News & Commentary

Health Reform Boosts Medicare FFS Plans

The Affordable Care Act closes a portion of the gap between the benefits offered in fee-for-service Medicare compared to those offered by typical large employer plans, according to a report by Kaiser Family Foundation (

Medicare FFS beneficiaries still receive a less generous benefits package than those in a preferred provider organization (PPO) plan that’s offered by a large employer. They also fare worse than beneficiaries in a Blue Cross/Blue Shield Standard Option for enrollees in the Federal Employees Health Benefits Program (FEHBP), which is also a PPO plan, according to the report.

“The average benefit value of Medicare for a person age 65 or older in 2011 is 97 percent of the FEHBP Standard Option benefit value and 93 percent of the typical large employer PPO benefit value,” says the issue brief.

The report, published last month, updates a similar report issued in 2008, and notes the effect the ACA is having. “Medicare’s benefit value has . . . begun to approach the value of the comparison large employer plans, due in large part to the 50-percent discount on brand name drugs in Medicare brought about by health reform, as well as the contraction of the comparison employer plans’ benefit designs.”

The study adds that “The gap between Medicare and large employer plans could continue to narrow … as the health reform law phases in coverage in the [drug] ‘doughnut hole’ or if employer coverage continues to erode.”

The study looks at a “static set of utilization rates” and does not predict how those rates might change under different benefit packages — how, for instance, utilization tends to rise when someone has more generous coverage.

“In reality, individuals do change their behavior when their financial obligations change, as has been demonstrated in numerous studies. However, the purpose of this study is to compare the pure benefit value of Medicare and employer plans, assuming no change in enrollees’ behavior and utilization of health care services based on coverage.”

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