Medicare Advantage (MA) is an alternative way for Medicare beneficiaries to receive covered benefits. Under MA, private health plans are paid a per-person amount to provide all Medicare covered benefits (except hospice) to beneficiaries who enroll in their plan. Eligible individuals may enroll in an MA plan, if one is available in their area. As of January 2009, all Medicare beneficiaries had access to an MA plan and 23% of beneficiaries enrolled in one. Private plans may use different techniques to influence the medical care used by enrollees. Some plans, such as health maintenance organizations (HMOs) may require enrollees to receive care from a restricted network of medical providers; enrollees may be required to see a primary care physician who will coordinate their care and refer them to specialists as necessary. Other types of private plans, such as private fee-for-service (PFFS) plans, may look more like original Medicare, with fewer restrictions on the providers an enrollee can see and minimal coordination of care. In general, Medicare Advantage plans offer additional benefits or require smaller co-payments or deductibles than original Medicare. Sometimes beneficiaries pay for these additional benefits through a higher monthly premium, but sometimes they are financed through plan savings. The extent of extra benefits and reduced cost sharing vary by plan type and geography, creating an inequity that can frustrate some beneficiaries. However, Medicare Advantage plans are seen by some as an attractive alternative to more expensive supplemental insurance policies found in the private market. The 111 th Congress may examine several aspects of the MA program. First, Medicare is projected to pay MA plans more per beneficiary than it does for beneficiaries in original Medicare—an effect of a payment formula designed to encourage plan participation. Though a portion of the higher expenditure results in extra benefits and reduced cost sharing for some enrollees, some argue that private plans should not be paid more than the cost of original Medicare. Second, starting in 2010, the Comparative Cost Adjustment (CCA) Program will test direct competition between MA and original Medicare in selected areas. As such, the Part B premiums of beneficiaries in original Medicare may be increased or decreased depending on the efficiency of original Medicare relative to MA plans in the area. Third, recent studies show that profits in 2005 and 2006 for MA plans were, on average, higher than estimated because of underestimates in medical spending. If plans had more accurately estimated medical spending, they could have offered more generous benefit packages without reducing their profits, though some variability in the accuracy of estimates may be expected. Finally, marketing behaviors of MA plans and their agents or brokers were a concern in the 110 th Congress; it is unclear whether they will continue to be an issue in the 111 th . All of these issues are discussed in more detail in the " Issues for Congress " section at the end of this report. The Congressional Budget Office (CBO) March 2008 projection of Medicare payments under Part C is $112.8 billion in 2009 for coverage of 11.0 million enrollees, increasing to $221.2 billion in 2018 for 16.6 billion enrollees. Medicare has a long-standing history of offering its beneficiaries health insurance coverage through private plans. Beginning in the 1970s, private health plans were allowed to contract with Medicare on a cost-reimbursement basis. Under a cost contract, plans are reimbursed for the actual costs of delivering health care services. In 1982, Congress passed the Tax Equity and Fiscal Responsibility Act (TEFRA, P.L. 97-248 ), which created the first Medicare risk contracting program. Under a risk contract, participating health plans are paid a fixed monthly payment per enrollee to furnish all Part A and B Medicare-covered services (except hospice) to beneficiaries. This is in contrast to the original fee-for-service (FFS) Medicare, where Medicare pays providers directly for each item or service delivered. With the passage of TEFRA, payments to private health plans were set at 95% of the cost of providing Medicare benefits in the original FFS program. FFS costs were measured by units called Average Adjusted Per Capita Costs (AAPCCs). By 1997, 15 years after the start of the risk contract program, Medicare private plans covered more than 5 million beneficiaries, or about 14% of beneficiaries. However, despite its lengthy tenure as the basis for private plan payment, the calculation of AAPCCs was criticized for a number of reasons. Principal among these was that payments fluctuated from year to year and varied widely across the country. In an attempt to remedy this problem, Congress, in the Balanced Budget Act of 1997 (BBA, P.L. 105-33 ), replaced Medicare's risk contract program with the Medicare+Choice (M+C) program. The BBA substantially restructured the system for setting Medicare payment