Most Medicare beneficiaries can choose to receive covered services through Medicare FFS or through an MA plan—which operates under Medicare Part C—if one is offered where they live. MAOs are allowed flexibility in designing their plan benefit packages and cost sharing for certain services can vary widely by MA plan. MA plans operate under annual contracts between MAOs and CMS and must offer benefits that are covered under Medicare FFS. These benefits consist of Part A hospital insurance, which covers inpatient stays, care in skilled nursing facilities, and some home health care; and Part B medical insurance, which covers certain physician, outpatient hospital, and laboratory services, among other services. All beneficiaries enrolled in Part B are charged a Part B premium. In general, in order to enroll in a MA plan, beneficiaries must be entitled to benefits under Part A and enrolled in Part B. Regardless of their source of coverage, all Medicare beneficiaries have the option of receiving prescription drug coverage through Medicare Part D. Medicare FFS beneficiaries can enroll in stand-alone prescription drug plans, which are operated by private plan sponsors, and they generally must pay an additional premium to receive Part D coverage. MA beneficiaries who also want prescription drug coverage generally receive that coverage through their MA plans, which may or may not charge an additional premium for Part D coverage. In addition to monthly premiums, beneficiaries in Medicare FFS or in MA plans typically are responsible for cost sharing, which can be in the form of a deductible, coinsurance, or a copayment. To help provide financial protection to beneficiaries who might otherwise have high cost-sharing expenses for Part A and Part B services, MAOs may voluntarily establish OOP maximums, or dollar limits on the amount a beneficiary must pay in cost sharing in a period of coverage (typically 1 year). For contract year 2010, CMS sought to allow MA plans with an OOP maximum at or below $3,400 greater flexibility in establishing cost-sharing amounts. For each MA beneficiary, CMS pays MA plans a monthly amount determined by the plan bid—the plan’s estimated cost of providing Medicare Part A and Part B benefits—in relation to a benchmark, which is the maximum amount the Medicare program will pay MA plans in a given locality. If a plan’s bid is less than the benchmark, the difference is partially rebated to the MA plan and must be used to reduce premiums, reduce cost sharing, or provide additional benefits for plan beneficiaries. If a plan’s bid exceeds the benchmark, the plan will charge each of its beneficiaries an additional premium to make up the difference. MA plans offering prescription drug coverage have a separate payment benchmark for Part D prescription drug benefits. CMS risk-adjusts the monthly payments to MA plans to take into account the health status of the plan’s beneficiaries. As previously reported, cost sharing can vary widely among MA plans for particular categories of services as a result of the flexibility given MAOs in designing their plan benefit packages. For example, in 2007, 9 percent of beneficiaries were enrolled in MA plans that had no cost sharing for inpatient services, whereas 16 percent of beneficiaries were enrolled in MA plans with cost sharing for inpatient services that was higher than that of Medicare FFS. Similarly, an AARP study reported that in 2008 the average MA beneficiary with a 10-day inpatient hospital stay would incur $823 in cost sharing, less than the $1,068 incurred for beneficiaries in Medicare FFS, but 12 percent of beneficiaries would incur cost sharing of $2,000 or more. The Secretary of Health and Human Services is obliged by statute to not contract with a MAO if its plan benefit design is likely to substantially discourage enrollment in the MA plan by certain individuals. To implement this provision of the statute, CMS identified in the Medicare Managed Care Manual certain services for which high cost sharing could be considered potentially discriminatory and provides further guidance in its annual MA Call Letter to MA plans on how it will review benefit packages for the likelihood of discrimination. CMS has never barred a plan from participation in the MA program because of cost sharing that was likely to substantially discourage enrollment. Certain aspects of MA cost-sharing requirements and payment will change as a result of the Patient Protection and Affordable Care Act. Beginning with bids submitted for contract year 2011, the Secretary of Health and Human Services has the authority to not contract with an MAO if it proposes significant increases in cost sharing or decreases benefits offered by a plan. In addition, for plan years beginning January 1, 2011, the cost sharing required for chemotherapy services, renal dialysis, skilled nursing care, and any other service that the Secretary determines appropriate can be no more than the cost sharing required in Medicare FFS. The good health group of plans—MA plans in which the average beneficiary had projected health care costs at least 10 percent below those for an average Medicare beneficiary within the plan’s service