Where’s the Advantage to Rural America in Medicare Advantage?

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Senators from Iowa and North Carolina say Medicare Advantage is vital for rural communities. But not many rural residents use these plans — and the plans they get are costly and unproven.


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Nationally, 23.7 percent of Medicare beneficiaries belong to a Medicare Advantage plan.

Some Medicare Advantage plans do provide more benefits, just as Congress hoped. But most Medicare Advantage plans don’t save any money. In fact, they cost much more than traditional Medicare fee-for-service plans. Each dollar’s worth of enhanced benefits in the private plans costs the Medicare program over three dollars.

The Obama Administration wants to end the system of paying private Medicare Advantage plans more to provide the same benefits as the regular Medicare benefits. At a meeting Tuesday with health insurance companies, White House Budget Director Peter Orszag said the administration intended to end the practice of paying more for Medicaid Advantage plans than for regular Medicare. Currently, the government spends about $1.30 on Medicare Advantage for every dollar it spends on traditional Medicare.

“I believe in competition. I don’t believe in paying $1.30 to get a dollar,” Orszag told the companies, including representatives from Aetna Inc., WellPoint Inc. and Cigna Corp. The Obama Administration figures it can save $177 billion over ten years by reducing payments to Medicare Advantage plans.

Republicans have resisted reduction in spending on Medicare Advantage, often arguing that the program provided choice to rural communities. Sen. Richard Burr, R-N.C., has objected to Obama’s plans to reduce payments to private insurers that administer Medicare benefits to the elderly and disabled, MSNBC reported. “Burr said the program, called Medicare Advantage, was crucial to giving rural people a choice in how they get their health benefits.”

Bob Moos, in the Dallas Morning News, reported that the insurance industry argues “those extra payments (made to Medicare Advantage) have helped insurers extend coverage to rural areas, keep premiums low and offer benefits that Medicare typically doesn’t provide, like dental and vision care.”

And Iowa’s Sen. Charles E. Grassley, the ranking Republican on the Senate Finance Committee “said he worries that the administration’s proposed cuts to private Medicare Advantage plans — savings that would be used to pay for health care-related spending boosts elsewhere — would come at the expense of rural states,” according to The Washington Times.

But rural communities aren’t heavily invested in the Medicare Advantage plan — especially rural communities in North Carolina and Iowa. Only 13 percent of Medicare recipients in rural North Carolina belong to a Medicare Advantage plan, slightly less than the national average of 14.1 percent. And in Iowa, only 7.7 percent of rural Medicare recipients have purchased a Medicare Advantage plan.

(See the chart below for the percentage of Medicare recipients who have joined a Medicare Advantage plan, broken down by rural, urban and exurban counties. Click here to see rural, urban and exurban counties in a national map.)

Wall Street Journal reported that an insurance agency spokesman said private fee-for-service plans “have higher costs in rural areas where ‘monopoly’ health-care providers command higher pay.”

The Obama Administration, meanwhile, is not backing off its commitment to end the higher payments to Medicaid Advantage plans.