A warning given by a government watchdog agency on Monday says that those who sign up for the popular Medicare private fee-for-services plans could end up with thousands of dollars in medical costs.

The report, drawn up by the U.S. Government Accountability Office (GAO), recommends that the agency which administers the Medicare elderly people health program re-examine the unexpected costs to people enrolling in the plans. It also advises that potential clients for the programs be informed of its drop-out rates.

These fee-for-service plans are the segment with the fastest growth for private companies contracting with Medicare, which is the federal health insurance plan for Americans disabled or over 65; which potentially covers 44 million citizens. These private plans, unlike most others, do not require users to seek providers inside networks.

According to GAO’s report, Medicare beneficiaries that enrolled in the fee-for-service plans drop out at greater rates than those using other private Medicare Advantage plans.

House Ways and Means Committee Chairman Charles Rangel says that beneficiaries must be warned about the risks of the plans, going on to comment that they simply don’t work if the user actually gets sick and needs health care. Rangel, a New York Democrat was one of the five congressional Democrats who requested the GAO study.

According to the report, service providers don’t always tell users that some services are not covered, services that they then have to pay for. Moreover the study shows that certain beneficiaries actually paid more for covered services if they did not contact their plan before obtaining said services. What’s more, cost-sharing expenses are also higher in the fee-for-services plans.

Medicare Advantage plans have seen substantial growth in their enrollment in recent years, and 45% of that growth is attributed to fee-for-service plans. According to the report, that has had a major negative impact on the U.S. budget as privately operated Medicare plans are subsidized more than government-run Medicare, some 17% more for the private fee-for-service plans and 13% more for the other Medicare Advantage plans.

Democrats, who won a larger majority control of Congress in the elections in November, are expected to cut down subsidies for private Medicare plans as part of a design to revamp the U.S. healthcare system and whittle down its costs.

If Congress is to do that, it must look at other needs as well, such as ensuring a greater balance of fees between the original Medicare and the present Medicare Advantage programs by not only reducing payments to private plans but also supplementing the development of the original Medicare plans. There are certainly many things on the checklist, but if this study is any indication, a good first step has been made towards turning the promise of President-elect Barack Obama into reality.