The 2010 health reform law reduces payments to Medicare Advantage plans, gradually bringing them closer to the average costs of traditional Medicare. Beginning in 2011, the law freezes the maximum county-level payments to plans (called "benchmarks") and in 2012, begins to reduce payments, based on the Medicare costs in the county relative to other parts of the country. In addition, the law reduces the amount plans are permitted to keep when bids come in below the benchmark (known as "rebates"), which achieves savings for Medicare but also reduces the amount available to plans to provide extra benefits. Some Medicare Advantage plans will begin to receive bonuses in 2012 based on quality ratings.  

The law also includes new consumer protections. Plans will be subject to new rules that limit cost-sharing that can be imposed on enrollees for certain services. Medicare Advantage plans will also be required to maintain a medical loss ratio of at least 85 percent, restricting the share of premiums that Medicare Advantage companies can use for administrative expenses, including profits.  

The effect of these payment reductions is expected to vary across counties and by firm. Companies offering Medicare Advantage plans may respond to these payment changes in several different ways, depending on the circumstances of the company, the location of their plans and their historical commitment to the Medicare market. Plans will continue to be required to provide all benefits that are covered by traditional Medicare, but may charge higher premiums, increase cost-sharing, reduce their network of providers, or reduce "extra benefits" such as dental care or eyeglasses.  

Medicare