As part of its measure to expand SCHIP coverage to five million additional children, the House would limit payments to private health care providers under the Medicare Advantage program (MA). Over five years, the plan to limit these payments will offset part of the $50 billion cost of the SCHIP bill. More than just a revenue raiser, the House plan, Children's Health and Medicare Protection (CHAMP) Act, would restore equity to Medicare and force private providers that participate in Medicare Advantage to compete with traditional Medicare on a level playing field. Medicare Advantage is a Medicare program in which enrollees pay Medicare premiums but receive Medicare services from a private provider rather than the government. The private provider must provide at least the same services offered by traditional Medicare and the government then reimburses the private providers. When Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), it changed the rates at which private providers are reimbursed for providing Medicare services. This new reimbursement system has been responsible for accelerated increases in Medicare expenditures over the last four years. MMA establishes county-level rate ceilings for private plan reimbursement. These ceilings, known as "benchmarks," are the highest per-capita rate that Medicare will pay private healthcare providers to provide Medicare services. Private providers that wish to enroll Medicare participants in their MA plan submit bids to Medicare equal to the lowest fee they will accept to provide Medicare services. Under this scenario, private providers have an incentive to provide Medicare benefits at a cost below their bid, because any cost savings would be accrued as profit. This incentive was intended by the authors of the 2003 law to lower the cost of Medicare by harnessing the powers of the free market. MMA, however, is deeply flawed in this respect. The MMA bidding scheme has increased Medicare costs, principally for two reasons. First, the higher benchmarks make it possible for private providers to be reimbursed at a rate higher than the cost of providing health care services through traditional Medicare. And second, insufficient competition between plans, particularly in rural areas where more expensive private fee-for-service plans are prevalent, has resulted in Medicare payments to these plants at significantly higher rates than traditional Medicare costs. Currently, benchmarks are 17 percent higher on average than traditional Medicare costs, and almost 40 percent of MA spending is in counties where benchmarks are more than 30 percent higher than Medicare costs. While there are plans within Medicare Advantage that provide cost savings to the overall program, regional disparities also allow for inefficient, more costly, plans. The SCHIP expansion passed by Congress would eliminate inefficient coverage plans by setting the benchmarks equal to Medicare's costs. Congressional Budget Office Director Peter Orszag testified before Congress in June that payments to MA providers were 12 percent higher on average than what it would cost to provide traditional Medicare services. Rather than creating a system in which private health plans would defray the increasing cost of Medicare, MMA actually increased Medicare expenditures. And according to Orszag, MA has accelerated the exhaustion of the Medicare trust fund. The increased Medicare expenses, however, do provide services beyond those of traditional Medicare. Some plans offer preventative and chronic illness care, vision or dental. And until the Medicare drug benefit was passed in 2003, some plans provided drug benefits. In fact, it is the combination of Medicare Part B premium reductions and these extra services that creates incentives for Medicare participants to enroll in a Medicare Advantage plan. Because it is more expensive to provide health care through MA than traditional Medicare, the program relies on increases in Medicare Part B premiums and revenues from federal taxes to subsidize the extra benefits enjoyed by MA enrollees. The Medicare actuary has calculated that every Medicare participant — whether enrolled in MA or not — pays two dollars more in Medicare Part B premiums to fund the MA program. By setting benchmarks equal to Medicare costs, Congress would end this equity gap. The bill passed by the House Aug. 1 would not only provide $50 billion to fund health insurance for children, but may actually achieve Medicare cost savings by encouraging greater competition in Medicare Advantage plans.