Medicare was created in 1965 to provide government-subsidized health insurance for elderly and disabled Americans. Since the 1970s, beneficiaries have had the option of leaving traditional Medicare and enrolling in privately run health insurance plans that participate in what is now called the "Medicare Advantage" program.

This year, the government will pay these private plans an average of 14 percent — or about $12 billion — more than it would pay for people in traditional Medicare. "This added cost contributes to the worsening long-range financial stability of the Medicare program," said the Medicare Payment Advisory Commission (MedPAC), a nonpartisan group Congress established to monitor Medicare, in a March 2009 report to Congress.

MedPAC has proposed calculating the payments differently, to eliminate the extra cost of Medicare Advantage and to slow Medicare’s growing costs. Others, including the Obama administration, want the plans to bid against each other for Medicare contracts in the hope of achieving greater savings to put toward health reform.

This policy brief from Health Affairs and the Robert Wood Johnson Foundation, part of a newly launched series of briefings, looks inside the debate over cutting payments to the "Medicare Advantage" programs.