Medicare Advantage: Key takeaways
- President Bill Clinton signed Medicare+Choice into law in 1997.
- The name changed to Medicare Advantage in 2003.
- Advantage plans automatically cover essential Part A and Part B benefits, except hospice services.
- Insurance companies offer six different approaches to Medicare Advantage plans.
- Medicare Advantage plan benefits and fees vary widely.
- Medicare Advantage plans must have medical loss ratios of at least 85%
- If you live in the designated service area of the specific Medicare Advantage plan, and have Part A and Part B (or are becoming eligible for them), you may join the plan.
- You can switch back to Original Medicare during the annual open enrollment period
Open enrollment for 2020 Medicare Advantage plans ended on December 7, 2019. All plan changes and selections made during the annual enrollment period took effect on January 1, 2020. But the annual Medicare Advantage open enrollment period is now underway. It runs from January 1 to March 31, and allows people who already have Medicare Advantage (including those who just enrolled during the open enrollment period that ended on December 7) to switch to a different Advantage plan or switch to Original Medicare.
Medicare Advantage: A history and overview
Since 1997, Medicare enrollees have had the option of opting for Medicare Advantage instead of Original Medicare. Medicare Advantage plans often incorporate additional benefits, including Part D coverage and extras such as dental and vision. And the plans do include a cap on out-of-pocket costs that can’t exceed $6,700 in 2020 (this only applies to services that would otherwise have been covered by Original Medicare, so not including prescription drug costs), which Original Medicare does not have. But Advantage plans tend to constrain beneficiaries to a limited provider network, and coverage for specific services may not be as robust as it would be with Original Medicare plus supplemental coverage. This article helps to illustrate the pros and cons of each option.
As of 2019, there were 22 million Americans enrolled in Medicare Advantage plans, accounting for about 34 percent of all Medicare beneficiaries. And the federal government expects this to grow to 24 million in 2020.
Enrollment in Medicare Advantage has been steadily growing since 2004. Managed care programs administered by private health insurers have been available to Medicare beneficiaries since the 1970s, but these programs have grown significantly since the Balanced Budget Act – signed into law by President Bill Clinton in 1997 – created the Medicare+Choice program.
The Medicare Modernization Act of 2003 changed the name to Medicare Advantage, but the concept is still the same: beneficiaries receive their Medicare benefits through a private health insurance plan, and the health insurance carrier receives payments from the Medicare program to cover beneficiaries’ medical costs.
Medicare Advantage benefits
With Medicare Advantage plans, the essential Medicare Part A and Part B benefits – except hospice services – are automatically covered. (If you need hospice services, that’s covered under Original Medicare, even if you’re enrolled in a Medicare Advantage plan, although CMS plans to pilot a program in 2021 that will allow Advantage plans to cover hospice care.) Advantage plans also cover urgent and emergency care services, and in many cases, the private plans cover vision, hearing, health and wellness programs and dental coverage. As of 2019, Medicare Advantage plans have been allowed to cover a broader range of extra benefits, including things like home health aides, medical transportation, and the installation of in-home safety devices. But relatively few plans have started offering these benefits as of 2020.
Insurance companies offer six different approaches to Medicare Advantage plans, although not all of them are available in all areas: an HMO (health maintenance organization), a PPO (preferred provider organization), an HMOPOS (HMO Point of Service), a PFFS (Private Fee-For-Service), an MSA (medical savings account), or an SNP (special needs plan).
You need to choose your own primary care doctor with an SNP, HMO, or HMOPOS, but not with an MSA, a PPO or a PFFS. HMOs and SNPs are the only plans that require a referral prior to seeing a specialist, and the HMO plan is the only plan in which you must only receive care from doctors in that network.
