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AARP Statement for Record on the Medicare Advantage Program Submitted to the Senate Finance Committee

On behalf of AARP's 38 million members we thank you for holding this hearing on the Medicare Advantage program. AARP supports a genuine choice of health plan options for Medicare beneficiaries. The traditional Medicare plan should remain a viable and affordable option, while a range of private plan options, such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), provider-sponsored organizations, and point-of-service plans should be available.

Medicare Payments Should Not Favor MA Over Traditional Medicare

Private plans have been available in Medicare almost since its inception. Among its original objectives in authorizing private health plans in Medicare, Congress sought to limit growth in Medicare spending, improve the payment method for certain providers, and provide beneficiaries (including those residing in rural areas) with more choices and enhanced benefits.

Today, more than 80 percent of Medicare beneficiaries still receive services through the traditional Medicare program, however, nearly all beneficiaries (99 percent) have access to Medicare Advantage (MA) plan options. MA options include HMOs, local and regional PPOs, special needs plans, and private fee-for-service plans.

But the availability of multiple coverage options has not come without a cost. In its March 2007 Report to Congress, the Medicare Payment Advisory Commission (MedPAC) noted that current Medicare program payments for MA plan enrollees are 12 percent higher, on average, than payments for fee-for-service enrollees. MedPAC has recommended that Medicare should pay the same amount, regardless of which Medicare option a beneficiary chooses. AARP agrees.

AARP believes Medicare payments should be neutral with respect to coverage options. Therefore, AARP urges Congress to set the benchmarks upon which MA plan payments are based so that MA payments do not exceed fee-for-service costs.

Right now Medicare payments clearly favor the MA program over traditional Medicare, which is unfair to the majority of beneficiaries who participate in the traditional program. All taxpayers and all Medicare beneficiaries - not just the 18 percent of Medicare beneficiaries enrolled in private MA plans - are funding these excess payments. It is important to note that while MA is often referred to as Part C, there is no separate Trust Fund to pay for Medicare's private plan options. Thus, spending for MA comes from both the Part A and Part B trust funds. Ultimately, the solvency of the Medicare Trust Fund is negatively affected by current payment policies to MA plans.

When private plans were introduced to Medicare, they were expected to provide extra benefits to beneficiaries by achieving greater efficiencies at a lower cost to the program than traditional Medicare through the use of care coordination, negotiated prices, provider networks and other strategies. Given the fact that MA plans have control over hospital and physician services as well as the opportunity to manage and coordinate care, it is reasonable for Congress to hold MA plans to payment levels that are no more than those for the fee-for-service program.

Savings Should Be Reinvested in the Medicare Program

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