Medicare Advantage


Medicare Advantage is a type of health insurance plan in the United States that provides Medicare benefits through a private-sector health insurer. In a Medicare Advantage plan, a Medicare beneficiary pays a monthly premium to a private insurance company and receives coverage for and services. Typically, the plan also includes. Many plans also offer additional benefits, such as dental coverage or gym memberships. By contrast, under so-called "Original Medicare", a Medicare beneficiary pays a monthly premium to the federal government and receives coverage for Part A and Part B services, but must purchase other coverage separately.
Most such plans are health maintenance organizations or preferred provider organizations. Public Medicare Part C plans, including Medicare Advantage plans, finance at a minimum the same medical services as "Original" Parts A and B Medicare finance via FFS. Public Part C plans, including Medicare Advantage plans, also typically finance additional services, including additional health services; in 2019 extensive non-medical services such as assistance for daily living services were added by many plan sponsors. A public Part C Medicare Advantage beneficiary must first sign up for both Part A and Part B of Medicare in order to choose Part C.
From a beneficiary's point of view, there are several key differences between Original Medicare and Part C. For example, Medicare Advantage plans include an annual out of pocket spend limit, critical financial protection against the costs of catastrophic illness or accident. That is, under Part C plans, there is a limit on how much a beneficiary will have to spend annually OOP. That amount is unlimited in Medicare Parts A and B, which can cause financial ruin and incents almost everyone on just Parts A and B to make other financial protection arrangements, typically by adding some kind of private supplemental indemnity insurance.
Original Medicare and Medicare Advantage also handle payments to healthcare providers differently. Under Original Medicare, the Medicare program reimburses healthcare providers with a fee for each service provided to a beneficiary. This fee is often calculated with a formula, and while providers can reject Medicare's reimbursement rates, they cannot bargain over the reimbursement rates. By contrast, most Medicare Advantage plans negotiate payment rates and form networks with healthcare providers, similar to how purely private health insurance plans operate. In turn, the Medicare program pays Medicare Advantage insurers a monthly fee per enrollee to cover the cost of carrying their beneficiaries.
Nearly all Medicare beneficiaries will have access to at least one public Part C health plan in 2020; the average beneficiary will have access to 39 plans per county. This number varies yearly as new sponsors apply to CMS and/or old ones drop out.

History

In the 1970s, less than a decade after the beginning of fee for service "Original Medicare," Medicare beneficiaries gained the option to receive their Medicare benefits through managed, capitated health plans, mainly HMOs, as an alternative. But initially this choice was only available under temporary Medicare demonstration programs. The Balanced Budget Act of 1997 formalized the demonstration programs into Medicare Part C, and introduced the term Medicare+Choice as a pseudo-brand for this option.
Initially, fewer sponsors participated than expected, leading to less competition than expected by the Democrats who in 1995 conceived what became Part C in 1997. In a 2003 law, the Part C capitated-fee benchmark/framework/competitive-bidding process was created effective in 2005 to increase sponsor participation. However those changes also made the costs per person of the Part C program variable. This new benchmark/framework/competitive-bidding process lead to the costs per person of a beneficiary on Part C being higher than the costs per person of a person on just A and/or B each year from 2006 to 2011. In addition it turned out through deeper investigation by MedPAC, the arm of Congress that researches Medicare and CMS that the disconnect with the original goal of Part C was primarily caused by so-called Private Fee for Service plans introduced in 2003, special needs plans, and Multiple Employer Group plans. A special situation relative to Puerto Rico contributed to the imbalance also. And the lack of parity even applied slightly to vanilla HMO and PPO plans nationwide for one year. The actual comparative absolute numbers can be found in Table II.B.1 of any Annual Medicare Trustees report.
Therefore benchmark/framework/competitive-bidding process changes were made in 2010 to better align the variable per person costs of Part C and the per person costs of people just on Parts A and/or B. As a result, on average counting all the various types of Part C health plans, as reported annually by the Medicare Trustees, over the period 1997-2018 the cost per person for a person on Part C has been lower on average than the cost per person for a Medicare beneficiary not on Part C. However the numbers cannot be completely aligned in any given year without a major change in Medicare law because the benchmark/framework/competitive-bidding for Part C, which happens county by county, for any given year depends on the A and/or B per-person spending in the comparable counties two years prior.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 -- which created the benchmark/framework/competitive-bidding process -- also renamed +Choice plans to "Medicare Advantage" plans. Other managed Medicare plans include COST plans, dual-eligible plans and PACE plans. However 97% of the beneficiaries in Part C are in one of the roughly one dozen types of Medicare Advantage plans, primarily in classic vanilla HMOs.
Enrollment in the public Part C health plan program, including plans called Medicare Advantage since the 2005 marketing period, grew from zero in 1997 to over 24 million projected in 2020. That 20,000,000-plus represents about 35%-40% of the people on Medicare. As of about 2015 over half the people fully signing up for Medicare for the first time are choosing a public Part C plan of some type as opposed to FFS Medicare.
As noted millions more beneficiaries are on Part C since 2011 than before 2011 and the per-person cost numbers have been at parity or below since 2012. This is good because that was the Part C program's intention from the time in 1995 when Democrats first proposed it. One such change ended the out-of-balance PFFS plan program except for grandfathered beneficiaries. The out-of-balance Employer Group plan program was cut back beginning in 2017. On an absolute basis and even still including these out of balance Part C programs, in 2018 the Medicare Trustees spent 0.1% less on Medicare Advantage and other Part C beneficiaries per person than it did per person on Medicare beneficiaries under FFS Medicare

