The Cost of Privatization: Extra Payments to Medicare Advantage Plans

This issue brief updates an earlier analysis published by The Commonwealth Fund that examined Medicare payments in 2004 to Medicare Advantage private plans relative to the costs of traditional fee-for-service Medicare. Using data from the 2005 Medicare Advantage Rate Calculation Data spreadsheet, the authors calculate that payments to Medicare Advantage plans in 2005 will average 7.8 percent more than costs in traditional Medicare—or $546 for each of the 5 million Medicare enrollees in managed care—for a total of more than $2.72 billion. These figures are similar to the findings reported for 2004. Although the stated objective of policies to increase the enrollment of beneficiaries in private plans is to lower total Medicare costs, provisions in the 2003 Medicare law explicitly increase Medicare costs in 2005 and for future years through at least 2013.