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Medicare Advantage and Cost Savings Posted: November 12th, 2009

By Sanford Ellowitz

Sanford Ellowitz is a New York State licensed insurance agent. He is also a Certified Financial Planner and a Certified Employee Benefit Specialist. He has over 25 years experience in the insurance and financial services industries.

Cuts have been proposed for Medicare Advantage to save money. Enrollees fear a reduction in benefits. Learn more about what these cuts could mean for you.

Medicare Advantage and Cost Savings

Much of the discussion regarding the healthcare overhaul revolves around finding ways to reduce costs. One measure frequently mentioned is cutting the payments to Medicare Advantage plans.

Why Medicare Advantage Plans Were Started

These plans were developed in order to give enrollees more choice and to reduce costs, by having insurance companies manage patient treatment. However, unlike traditional Medicare, these plans are subsidized by the federal government.

They have not produced the cost savings or cheap health insurance anticipated, with the government in fact paying more per beneficiary with these plans than with traditional Medicare.

How Medicare Advantage Works

Medicare Advantage is a part of Medicare. However, unlike traditional, or fee-for-service Medicare, in which your provider bills Medicare directly for services, you are enrolled in a Medicare approved plan, run by a private health insurance company.

These plans can take several forms, including Health Maintenance and Preferred Provider Organizations. To get coverage you may have to use a network doctor or go to a certain hospital, but in return, you get cheaper health insurance, usually paying a lower monthly premium than with traditional Medicare and enjoying extra benefits.

Achieving Cost Savings

The government has already decided to cut Medicare Advantage payments by 4.5 percent. Additional cuts have been proposed by the Obama Administration to save even more money. The goal of these cuts is "to pay the same amount as it would cost to treat the same patients under regular Medicare."

One proposal is to pay the plans no more than 101 percent of what it costs to run traditional Medicare, using a competitive bidding system. The Congressional Budget Office said that this would reduce costs by $150 billion over 10 years.

Opposition to the Cuts

Many Medicare recipients are opposed to cutting payments to these plans as they fear that their extra benefits will be reduced or even eliminated if these plans are curtailed or ended.

Other opponents to the cuts include America's Health Insurance Plans, an industry trade group which released a study that concluded that Medicare Advantage plans do a better job of controlling costs and preventing harm to patients than traditional Medicare.

How this all plays out remains to be seen.

Sanford Ellowitz

Sanford Ellowitz is a New York State licensed insurance agent. He is also a Certified Financial Planner and a Certified Employee Benefit Specialist. He has over 25 years experience in the insurance and financial services industries. His experience includes financial analysis, product development and marketing. He provides insurance planning and product sales.