Program structure

Public Part C health plans, including Medicare Advantage plans, cover the same medical services as "Original" Medicare Parts A and B but also typically include an annual physical exam and vision and/or dental coverage of some sort, none of which are covered under Parts A and B. Medicare Part A provides FFS payments for admitted in-patient hospital care, hospice, and skilled nursing services if a person is first admitted inpatient for three days. Part B provides payments for many physician, rehabilitation and surgical services, even some that take place in hospitals and skilled nursing facilities after admittance, as well as for medically necessary outpatient hospital services such as ER, surgical center, laboratory, X-rays and diagnostic tests, certain preventative medical services, and certain durable medical equipment and supplies. Less often, hearing and wellness benefits not found in Medicare Part B are included in a Medicare Advantage or other Part C plan. As of 2019, many additional non Part B services were added to public Part C plans, including Medicare Advantage plans. Examples of these additional services include transport to medical-service appointments, coverage of over the counter drugs, adult day care, and assistance for daily living. Some such additional non-medical services are tailored to beneficiaries with particular chronic conditions.
Beneficiaries can enroll in Medicare Advantage and other Part C health plans either by enrolling when they first become Medicare-eligible and first join both Parts A and B or during an annual or special enrollment period as outlined in "Medicare and You, 2020," released in September 2019. There are over a dozen such enrollment periods. In addition, a special Medicare Advantage Open Enrollment period extends from January to March of each year during which the over 20,000,000 people on Medicare Advantage can switch or drop plans. This January-March enrollment period is not to be confused with the annual election period, which was intended initially primarily for Part D of Medicare, because the January-March Open Enrollment applies only to people already on Medicare Advantage.

Capitation

For each person who chooses to enroll in a Part C Medicare Advantage or other Part C plan, Medicare pays the health plan sponsor a set amount every month. The capitated fee associated with a Medicare Advantage and other Part C plan is specific to each county in the United States and is primarily driven by a government-administered benchmark/framework/competitive-bidding process that uses that county's average per-beneficiary FFS costs from a previous year as a starting point to determine the benchmark. The fee is then adjusted up or down based on the beneficiary's personal health condition; the intent of this adjustment is that the payments be spending neutral.

