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When insurance companies start advertising their 2009 Medicare-subsidized health plans in October, beneficiary Bob Schulbaum will be looking for the small print.

That’s how he learned last year that companies don’t offer the same benefits in his hometown of Delray Beach, a Palm Beach County community, as they do in Miami, only about 50 miles away. He is furious.

“In Miami-Dade County, they are supplying transportation to doctors’ offices. Members get eyeglasses and dental care. These are things that are not offered in Palm Beach County,” says Schulbaum, 81, president of the Alliance of Delray Residential Associations, which represents 72,000 homeowners.

Some of the Miami-Dade plans include free nonprescription drugs this year and as much as $1,157 to cover an enrollee’s Medicare Part B premiums.

Schulbaum says it’s “outrageous” that alliance members must pay Part B premiums ($96.40 a month in 2009) while his Miami neighbors in the same health plan don’t because they live over the county line. “Where is the equality in this?”

Medicare is supposed to be a universal program, he argues. But for those interested in the extra benefits offered by private health plans, getting the best coverage depends on where they live.

That’s no mistake—it’s the way Congress designed the private plan program, called Medicare Advantage. Medicare contracts with insurance companies to provide medical and drug coverage and pays the companies for each member they enroll. Federal law requires Medicare to set the payment based on the member’s county, and that money typically varies from county to county. The payments also include financial incentives for plans to offer coverage in rural and underserved areas. The more money plans get, the more benefits they usually offer their members.

For example, the plans in Miami-Dade County receive an average of $1,093.78 a month per member from Medicare. That’s $176 more than in neighboring Broward County and $233 more than in nearby Palm Beach County. Next year, the differences will be even higher—Miami-Dade will get $280 a month more per member than Broward and $344 more than Palm Beach.

“This is patently unfair,” says Rep. Robert Wexler, a South Florida Democrat who calls the 2009 increases “obscene.” In June, he introduced legislation to equalize the payments in the three counties. “Medicare beneficiaries in Palm Beach County deserve the same benefits [from the private plans] as their counterparts in Dade.”

Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, an industry trade group, acknowledged that the same Medicare Advantage plan can offer different benefits among neighboring counties.

“Plans do their best to provide the most affordable coverage they can to meet the specific needs of beneficiaries,” he says. “But there is variation in the payment rates in the counties,” which dictates how plans structure benefit packages. Plan benefits and member fees can also depend on the number of providers in a county and how many join the plan’s network, he says.

In addition to the payment differences that can lead to uneven benefits, industry experts say some well-managed insurers can afford to offer extra benefits if they negotiate deals with providers in competitive markets like Florida or take other steps to keep their costs down. That’s one reason why Medicare Advantage coverage can vary even within the same county.

Widespread inequities

Although the payment disparity is most dramatic in Florida, it exists in other states across the country (see the map for payments in your area), where payments in one or more counties exceed the rest.

The difference can split areas that share the same Zip Code, and even the same name. In New York City’s Queens County, Medicare pays private plans an average of $947.58 a month per member, including in the Floral Park neighborhood. But just across the county line, plans in the Nassau County side of Floral Park get $35.52 less for each member. Go a few miles farther east into Suffolk County, and Medicare will pay private insurers an average of almost $90 less than in Queens.

As a result, even though the roughly 67,000 people age 65-plus in Suffolk and Nassau are almost evenly divided between the two counties, Suffolk plans have received millions of dollars less over the years, according to Sen. Charles Schumer. He has sponsored legislation with his fellow New York Democrat, Sen. Hillary Rodham Clinton, to erase the pay difference.

Less money for the plans means fewer benefits or higher premiums, Schumer found. Several plans with the same or similar coverage charge members higher premiums in Suffolk than in Nassau County, and some lower-priced policies available in Nassau are not even sold in Suffolk. “We’re paying over $1,000 a year in premiums before we even go to a doctor or pay for any prescriptions,” says Maryann Kern, 71, an associate director of Seniors Against Discrimination in Suffolk County. “In the city, you can keep that money in the bank.”

