A premium support system could benefit providers, who could see their reimbursement rates increase as more beneficiaries leave traditional Medicare and enroll in private plans.
Health providers, mainly doctors and hospitals, might benefit from more private insurance participation in the Medicare program. Private plans have higher payment rates than Medicare, because Medicare has strong bargaining power versus doctors and hospitals and is therefore able to determine its own payment and reimbursement rates. Private insurers, on the other hand, have less bargaining power, because they are smaller, more fragmented and have fewer economies of scale. As a result, private insurer payments tend to vary more geographically and are usually higher.
In 2006, the Congressional Budget Office (CBO) reported that, “the Medicare Payment Advisory Commission’s analysis of claims data found that, on average, private plans paid physicians about 20 percent higher rates than FFS Medicare paid in 2001. In general, the fees that private plans pay physicians are slightly higher than Medicare’s fees for office visits and other medical services but are substantially higher for major procedures, tests, and diagnostic imaging.”
Private plans’ payments to hospitals have also grown substantially in recent years, as a result of hospital consolidations and high demand for hospital services relative to supply, which has led to an increase in hospitals’ bargaining power.
Furthermore, because Medicare’s reimbursement rates are lower than those from the private sector, some doctors have begun to refuse to accept new Medicare patients. Premium support’s process for moving beneficiaries into private plans could help stop this trend, as private payers are less likely to lower reimbursement rates to providers, recognizing that it is not a sustainable solution for the long run.
What Is the Premium Support Option, and How Is it Different From Current Medicare?
How Would a Premium Support Payment System be Designed?
How Would Premium Support Contain Rising Health Care Costs?
How Would Premium Support Impact Insurance Companies?
How Would Premium Support Impact Medicare Beneficiaries?