Medicare Advantage plans can rebate premiums

I want to clear up some confusion about what a Medicare Advantage (MA) plan can do with its government payment if it is above its bid cost (that for providing the standard Medicare benefit). For a brief period yesterday, colleagues and I were confused about this. So are Senator Wyden and Representative Ryan. They wrote in their white paper (pdf), “Namely, if a private Medicare Advantage plan has lower costs than traditional Medicare, then by law, the plan may not offer a rebate to the senior.”

About that I wrote, “Medicare Advantage plans can already rebate the Part B premium, something [their] white paper fails to recognize.” This is something I’ve written before, so I was surprised to see it contradicted by Sen. Wyden and Rep. Ryan. Somebody is wrong! It could be me. But it isn’t.

Here’s the deal: With the exception of certain low-income beneficiaries, all Part B-enrolled Medicare beneficiaries, including those enrolled in an MA plan, pay a Part B premium. It’s something like $100 per month nowadays, though higher for higher income folks (details here). Since 2003 MA plans have been able to use any additional payment they received from the government, beyond that necessary to cover the standard Medicare benefit, to rebate some or all of the Part B premium. I believe that since 2006 they could rebate Part D premiums too, if they bundled a drug benefit in the plan. That is, beneficiaries who enrolled in such plans could pay zero additional premium plus get a refund on their Part B (and, possibly, Part D) premium.

Then the PPACA passed the Senate in December of 2009 and the House in March of 2010 and was signed into law that month. That law repealed the ability for MA plans to rebate the premiums (Section 3202). Thus, under that law, Part B (and D) premium rebates would be a thing of the past.

However, that’s not the end of the story. The PPACA was amended by the HCERA (Reconciliation Act) in March of 2010. Section 1102 of the HCERA undoes some of the MA rules in the PPACA including the change to when and how plans could rebate premiums. Plans are now supposed to first use additional government payments to fund some additional benefits and then may rebate premiums. It is unclear to me exactly how this priority ordering is operationalized or policed by CMS. I’ll leave that problem the future. For now, it suffices that I’ve established that MA plans may, in fact, rebate premiums.

The best part about all this is not that I was right but that I don’t have to amend my prior posts. Would someone please get the message to Sen. Wyden and Rep. Ryan?

Acknowledgements: Roger Feldman and readers who wish to remain unnamed motivated me to chase down the details in this post. Major thanks to Shawn Bishop, former Senate staff member, who confirmed the details. Thanks also to John McDonough who put me in touch with Shawn. (McDonough’s blog, Health Stew, should be on your reading list.)


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