rates to private plans. By establishing a new payment methodology, Congress hoped to reduce Medicare spending, expand access to managed care options, and decrease variation in payment rates across the country. Under the M+C program, the per capita rate for a payment area was set at the highest of three amounts calculated for each county : a blended rate, which was a blend of an area-specific (local) rate and a national rate; a minimum payment (or floor) rate; or a rate reflecting a minimum increase from the previous year's rate. The blended per capita rate was intended to shift payment amounts away from local (generally county) rates, which reflect the wide variations in fee-for-service costs, toward a national average rate. The floor rate was designed to raise payments in certain counties more quickly than would occur through the blend alone; the minimum increase percentage was to protect counties that would otherwise receive only a small increase (if any). This formula was subject to a budget neutrality provision to keep expenditures from exceeding expected expenditures in the absence of the new formula. Although the intent of the BBA was to increase access to private plans, particularly in markets where availability was limited or non-existent, the program did not work as well as intended. The goal of controlling Medicare spending may have dampened the interest of private plans to develop new markets and add plan options. Their cautious behavior may have been a reaction to a slowdown in the rate of increase in payments. Among plans, there was also a great deal of uncertainty about the future of the M+C program and the stability of payments to sustain the program. Between 1999 and 2003, private plans left the program or reduced their service areas, affecting thousands of enrollees each year. Some enrollees were able to switch to other private Medicare plans, while others had no M+C plans available to them. Despite a small surge in enrollment initially, the percentage of beneficiaries enrolled in M+C dropped from 17% in 1999 to approximately 12% in 2003. To address the decreased plan participation, the 106 th Congress inserted provisions in the Balanced Budget Refinement Act of 1999 (BBRA, P.L. 106-113 ) and the Medicare, Medicaid, and SCHIP Benefits, Improvements, and Protection Act of 2000 (BIPA, P.L. 106-554 ) to increase reimbursement to M+C plans. In 2003, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ), which made substantial changes to Medicare's private plan option. In creating Medicare Advantage (MA) to replace the M+C program, the MMA established an entirely new payment methodology to pay private plans. Under the new payment system, Medicare continues to pay plans a fixed monthly amount per enrollee, but these monthly payments are determined, at least in part, by competitive bidding. In addition, Congress increased payments to plans and introduced regional Preferred Provider Organizations—a popular option in the private health insurance market. Finally, the MMA created a new benefit package for Medicare enrollees: beginning in 2006, beneficiaries have been able to enroll in a Medicare Part D prescription drug plan whether they are in original Medicare or Medicare Advantage. In general, a beneficiary who wants to enroll in an MA plan and receive Part D prescription drug coverage must enroll in an MA-PD plan—an MA plan that includes the Part D coverage. A beneficiary who wants to remain in original Medicare may only enroll in Part D through a Prescription Drug Plan (PDP). Today Medicare beneficiaries can choose to enroll in several different types of private plans. These include coordinated care plans, also known as managed care plans, such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), and provider sponsored organizations (PSOs) as well as plans that do not manage or coordinate the health care of enrollees, such as private fee-for-service organizations (PFFS) and medical savings accounts (MSA). Certain other plan types operate under exceptions or demonstration authority and may or may not manage care. Not all types are available in all locations. Prior to the passage of MMA, enrollment in private plans fluctuated. Since the passage of the MMA, overall enrollment in private plans has been steadily increasing. In 2009, approximately 10.4 million, or 23%, of Medicare beneficiaries are enrolled in a MA plan, and all Medicare beneficiaries have access to at least one private plan. Despite these successes, reforming the payment methodology for private plans remains a key issue among policymakers. According to the Medicare Payment Advisory Commission (MEDPAC), Medicare is expected to pay private plans an average of 14% more per beneficiary in 2009 than it does for beneficiaries enrolled in the original Medicare program. A comparable analysis for 2008 showed that Medicare was expected to pay private plans an average of 13% more per beneficiary in 2008 than it did for beneficiaries enrolled in original Medicare.