Alternatively, beneficiaries eligible for Medicare part A and enrolled in part B may choose to enroll in a Medicare private plan, under part C of Medicare (the Medicare Advantage program), and receive all required parts A and B benefits (except hospice services) through a private plan. In 1997, Congress passed the Balanced Budget Act of 1997 (BBA, P.L. There are a number of reasons for this attention. Second, payments to PFFS plans are typically higher than payments to other MA plans and higher than expenditures in FFS Medicare. Finally, PFFS plans are subject to different statutory and administrative requirements than other Medicare private plans, specifically those related to access, quality, review of plan premiums, Medicare prescription drug benefits, and balance billing. Background information related to enrollment and the characteristics of these plans is presented, as well as a discussion surrounding current issues. Interestingly, PFFS enrollment was only 22,344 in April, 2003, and 31,550 as of April 2004. By April 2007, enrollment jumped to 1.5 million, an increase of over 4,000% in three years. PFFS plan —In addition to the solvency and other standard requirements for local plans, a PFFS plan (1) must reimburse hospitals, doctors, and other providers at a rate determined by the plan on a fee-for-service basis without placing the providers at financial risk; (2) can not vary rates based on utilization relating to the provider; and (3) can not restrict the selection of providers among those who are lawfully authorized to provide the covered services and agree to accept the terms and conditions of payment established by the plan. Differences Between PFFS and Other Plans

In some aspects, PFFS plans are more closely related to traditional fee-for-service Medicare, than to other MA private plans. One of the reasons for this differential is that PFFS plans have chosen to operate in areas with historically higher Medicare payments. As of July 2006, approximately 87% of PFFS plan enrollees resided in floor counties. Network Exceptions

Unlike local HMOs and regional PPOs, PFFS plans are not required to establish networks of providers to serve beneficiaries. Marketing

The rapid increase in the number of PFFS plans available to beneficiaries, particularly in rural areas, may have contributed to a surge in marketing and sales of these plans across the country, thereby contributing to rising enrollment in these plans. Current Issues

		Increasing Costs

Enrollment in Medicare Advantage PFFS plans is still relatively low—approximately 18% of all MA beneficiaries and only 3% of the total Medicare population. Access to Providers

One of the reasons Congress established PFFS plans in the BBA was to provide Medicare beneficiaries with the option to enroll in a health insurance plan that would not restrict or limit choice of providers. Conclusion

Significant growth in enrollment in PFFS plans raises concerns among policy makers because payments to PFFS plans are higher than payments to other MA plans and costs in the traditional Medicare program.
The Balanced Budget Act of 1997 (BBA, P.L. 105-33) established the Medicare+Choice program (now called Medicare Advantage), creating new options for the delivery of required benefits under Medicare. One of these options is a Private Fee-For-Service plan (PFFS), statutorily defined as a plan that (1) reimburses hospitals, physicians, and other providers on a fee-for-service basis without placing the provider at financial risk; (2) does not vary rates for a provider based on utilization relating to that provider; and (3) does not restrict the selection of providers from among those who are lawfully authorized to provide services and agree to accept the terms and conditions of payment established by the plan.
Recently enrollment in PFFS plans has increased dramatically. In April 2003, there were 22,344 Medicare beneficiaries enrolled in one of the three available PFFS plans and one PFFS demonstration program. In April 2004, CMS had contracts with six PFFS organizations, with total enrollment of 31,550. By April 2007, CMS had 47 PFFS contracts and enrollment had jumped to 1.5 million, an increase of over 4,000% in three years. Approximately 18% of all Medicare Advantage beneficiaries are enrolled in a PFFS plan, and CBO projects this number to grow to approximately one-third of all MA enrollment by 2017. Plans operate in nearly all United States counties, giving every Medicare beneficiary access to at least one PFFS plan.
The majority of PFFS enrollees reside in urban areas. However, close to half of all rural beneficiaries participating in Medicare Advantage plans are enrolled in a PFFS plan. Unlike coordinated care plans, which tend to serve more densely populated areas, PFFS plans also choose to serve rural areas. PFFS plans may choose their service areas because (1) Medicare private plan payments are higher than the average cost of traditional Medicare in many of the counties a PFFS plan chooses to serve, and (2) PFFS plans are not required to form networks. Establishing and maintaining networks of providers can be costly, particularly in rural areas.
Congressional attention to these plans has increased this past year for a number of reasons. First, enrollment in these plans has risen significantly. Second, payments to PFFS plans are typically higher than payments to other managed care plans and higher than expenditures in FFS Medicare. Third, the marketing and sales tactics of PFFS plans has raised concerns related to beneficiary protection. Lastly, PFFS plans are subject to different statutory requirements than other Medicare private plans.
This report examines the differences between PFFS plans and other Medicare private plans, specifically local health maintenance organizations (HMOs) and regional preferred provider plans (PPOs). Some of the reasons for growth in PFFS plans are also discussed, as well as advantages and disadvantages of these plans. The report concludes with a brief discussion surrounding current issues.