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Private Health Plans in Medicare

The majority of Medicare beneficiaries, about 76 percent, are enrolled in traditional fee-for-service Medicare, which allows individuals to receive services from any doctor or hospital that participates in the Medicare program. The other 24 percent (11.4 million) voluntarily enrolled in various types of private health plans, primarily health maintenance organizations (HMOs) and preferred provider organizations (PPOs) that participate in the Medicare Advantage (MA) program. MA plans typically require or encourage Medicare enrollees to stay within their network of doctors and hospitals.

MA plans are able to provide enrollees with supplemental benefits to the Medicare-covered benefits if the plan can achieve bids below county benchmarks. In 2010, 54 percent of MA rebates were spent on reducing cost-sharing, 21 percent on added benefits, 13 percent on enhanced Part B benefits, and 12 percent on reduced premiums.

Role of Private Health Plans

The National Academy of Social Insurance's Study Panel on Medicare and Markets found that private plans have made a positive contribution to Medicare, although they have fallen short of meeting all the expectations set for them. It also found that the Congress has established conflicting expectations for private health plans in Medicare that have hampered their performance, produced unexpected consequences, and failed to account for the distinct needs of Medicare beneficiaries. The panel advised Congress to moderate its expectations of savings from private plans, provide targeted incentives to improve quality, and conduct demonstrations setting payments to plans based on competitive bids.

The Medicare Modernization Act of 2003 provides additional federal funding to encourage private plans to participate in Medicare Advantage by increasing payment rates. Historically, participation of plans in Medicare has fluctuated. Proponents of private plans see the funding increase as the needed jumpstart to the program; skeptics claim that payments are excessive. The higher payment rates have encouraged plans to participate in Medicare Advantage, but only time will tell whether Congress will continue supporting higher payment levels to plans, and whether the plans' interest will be sustained.

For more information on Medicare and private health plans, see:

The official Medicare website is