Medicare Advantage's Private Fee-for-Service Plans: Paying for Coordinated Care Without the Coordination

Like the private managed care plans offered under Medicare Advantage, private fee-for-service (PFFS) plans are paid more per beneficiary than those individuals would be expected to cost if they were enrolled in traditional fee-for-service Medicare. However, PFFS plans are not required to provide the same type of coordinated care required of Medicare Advantage plans. Payments to PFFS plans in 2008 average 16.6 percent more than costs in traditional Medicare, or $1,248 for each of the 2 million enrollees in PFFS plans—a total of nearly $2.5 billion in extra payments. Recently, Congress has made significant revisions to policies that will affect how PFFS plans will operate in 2011 and thereafter, as well as their prospects for continued growth. This issue brief examines the development of PFFS plans, the policies underlying the rapid increase in the plans and their enrollment, the payments they receive, and the potential impact of the new legislation.