Empire Blue Cross Blue Shield, for example, offers a plan that costs Suffolk County enrollees $69 a month, but it’s free for members in Nassau, Queens and the rest of New York City. Empire spokesman Scott Golden explained in a written statement that benefits and premiums for plans available in Nassau and Suffolk “reflect both the reimbursement we receive from [Medicare] and the health care cost of persons living in those counties.”

A year ago, the Suffolk County seniors group lost their appeal of a lawsuit against the federal government. They had claimed that the unequal benefits offered by the government-funded Medicare Advantage program amounted to discrimination. But the judge in the case ruled that the way the government pays the plans is reasonable “even if participation costs [Suffolk] County’s seniors more than it does other seniors.”

The skewed payment system baffles Debbie Shally, a program manager with the state Health Insurance Counseling and Advocacy Program in California. Her region encompasses five counties, including the aptly named Alpine County, a mountainous, rural county at the Nevada border. AARP Bulletin Today found that the 40 plans in Alpine receive more from Medicare than those in any other county in the state—an average of $1,359.31 per member per month.

But the highest-paid plans in the state are available to relatively few Californians, because the county’s sparse population includes only about 250 people eligible for Medicare, says Shally. AARP Bulletin Today found that all but three of the plans are “private fee-for-service,” a type of plan that has no guaranteed network of participating providers.

So despite Medicare’s generous payments for Medicare Advantage plans in Alpine County, which lacks a local hospital, Shally says most residents leave the county to see doctors in Sacramento or leave the state completely for medical care in Carson City, Nev.

“That situation is very bizarre,” she says.

No easy fix

Payments to Medicare Advantage plans are determined by a complex formula based on the average amount Medicare has paid for its members in each county over the previous five years. The members’ ages and health conditions, as well as local medical costs, are also taken into account, says Peter Ashkenaz, spokesman for the Centers for Medicare and Medicaid Services.

In Florida’s Miami-Dade County, for instance, traditional Medicare spends more on health care than in the surrounding counties. Those expenses trigger higher payments for the county’s Medicare Advantage plans.

One reason Medicare’s costs are unusually high in Miami-Dade is because patients there use more medical services on average than their neighbors in other counties. “We don’t know why,” Ashkenaz says.

Medicare Advantage plans in high-paying counties can also offer extra benefits because Medicare gives them rebates. If they bid below the payment rate Medicare sets for a particular county—and Ashkenaz says most do—they can keep 75 percent of the difference as a rebate to use for additional benefits. The rest is returned to Medicare.

The U.S. Government Accountability Office found that plans received $8.3 billion in rebates last year, or an average of about $87 a month for each member in the plans investigated.

The Medicare Advisory Payment Commission (MedPAC), established by Congress, estimates that the government will pay Medicare Advantage plans 13 to 17 percent more this year than it spends on patients enrolled in original Medicare. Even though only one in five seniors are enrolled in a Medicare Advantage plan, the program’s extra cost is passed on to taxpayers as well as enrollees in traditional Medicare, who pay a share of the program’s overall bills.

The payment and benefit disparities will not change any time soon unless Congress acts. MedPAC has recommended that lawmakers abandon county-based payments in favor of larger areas, but such proposals have not won wide support. Next year’s payment raises required by federal law maintain or widen the gap between counties. (See map for increases in your county.)

Some beneficiaries don’t even know what they’re missing. In the Cleveland suburb of Shaker Heights, Belle Likover, 88, a longtime seniors' advocate, had never heard of plans that cover some or all of a member’s outpatient Part B premium, a benefit worth hundreds of dollars. In 2007 only about a third of the 43 million older and disabled Americans with Medicare had access to plans that reduced or eliminated that premium, according to a MedPAC report.

“To have this kind of disparity based on where you live makes no sense whatsoever,” says Likover, a member of an advisory council to the Ohio Department of Aging. She argues that Medicare Advantage’s inconsistent benefits undermine the program’s goal of providing older people more choices of coverage beyond traditional Medicare.

“Choice should be about which doctor you go to or what hospital you go to,” Likover says. “It should not be a choice of 63 or 88 plans, all of which are different. That’s not choice, that’s madness.”

Susan Jaffe is a Washington, D.C.-based journalist specializing in health care.