily hurt the insurance companies. Rather, they will hurt older people, who will lose benefits or pay higher monthly premiums, they say. Some insurers may even decide to pull out of certain counties.
"The plans are getting paid more theoretically, but they're giving it all back to the beneficiaries," said Tom Scully, a lobbyist who used to oversee the Medicare program. "You could argue that's bad policy and you're spending too much, which might be the case, but it's not going to the health plans. It's going back to the beneficiaries."
"And the reason the program is going to be so hard to roll back is all these beneficiaries have very plush, wonderful private-fee-for-service plans with zero premiums. They're not going to be very happy when their congressman tells them it's going away."
The advisory commission to Congress reported that when the government pays insurers more than it pays for traditional Medicare, only about half of that extra amount goes to benefits. The other half goes to the insurer.
The trade group representing insurers, America's Health Insurance Plans, has lobbied aggressively against cuts to its members.
"I have read that millions of Medicare beneficiaries lost their Medicare options in the '90s because of inadequate funding," according to one constituent's letter to a lawmaker in a campaign the trade group has organized. "I am concerned that future funding cuts will mean fewer benefits and higher premiums for people like me who rely on Medicare Advantage."
The first test of whether the plans survive payment cuts is expected within the next month when the Senate Finance Committee determines how to pay to insure more children.
Sen. Max Baucus, the committee chairman, has yet to lay out his proposal, but has cited Medicare Advantage as a potential source of savings.
"That's where the experts say the fat is," Baucus, D-Mont., said in a press release this year.
Baucus criticized Medicare officials on Friday for promoting the private plans. He said he did not understand how the Centers for Medicare and Medicaid Services could champion the plans in light of recent concerns about unscrupulous behavior on the part of some insurance agents.
"The Finance Committee has yet to consider legislation to reduce (Medicare Advantage) funding, making the pre-emptive nature of CMS action that much more unseemly," Baucus said.