Private sponsors

All four Parts of Medicare—A, B and C, and D—are administered by private companies under contract to the Centers for Medicare and Medicaid Services. Almost all these companies are insurance companies, except for those that administer most Medicare Advantage and other Part C health plans, which are not -- strictly speaking -- insurance policies. A plurality of Medicare Advantage and other Part C health plans are administered by non-profit integrated health delivery systems and their spin offs. Other Part C sponsors include non-profit charities under their respective states' laws, and/or are under union or religious management. However there is no rule against insurance companies sponsoring Part C plans and many do. A more common involvement of insurance companies with Part C is to act as the administrator for the non-profit sponsor.
Part C sponsors annually submit bids that allow them to participate in the program. All bids that meet the necessary requirements are accepted. The bids are compared to the pre-determined benchmark amounts set, which are the maximum amount Medicare will pay a plan in a given county. If a plan's bid is higher than the benchmark, enrollees pay the difference between the benchmark and the bid in the form of a monthly premium, in addition to the Medicare Part B premium. If the bid is lower than the benchmark, the plan and Medicare share the difference between the bid and the benchmark; the plan's share of this amount is known as a "rebate," which must be used by the plan's sponsor to provide additional benefits or reduced costs to enrollees. A rebate cannot contribute to "profit".
This benchmark/bidding/rebate process accounts for from 97% to 100% of the cost of the given Medicare Advantage plan to the Medicare Trust Funds. The individual fee for each Part C beneficiary is also uplifted or downsized slightly from the county-specific fee based on a risk-based formula tied to the personal health characteristics of the capitated individual. The theory is that the risk-based formula will not affect spending, but in practice it almost always increases cost per beneficiary by one or two percent, either because the Medicare Advantage plan is diligent in upcoding to a beneficiary's specific risks or because patients on FFS Medicare, where providers have no incentive to code at all, are undercoded.
Based on the 2019 benchmark/bidding/rebate process, the Medicare Advantage average monthly plan premium in 2020 is estimated to decrease 14 percent to $23.00 from an average of $26.87 in 2019. Since 2017, the average monthly Medicare Advantage premium has decreased by an estimated 27.9 percent. This is the lowest that the average monthly premium for a Medicare Advantage plan has been since 2007 right after the second year of the benchmark/framework/competitive-bidding process. But these averages mask wide regional and beneficial differences. Just as the most important benefit of Part C plans is the annual out of pocket spend protection, the major determinant of monthly premium differences is the size of that protection. By law, a Part C beneficiary cannot spend more than $6700 out of pocket annually on medical services; it is plans with this limit that have the lowest premiums. Conversely, some Part C plans have OOP limits as low as $1500 annually but of course -- for these plans -- the premium is higher. The average OOP limit in 2018 was around $5000. Note that an OOP limit is not a deductible as is often reported. It is just the opposite of a deductible; it is a financial-protection upper-bound.
It is rare for a Medicare Advantage beneficiary to reach the annual OOP limit but it provides a stop-loss feature that is also found in most private health insurance but not in "Original Medicare." Medicare Parts A and B provide no similar OOP spending cap and the exposure of a Medicare Part A and/or B beneficiary to a financial catastrophe is unlimited. Once the OOP maximum is reached for an individual under a Part C health plan, the plan pays 100% of medical services for the remainder of the calendar year. That protection has no lifetime maximum, another problem with Medicare Part A which has a lifetime limit on inpatient hospitalization coverage. But the Part C OOP limit does not apply to a Part C plan's Part-D-like self-administered drug coverage.
Medicare beneficiaries will also have more plan choices in 2020, with about 1,200 more Medicare Advantage plans operating than in 2018.