area— generally charged lower premiums and had higher cost sharing for certain services compared with the poor health group of plans. Plans in the good health group also were less likely to include additional benefits, such as vision and dental care coverage. The good health group of plans generally charged lower premiums relative to the poor health group of plans. (See fig. 1.) For example, in 2008, almost half of the good health group of plans—46 percent—did not have a premium for Part C (medical) or Part D (prescription drug) coverage, while about one-fifth of the poor health group of plans had no premium. for MA plans that included prescription drug coverage as part of their benefit package, the combined (Part C and Part D) monthly premium for the good health group of plans—$24—was lower than that for the poor health group, which was $31. taken separately, Part C and Part D premiums for the good health group of plans also were lower than the corresponding premiums for the poor health group. In 2008, 12 percent of plans in the good health group reduced beneficiaries’ Part B premium, while 4 percent of plans in the poor health group did so. Among plans that reduced the Part B premium, plans in the good health group reduced it by a larger amount than plans in the poor health group—averaging $48 and $36, respectively. The good health group of plans tended to have higher cost sharing for the services we reviewed—which included inpatient hospital acute stays, inpatient mental health stays, skilled nursing facility (SNF) stays, and renal dialysis—than the poor health group of plans. (See fig. 2.) For example, in 2008, the average plan in the good health group charged about $100 more in cost sharing for a typical inpatient hospital stay (6 days) and about $150 more for a typical inpatient mental health stay (21 days) than the average plan in the poor health group. the average plan in the good health group charged about $500 more in cost sharing for a typical SNF stay (35 days) than the average plan in the poor health group. the average plan in the good health group charged over $300 more in cost sharing for a year of renal dialysis (156 sessions) than the average plan in the poor health group. The good health group of plans had similar cost sharing for Part B chemotherapy drugs, other Part B drugs, DME, and home health compared with the poor health group of plans. For example, in 2008, an average plan in both the good health group and the poor health group charged 20 percent coinsurance for Part B chemotherapy drugs and charged 20 and 19 percent coinsurance, respectively, for other Part B drugs. an average plan in the good health group charged 23 percent coinsurance for DME, compared with 21 percent for the average plan in the poor health group. for the relatively small share of plans that charged cost sharing for home health care, an average plan in the good health group charged $568 for 27 home health visits compared to $597 for the average plan in the poor health group. In 2008, a greater share of plans in the good health group had an OOP maximum that limited their beneficiaries’ overall financial risk compared to plans in the poor health group—63 percent compared with 40 percent, respectively. However, the OOP maximum for the good health group of plans averaged 55 percent higher than the OOP maximum for the poor health group ($3,515 compared with $2,262). In designing their benefit packages, some plans excluded cost sharing incurred for certain services from expenses that counted toward the OOP maximum. Approximately 14 percent of plans in the good health group had an OOP maximum and excluded one or more services for which they required cost sharing, compared with 13 percent of plans in the average health and poor health groups. Plans were most likely to exclude Part B drugs (15 percent of plans), renal dialysis (6 percent of plans), and DME (6 percent of plans) from their OOP maximum. Plans in the good health group were less likely to include certain additional benefits in their benefit packages, such as vision and dental care coverage, but were more likely to include a fitness benefit than plans in the poor health group. (See fig. 3.) For example, in 2008, seventy-three percent of plans in the good health group included coverage for eye exams and 60 percent included coverage for eyewear compared with 78 percent and 74 percent, respectively, of plans that covered these benefits in the poor health group. twenty-three percent of plans in the good health group included coverage for comprehensive dental benefits compared with 33 percent of plans in the poor health group. while plans in the good health group were more likely to cover hearing tests, they were less likely than plans in the poor health group to cover hearing aids—36 percent versus 48 percent. the percentage of plans in the good health group that included fitness benefits was approximately twice that of plans in the poor health group— 55 percent compared with 28 percent. In 2008, the plans in the good health group differed with those in the poor health group by plan type, plan size, and, for HMOs, by the difference between MA payment benchmarks and estimated FFS spending.