Private health plans that receive government funding for Medicare patients cost too much and force the government to lose money, the chairman of a U.S. congressional panel said on Wednesday.

In the first of several hearings on the issue, House Ways and Means Health Subcommittee Chairman Pete Stark said when the plans began 25 years ago they were supposed to be "better and cheaper than the government."

But now "we are losing money for every person who enrolls in a private plan," the California Democrat said.

Congress has no plans to eliminate them, but it will take a closer look at how the plans are run, Stark said. "I believe everything must be on the table," he added.

The hearings come as Congress struggles to rein in U.S. spending with a sharp focus on Medicare, the nation's largest payer for health care. Lawmakers are examining the federal insurance program for the elderly and disabled, particularly private plans, for potential savings.

Under traditional Medicare, the government pays for medical care through a fee-for-service system that allows patients to choose their own doctors and hospitals. Prescription drugs are covered separately.

The private plans, known as Medicare Advantage, usually limit providers but include more benefits such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Fee-for-service is also an option. 

Many also include drug coverage. 

About 8.3 million of Medicare's roughly 43 million beneficiaries, or 19 percent, have private plans, according the Centers for Medicare and Medicaid Services (CMS).

While the plans must offer at least the same service as traditional Medicare, they often include added benefits such as vision and dental care. They may also charge extra fees.

A recent Medicare advisory group found CMS overall pays 12 percent more for the private plans compared to traditional coverage and 19 percent more for private fee-for-service.

Paying private insurers at the same rate as the government plan could save $65 billion between 2008 and 2012, according to the Congressional Budget Office (CBO).

But it would also curb extra benefits and reduce enrollment, CBO Director Peter Orszag said at the hearing.

That could impact a number of insurers, including Humana Inc., UnitedHealth Group Inc. and Coventry Health Care Inc., among others.

The plans account for about 29 percent of managed care companies' revenues on average, according to CIBC World Markets analyst Carl McDonald. 

Excluding the top five Medicare Advantage carriers, it accounts for 11.4 percent, he said.

Medicare officials say the private options help cover hard-to-reach populations, including low-income, minority and rural beneficiaries. 

CMS Administrator Leslie Norwalk said they also coordinate patient care in a way the government cannot, helping those with complicated, long-term diseases.

"I wouldn't characterize it as overpayments," she told lawmakers, referring to the higher payments for private plans.

The insurance industry has also defended them as a way to offer more patients greater benefits.

Republicans at the hearing agreed.

"Medicare Advantage enrollees are more likely to utilize preventive care and are less likely to delay care because of costs than those enrolled in traditional Medicare," ranking member Rep. Dave Camp of Michigan said, citing CMS data.

In a survey released this week, trade group America's Health Insurance Plans said doctors think cuts to insurers would harm patients. But consumer advocates argue the private plans are overpaid and inefficient.

Savings from more equal payments should instead "be redirected to provide low- and middle-income people with Medicare (with) protection against unaffordable out-of-pocket expenses," Medicare Rights Center President Robert Hayes said in a statement.