Payment Reduction and Medicare Private Fee­for­Service Plans

Medicare private fee-for-service (PFFS)plans are paid like other Medicare Advantage(MA) plans but are exempt frommany MA requirements. Recently, Congressset average payments well above the costs oftraditional fee-for-service (FFS) Medicare,inducing dramatic increases in PFFS planenrollment. This has significant implicationsfor Medicare’s budget, provoking callsfor policy change. We predict the effect ofproposals to cut PFFS payments on PFFSplan participation and enrollment. We findthat small reductions in payment rateswould reduce PFFS participation and enrollment;if Congress reduces payments totraditional FFS levels it would cause the vastmajority (85 percent) of PFFS plans to exitthe market.