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“Medicare Advantage” plans have been touted as a way for elderly rural residents to have a choice in health care plans paid for by Medicare dollars. But few rural Medicare recipients are enrolled in Medicare Advantage plans — and those who have joined are enrolled in Medicare Advantage plans with the highest costs and the fewest benefits.

Congress opened the Medicare program to private insurers and health maintenance organizations (HMOs) years ago in the hopes that competition would create more choice for recipients. This was the beginning of today’s Medicare Advantage system. The hope in Congress was that private companies would have an incentive to innovate, to find better and cheaper ways to provide Medicare recipients with health care.

Medicare Advantage plans took off more quickly in cities than in rural communities. By early this year, 27 percent of all Medicare recipients living in urban counties were part of a Medicare Advantage plan. In rural counties, only 14.1 percent of those receiving Medicare belonged to a Medicare Advantage plan. In exurban counties, 21.1% of Medicare beneficiaries belong to a Medicare Advantage plan.

(To see a map of the nation’s rural, urban and exurban counties, go here.)

Nationally, 23.7 percent of Medicare beneficiaries belong to a Medicare Advantage plan.

Some Medicare Advantage plans do provide more benefits, just as Congress hoped. But most Medicare Advantage plans don’t save any money. In fact, they cost much more than traditional Medicare fee-for-service plans. Each dollar’s worth of enhanced benefits in the private plans costs the Medicare program over three dollars.

The Obama Administration wants to end the system of paying private Medicare Advantage plans more to provide the same benefits as the regular Medicare benefits. At a meeting Tuesday with health insurance companies, White House Budget Director Peter Orszag said the administration intended to end the practice of paying more for Medicaid Advantage plans than for regular Medicare. Currently, the government spends about $1.30 on Medicare Advantage for every dollar it spends on traditional Medicare.

“I believe in competition. I don’t believe in paying $1.30 to get a dollar,” Orszag told the companies, including representatives from Aetna Inc., WellPoint Inc. and Cigna Corp. The Obama Administration figures it can save $177 billion over ten years by reducing payments to Medicare Advantage plans.

Republicans have resisted reduction in spending on Medicare Advantage, often arguing that the program provided choice to rural communities. Sen. Richard Burr, R-N.C., has objected to Obama’s plans to reduce payments to private insurers that administer Medicare benefits to the elderly and disabled, MSNBC reported. “Burr said the program, called Medicare Advantage, was crucial to giving rural people a choice in how they get their health benefits.”

Bob Moos, in the Dallas Morning News, reported that the insurance industry argues “those extra payments (made to Medicare Advantage) have helped insurers extend coverage to rural areas, keep premiums low and offer benefits that Medicare typically doesn’t provide, like dental and vision care.”

And Iowa’s Sen. Charles E. Grassley, the ranking Republican on the Senate Finance Committee “said he worries that the administration’s proposed cuts to private Medicare Advantage plans — savings that would be used to pay for health care-related spending boosts elsewhere — would come at the expense of rural states,” according to The Washington Times.

But rural communities aren’t heavily invested in the Medicare Advantage plan — especially rural communities in North Carolina and Iowa. Only 13 percent of Medicare recipients in rural North Carolina belong to a Medicare Advantage plan, slightly less than the national average of 14.1 percent. And in Iowa, only 7.7 percent of rural Medicare recipients have purchased a Medicare Advantage plan.

(See the chart below for the percentage of Medicare recipients who have joined a Medicare Advantage plan, broken down by rural, urban and exurban counties. Click here to see rural, urban and exurban counties in a national map.)

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Medicare Advantage has been slow to spread into rural communities. HMOs and preferred provider networks were the first to establish Medicare Advantage plans, and there were fewer of these organizations in rural America.

As “private fee-for-service” insurers developed Medicare Advantage offerings and began marketing these plans in rural areas, rural Medicare recipients have been joining Medicare Advantage plans in higher numbers. Between 2007 and 2008, rural participation in Medicare Advantage increased 30%. In cities, the growth rate was half that, or 15 percent.

Medicare Advantage differs from urban to rural, however. In cities, most Medicare Advantage members belong to HMOs or established provider networks. Those kinds of health care institutions don’t exist in rural communities, and so rural residents have been joining new, private fee-for-service plans.

Two-thirds of rural residents have joined private fee for service plans. In urban areas, only 15 percent of those in Medicare Advantage plans have joined these private fee-for-service plans.

This difference matters, according to a March report to Congress by the Medicare Payment Advisory Commission. The only Medicare Advantage plans that provide the same benefits as regular Medicare, but for less money, were operated by HMOs. The Commission found that “each dollar’s worth of enhanced benefits in (private fee-for-service) plans costs the Medicare program more than $3.00.”

Moreover, the Commission found that the quality of Medicare Advantage plans “is not uniform.” The Commission concluded that “high quality plans tend to be established HMOs.” Plans that “are new in the (Medicare Advantage) program have lower performance on many measures.”

Rural communities are served by these new programs, especially new private fee-for-service plans. The Commission found that these plans, which are most common in rural America, “have fewer quality reporting requirements and have less ability to coordinate care than other types of plans…. Paying a plan more than (regular Medicare) spending for delivering the same services is not an efficient use of Medicare funds in the absence of evidence that such payments result in better quality….”

In Sen. Grassley’s Iowa, more than 80% of the state’s rural residents in Medicare Advantage belong to a private fee-for-service plan. In Montana, home of Sen. Max Baucus, chairman of the Senate Finance Committee, nine out of ten rural residents who have a Medicare Advantage plan are served by a costly fee-for-service company.

The debate over Medicare Advantage continues to rage in Congress. Tuesday, the Wall Street Journal reported that an insurance agency spokesman said private fee-for-service plans “have higher costs in rural areas where ‘monopoly’ health-care providers command higher pay.”

The Obama Administration, meanwhile, is not backing off its commitment to end the higher payments to Medicaid Advantage plans.

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