Benefits

Public Part C health plans, including Medicare Advantage plans, not only cover the same medical services as "Original Medicare" Parts A and B but also typically include an annual physical exam and vision and/or dental coverage of some sort, none of which are covered under Medicare Parts A and B. Other examples of these additional non-medical services include transport to medical-service appointments, coverage of over the counter drugs, adult day care, and assistance for daily living. Medicare Part A provides FFS payments for admitted in-patient hospital care, hospice, and skilled nursing services if a person is first admitted inpatient for three days. Part B provides payments for many physician and surgical services, even some that take place in hospitals and skilled nursing facilities after admittance, as well as for medically necessary outpatient hospital services such as ER, surgical center, laboratory, X-rays and diagnostic tests, certain preventative medical services, and certain durable medical equipment and supplies). Less often, hearing and wellness benefits not found in Original Medicare are included in a Medicare Advantage plan. Some Part C plans waive the antiquated "three-day rule" of Medicare Part A
In addition Medicare Advantage plans may cover benefits in a different way. For example, plans that require higher out-of-pocket costs than Medicare Parts A or B for some benefits, such as skilled nursing facility care, might offer lower copayments for doctor visits to balance their benefits package. CMS limits the extent to which plans' cost-sharing can vary from that of Medicare Parts A and B.

Provider networks

As noted Part C plans are required to limit out-of-pocket spending by a beneficiary for Parts A and B type services to no more than $6,700 per year for in-network providers. "In-network" is the key word in that sentence and has other implications for Part C beneficiaries. The OOP limit may be higher for out of network providers in a PPO.
And as with all HMOs—no matter whether a person is on Medicare or not—persons who enroll in a Medicare Advantage or other Part C HMO cannot use certain specialist physicians or out-of-network providers without prior authorization from the HMO, except in emergencies. In almost all Medicare Advantage plans—HMO or otherwise—the beneficiary must choose a primary care physician to provide referrals and the beneficiary must confirm that the plan authorizes the visit to which the beneficiary was referred by the PCP. As with all HMOs, this can be a problem for people who want to use out-of-network specialists or who are hospitalized and are forced to use out-of-network doctors while hospitalized. Many Medicare Advantage PPO plans permit a subscriber to use any physician or hospital without prior authorization, but at a somewhat higher expense.
If a patient's in-network physician orders tests or procedures or refers a patient to a specialty that are not available from an in-network provider, the plan pays for the patient's procedures or services at an out-of-network location and charges in-network rates to the patient, so long as the necessary services are normally covered by the plan.

Usage

Although the number of people using public Part C of Medicare has grown dramatically from almost zero since 1998 and is projected to grow dramatically, there are four groups in particular that tend to stick with Medicare Parts A and/or B only and then add a private arrangement. First, it is increasingly common for people to continue to work after joining Medicare at age 65, and they use both Medicare Parts A and/or B and employer sponsored insurance, and delay deciding between FFS Medicare and capitated-fee Medicare until the employer sponsored insurance is no longer available. Second, many retired people -- particularly people over age 75 or former government employees -- receive group insurance as a benefit of their former employment and these group policies tend not to be Part C plans. Third, people who live in two different geographical areas of the country at different times of the year find it difficult to live with the geographic restrictions of most public Part C plans. Fourth, sicker people and people with higher medical expenditures are more likely to switch from Medicare Advantage plans to Medicare Parts A and B only, a statistic primarily driven by people on Medicaid in custodial care at nursing homes; people on both Medicare and Medicaid no longer have need of any Medicare supplement, either a public Part C plan or a private Medigap or group retirement plan. The Part C risk adjusted payments to Medicare Advantage plans are designed to limit this churn between types of Medicare, but it is unclear how effective that equalization program is.
Evidence is also mixed on how quality and access compare between Medicare Advantage and "traditional" Medicare.. Most research suggests that enrollees in Medicare HMOs tend to receive more preventative services than beneficiaries in traditional Medicare; however, beneficiaries, especially those in poorer health, tend to rate the quality and access to care in traditional Medicare more favorably than in Medicare Advantage. In other words, the research on Medicare HMOs is the same as the research on all HMOs. In the case of Medicare Part C, it is difficult to generalize the results of research either way across all plans participating in the program because performance on quality and access metrics varies widely across the types of Medicare Advantage plans and among the hundreds of sponsors of Medicare Advantage plans and those plans' thousands of providers. That is why having choice between types of Medicare and many choices within Part C is so important.

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