Reimbursement rates are set by the federal government on a county-by-county basis using formulas established by the Centers for Medicare & Medicaid Services (CMS). The reimbursement rate is linked to the average cost of caring for Medicare beneficiaries who are enrolled in Original Medicare (Medicare Hospital Insurance (Part A) and Medicare Medical Insurance (Part B) in the county. The government has estimated that the typical Medicare Advantage plan collects 12-14 percent more for each member than the cost of caring for a person enrolled in traditional Medicare. This extra margin will be gradually eliminated under the Affordable Care Act (ACA), and the payment rate will be reduced each year. Plan C now offers extras not covered by original Medicare, such as prescription drugs, eye care and glasses, and hearing aids. As their profit margins are reduced, Part C providers will decide whether to reduce some of those extras or drop out of some markets.
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