by Kim Dixon

Last Updated: 2008-04-11 17:14:46 -0400 (Reuters Health)

WASHINGTON (Reuters) – U.S. lawmakers should rein in government subsidies for a fast-growing and lucrative part of the Medicare health insurance program for the elderly and disabled, an advisory group’s staffers said this week.

The Medicare Payment Advisory Commission advises Congress on how the program for 44 million elderly and disabled should spend its roughly $400 billion annual budget. The government is the biggest buyer of health care goods and services in the United States.

Private companies like Humana Inc and UnitedHealth Group contract with the government to provide services to about 20 percent of these Medicare recipients through a program called Medicare Advantage (MA).

At issue is a slice of that business where insurers sell plans to employers and some unions to manage their retiree health plans. The plans account for about 17 percent of all MA enrollees, according to the commission, often known as MedPac.

Commission staff said Medicare is subsidizing extra benefits for enrollees in these private group plans, and that the bidding process gives the health plans little incentive to be competitive.

"These group plans appear to be less efficient than individual" Medicare Advantage plans, MedPac staffer Scott Harrison told the Commissioners during a two-day policy meeting that wrapped up in Washington on Wednesday.

Driving group plans’ growth are the extra benefits and lower prices paid under the plans, according to Peter Costa, an analyst at FTN Midwest.

"It makes sense for a corporation" to out-source these benefit plans. "In my opinion it’s a growth area," said Costa.

But the government is paying these MA group plans 16 percent more than it would pay under traditional Medicare, Harrison told the commission in a presentation.

Last month MedPac reported that the private plans are on average paid 13 percent more than what the government pays for patients in conventional Medicare.

"I’d like to suggest that we pursue this issue as a matter of public policy," Jack Ebeler, a member of MedPac said.

MedPac can be influential in advising lawmakers on new topics to take up for inquiry. The commission will deliver a report in June to recommend payment changes to Congress.

Democrats and other critics of the private plans are calling for cutbacks to these payments, although President George W. Bush has vowed to veto major payment cuts.

Washington Analysis health care expert Beth Mantz says it may be politically delicate for Democrats to push for cuts in these plans, given how important they are for unions.

Still, "I don’t think it’s enough to kill Congress’ interest in the issue," she said.

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