The rising cost to Medicare of private health plans is pushing up Part B premiums, which cover doctors’ services, and has reopened a political controversy that has festered for years, especially since the Medicare prescription drug benefit was passed in 2003.

The private plans, known as Medicare Advantage (MA), have been promoted as more efficient alternatives to the traditional, government-run Medicare program. The theory is that the plans can offer more choices and lower costs through competition and managed care, while saving taxpayers money.

Yet, according to a new report from the Government Accountability Office, in 2006 Medicare paid MA plans $59 billion—an estimated $7.1 billion more than it would have paid if the people enrolled in MA plans had received care through traditional Medicare.

In 2008 MA plans are expected to receive on average 13 percent more in payments than traditional Medicare, according to MedPAC, the commission that advises Congress on Medicare spending.

“The crazy logic is that Congress created these private plans in Medicare to save money, and now we’re paying them more,” says Medicare historian Jonathan Oberlander, an associate professor at the University of North Carolina at Chapel Hill. “But this is not a fiscal battle,” he adds. “This is an ideological battle over the future of Medicare.”

Skirmishes reflecting those tensions are standard fare in Washington. To hold down spending, the 2003 Medicare Modernization Act called for reductions in payments to physicians who treat patients in traditional Medicare, a controversial requirement Congress has thus far not fulfilled. Now doctors face a 10 percent cut July 1 unless Congress finds the money to delay a reduction.

While lawmakers have eyed the elimination of excess payments to MA plans—amounting to $54 billion over the next four years, according to GAO estimates—as a way to lower costs, President Bush has warned he’ll veto any attempt to cut the payments.

Meanwhile, the payments have alarmed the watchdogs of Medicare’s long-term fiscal health. “Payment increases have been so large that [MA] plans no longer need to be efficient to attract enrollees,” MedPAC Executive Director Mark Miller told the Senate Finance Committee. Giving the plans more money also increases “the burden on taxpayers and beneficiaries, who must pay higher Part B premiums whether they are in managed care or not.”

The ideological conflict over Medicare, stretching back decades, came to a head in 2003 over the Medicare Modernization Act. The law expanded the role of MA plans significantly and gave them large payments, enabling many of them to attract enrollees by offering better benefits at a lower cost than traditional Medicare.

Ever since, enrollment in MA plans has climbed rapidly, from 11 percent of beneficiaries in 2003 to 20 percent of Medicare’s 44 million beneficiaries in 2007. This year the payments to the plans will translate into an average of $1,100 in additional benefits for each MA enrollee, according to Kerry Weems, acting administrator of the federal Centers for Medicare & Medicaid Services.

“If you give plans extra money to offer extra benefits, people will want that,” says Robert Berenson, M.D., a Medicare expert at the Urban Institute, a Washington think tank. This, he says, is changing the structure of Medicare “by stealth,” without “an up-or-down vote in Congress on whether to privatize Medicare.”

Of particular concern to many lawmakers and consumer groups is the exceptionally rapid growth of another type of MA plan known as private fee-for-service (PFFS). These plans are not subject to the same rules and standards of care as Medicare Advantage HMOs and PPOs (preferred provider organizations), and they were heavily criticized by consumer advocates last year for using unethical marketing tactics to enroll people.

“PFFS plans are also fundamentally confusing to beneficiaries [in that] they appear to resemble the traditional Medicare program because enrollees can theoretically choose their providers,” AARP board member Byron Thames, M.D., recently told a House hearing. “But this is really not the case. Enrollees cannot know in advance whether the doctors or hospitals they want to use will accept payment from a PFFS plan.”

Enrollment in these plans has now reached 1.7 million beneficiaries, an eightfold increase over the past two years. With Medicare spending 17 percent more than it would have if these enrollees had stayed in the traditional program, MedPAC’s Miller says, “enrollment growth in PFFS plans comes at an unacceptably high cost to Medicare”—and, consumer advocates say, to beneficiaries who increasingly complain that plans that lured them with low or no premiums are not what they expected when it comes, for example, to access to doctors.

If enrollment in all MA plans grows at its present rate, “then you’ve got a very different Medicare program,” says UNC’s Oberlander. Some experts fear a tipping point where only the sickest remain in traditional Medicare, making it more expensive to sustain. If that happens, says Berenson, “it’s easier to say the traditional plan isn’t working well, so let’s just turn it all over to private options.”

Eliminating the excess payments and paying MA plans no more than traditional Medicare would slow the plans’ growth. But that, too, is a tricky political calculation. MA plans are now available in every county, with an average of 35 plans for beneficiaries to choose from, according to MedPAC. Every lawmaker has constituents in MA plans who don’t want their costs to rise or benefits reduced or their plans leaving the market.

In his congressional testimony, Thames noted that MA plans offer comprehensive care that’s important to beneficiaries. But he added that skewing the payment rates in favor of the plans “does not make economic sense for the Medicare program, nor is it fair” to those in traditional Medicare.

Even though AARP offers an MA plan in its stable of insurance products, it supports gradually eliminating excess payments to head off Medicare payment cuts for doctors. “One reason we’re working hard for this is because we think it’s really unfair that all beneficiaries are being charged higher premiums for excess payments that benefit relatively few,” says John Rother, AARP’s director of policy. “And because of the millions of boomers entering the program in the next several years, we want to keep Medicare fiscally strong for the long run.