Medicare Advantage - Overview

Overview

Medicare has a standard benefit package that covers all reasonable and necessary health care services that older adults and people with disabilities can receive. For people who choose to enroll in a Medicare Advantage plan, Medicare pays the private health plan a set amount every month for each member. Members may have to pay a monthly premium in addition to the Medicare Part B premium, but many companies offering Medicare Advantage plans make them available for a $0 monthly premium in addition to the Medicare Part B premium, which the member pays directly to Medicare. Medicare Advantage subscribers generally pay a fixed amount (a copayment of $20, for example) every time they see a doctor as opposed to meeting a deductible and paying a coinsurance (typically 20%) under Original Medicare. The copayment can be higher to see a specialist with a Medicare Advantage plan. Under Original Medicare the coinsurance remains 20%, but the actual amount out of pocket can be higher since specialists generally charge more for services.

The private plans are required to offer a benefit “package” that is at least as good as Medicare’s and cover everything Medicare covers, but they do not have to cover every benefit in the same way. Plans that require higher out-of-pocket costs than Medicare for some benefits, like skilled nursing facility care, can balance their benefits package by offering lower copayments for doctor visits. A private plan may use some of the excess payments they receive from the government for each enrollee to offer supplemental benefits.

Many plans use the excess subsidies to offer hearing coverage, vision coverage, gym memberships and other services not covered by Medicare. As with traditional Medicare, private plan members can incur high out-of-pocket costs, however Medicare Advantage plans typically have an out of pocket maximum ($6,700 for example), which can protect individuals against catastrophic medical bills. Once the out of pocket maximum is reached for an individual, the plan will pay 100% of Medicare approved services for the remainder of the calendar year, with no lifetime maximum, so long as individuals use in-network providers. If individuals voluntarily choose to use out-of-network providers, they generally must pay the full cost of their care and there is no out-of-pocket cap on their expenses. This can be a problem for people with Medicare with costly conditions, who need to use out-of-network specialists or who are hospitalized and are forced to use out-of-network doctors while in the hospital. By law, however, if a patient's in-network physician orders tests or procedures that are not available or provided by any in-network facility or specialist's office, the Medicare Advantage plan must pay for the patient's procedures or services at an out-of-network location at no additional cost to the patient, so long as the necessary services are normally covered by Medicare.

Medicare Advantage plans typically do not contain deductibles, thereby giving members "first-dollar" coverage. Original Medicare has a potentially recurring (more than once per calendar year) deductible for Part A and an annual deductible for Part B.

In 2006 enrollees in Medicare Advantage Private Fee-for-Service plans were offered a net extra benefit value (the value of the additional benefits minus any additional premium) of $55.92 a month more than the traditional Medicare benefit package; enrollees in other Medicare Advantage plans were offered a net extra benefit value of $71.22 a month more.

Medicare Advantage Plans that also include Part D prescription drug benefits are known as a Medicare Advantage Prescription Drug plan or a MAPD.

Enrollment in Medicare Advantage plans grew from 5.4 million in 2005 to 8.2 million in 2007. Enrollment grew by an additional 800,000 during the first four months of 2008. This represents 19% of people with Medicare. A third of those with Part D coverage are enrolled in a Medicare Advantage plan. Medicare Advantage enrollment is higher in urban areas; the enrollment rate in urban counties is twice that in rural counties (22% vs. 10%). Almost all Medicare beneficiaries have access to at least two Medicare Advantage plans; most have access to three or more. The number of organizations offering Fee-for-Service plans has increased dramatically, from 11 in 2006 to almost 50 in 2008. Eight out of ten beneficiaries (82%) now have access to six or more Private Fee-for-Service plans.

According to research by the Kaiser Family Foundation, 11.1 million people (approximately 25% of all Medicare beneficiaries) were enrolled in Medicare Advantage plans as of March 2010, up from 10.5 million in March 2009. In their report, Kaiser noted that while most Medicare beneficiaries have dozens of private Medicare Advantage plans available in their community, enrollment is highly concentrated among a small number of firms in nearly all states. The March 2012 Medpac Report to Congress Medicare Advantage status chapter reported an enrollment increase of 6% in 2011 to 12.1 million, 25% of all Medicare beneficiaries.

There is some evidence that Medicare Advantage plans design benefits so that they are unattractive to people with costly conditions or high risks of needing expensive treatments and steering them into traditional Medicare. This insulates Medicare Advantage plans from financial risk while shifting costs to the federal government. Medicare makes risk adjusted payments to private plans to avoid this, but it is unclear how effective that policy is.