Federal payments to “Medicare Advantage” insurance plans in Oregon this year will average $1,893 per person more than what it costs to care for patients in the traditional Medicare program.

Payments in Oregon are 30 percent higher than the costs for care in traditional, fee-for-service Medicare. Only two states in the country – New Mexico and Hawaii – have average overpayments to Medicare Advantage plans that are higher than those in Oregon.

Medicare beneficiaries can elect to receive coverage through “Medicare Advantage” health plans offered by private insurance companies rather than traditional Medicare Parts A and B. About 182,000 Oregonians are enrolled in the private health insurance “Medicare Advantage” plans.

The total cost of overpayments to Medicare Advantage private plans in Oregon in 2007 will be $344 million. Nationally, the total cost of the overpayments is $54 billion over five years. The overpayments typically go to administrative and marketing operations, insurance agent commissions, some extra benefits, and company profits.

Since Medicare Advantage is partially funded by the traditional Medicare Part B outpatient program, the overpayments push up Part B premium costs for the 264,000 Oregon seniors who participate in traditional Medicare – the majority of Medicare beneficiaries in Oregon. These seniors pay an extra $48 per couple per year more for their Part B premiums to finance the overpayments to Medicare Advantage private plans.

“It’s been a costly experiment in privatizing Medicare,” noted Janet Bauer, policy analyst with the Oregon Center for Public Policy.

“The rationale for allowing private insurance plans to participate in Medicare was that they could do the job more efficiently,” she said. “These plans, rather than saving money, cost taxpayers significantly more than traditional Medicare and push up premium costs for traditional Medicare beneficiaries,” Bauer added.

The overpayments will also force the State of Oregon and the federal government together to pay an extra $1.8 million this year in Medicare premium costs. The extra payments will be made through Oregon’s Medicaid program, known as the Oregon Health Plan and supported by state and federal tax dollars. The Oregon Health Plan pays Part B premiums for some lowincome Oregonians who are eligible for both Medicaid and Medicare and who would otherwise be unable to afford the Medicare outpatient coverage premiums.

If Congress curbed the overpayments it could use the substantial funds – approximately $54 billion over five years – to bring down Part B premium costs, make other improvements in traditional Medicare, and expand health coverage for children.

Oregonians will soon learn whether Congress will choose to curb the overpayments. The U.S. Senate Finance Committee is expected to vote on Thursday, June 28 on a plan to expand health coverage for uninsured children.

Under Senate budget rules, the Committee must identify revenue increases or program savings such as eliminating Medicare Advantage overpayments, to pay for the expansion.

Oregon’s U.S. Senators Gordon Smith and Ron Wyden sit on the powerful Finance Committee. They have not yet publicly stated how they will vote on proposals to pay Medicare Advantage plans the same as traditional Medicare.

“Oregonians will be looking to Senators Wyden and Smith to level the playing field by ending the wasteful overpayments,” said Bauer. “They should focus on strengthening traditional Medicare and helping kids get coverage, and they should reject the pleas of private insurance companies who want to protect their profits at the public’s expense.”

The Medicare program has four parts. Medicare Part A covers hospitalizations while Medicare Part B covers outpatient services. Medicare Advantage is Part C and an alternative to Parts A and B. Part D is the prescription drug plan.