Here is a link to the full article from Bloomberg BNA. MedPAC is an independent government entity which reports to Congress on the Medicare program and makes recommendations for reimbursement rates and improvements. The group is non-partisan.
Looking at the report, Medicare’s payments to Medicare Advantage plans in 2012 are estimated to be 107% of fee for service Medicare (Original Medicare). A lot of politicians will take this number to mean that “it costs private companies more than the government to provide Medicare benefits”. While that’s a great sound bite, it’s not actually true. If you read the article a little deeper, you will find two other number. First, the “bid” for Medicare Advantage plans was 98% of FFS Medicare and the benchmark was 112%. Let me explain what these numbers mean.
The 98% bid is what private companies propose it will cost to provide the core Medicare Part A and Part B services. Therefore, the private companies are actually providing A and B services for 2% less than the government does (in 2012). The government allows the companies to provide additional benefits above and beyond what Medicare FFS does. The value of these benefits is calculated by multiplying the difference between the benchmark (112%) and the bid (98%) by 75%. So, for 2012, we take the difference (14%) and multiply by 0.75 to get 10.5%. The 10.5% is designated for ADDITIONAL BENEFITS and gets added back to the bid which would yield a total payment of 108.5% of Medicare (98% to cover A and B and 10.5% to provide Medicare beneficiaries with “extra” benefits). I’m not sure why the numbers are off slightly (107% versus 108.5%), but it may have something to do with the way these numbers are averaged out by plan type (HMO versus PPO versus PFFS).