In most instances, prescription drug coverage is included in Medicare Advantage plans, with the exception of the MSA plan and some PFFS plans. If you want to have prescription drug coverage and you’re choosing an HMO or PPO Medicare Advantage plan, it’s important to select a plan that includes prescription coverage (most of them do), because you can’t purchase stand-alone Medicare Part D (drug coverage) if you have an HMO or PPO Advantage plan. SNPs are required to cover prescriptions. PFFS plans sometimes cover prescriptions, but if you have one that doesn’t, you can supplement it with a Medicare Part D plan. MSAs do not include prescription coverage, but you can buy a Part D plan to supplement your MSA plan.
What do Advantage plans cost?
Even though Advantage enrollees have rights and protections under Medicare guidelines, the services offered and the fees charged by private insurers vary widely. A thorough understanding of how these plans work is key to the successful management of your personal health.
Most Advantage plans charge monthly premiums in addition to the Part B premium. (You have to pay the Part B premium in addition to your Advantage premium, even if you’re in a “zero premium” Advantage plan). Across all Medicare Advantage plans, the average premium is about $23/month in 2020. This average includes zero-premium plans and Medicare Advantage plans that don’t include Part D coverage — if we only look at plans that do have premiums and that do include Part D coverage, the average premium is about $36/month.
Some Advantage plans have deductibles, others do not. But all Medicare Advantage plans must limit in-network maximum out-of-pocket (not counting prescriptions) to no more than $6,700 in 2020. This is unchanged since 2011, although CMS does intend to start gradually changing it over time, under new methodology that was finalized in 2018. [Beneficiaries should keep in mind that the out-of-pocket cap only applies to services that would otherwise be covered by Medicare Parts A and B — even though most Advantage plans include Part D coverage, drug costs are not capped and are not included in the maximum out-of-pocket limits.]
Many plans have out-of-pocket limits below this threshold however, so it’s important to consider the maximum out-of-pocket when comparing policies. The average out-of-pocket cap in 2020 is approximately $4,993 — down slightly from $5,089 in 2019, and well below the maximum amount required under federal regulations.
Copayments for doctor’s visits differ dramatically, as do the actual health care services and how often enrollees receive those services. Close attention to the details is necessary when assessing these plans.
Medicare Advantage plans must spend at least 85% of premiums on medical costs
The ACA added new medical loss ratio requirements for commercial insurers offering plans in the individual, small group, and large group markets. It also added similar requirements for Medicare Advantage plans, although they took effect three years later, in January 2014.
Medicare Advantage plans must have MLRs of at least 85 percent, which is the same as the requirement for plans issued to employers in the large group market. That means 85 percent of their revenue must be used for patient care and quality improvements, and their administrative costs, including profits and salaries, can’t exceed 15 percent of their revenue (revenue for Medicare Advantage plans comes from the federal government and from enrollee premiums). The specifics of the calculations are laid out in this HHS regulation from 2013, with the calculation details starting on page 31288.
In the individual, small-group, and large-group health insurance markets, insurers that fail to meet the MLR requirements must send rebates to policyholders (individuals or employers). But for Medicare Advantage plans, the rebates must be sent to the Centers for Medicare and Medicaid Services (CMS) instead.
If a Medicare Advantage plan fails to meet the MLR requirement for three consecutive years, CMS will not allow that plan to continue to enroll new members. And if a plan fails to meet the MLR requirements for five consecutive years, the Medicare Advantage contract will be terminated altogether.
MLR requirements for Medicare Advantage plans took effect in 2014. In September 2019, after the MLR data for 2018 had been processed, CMS notified UnitedHealthcare that one of its Medicare Advantage contracts, Care Improvement Plus (contract H5322), would not be able to enroll any new members for 2020 after failing to meet the MLR requirements for 2016, 2017, and 2018. Although UnitedHealthcare is a major player in the Medicare Advantage market, enrollment in Care Improvement Plus amounts to less than 1 percent of the company’s 6 million Medicare Advantage enrollees.
MLR numbers for Care Improvement Plus had been increasing (71.3 percent in 2016, 83.9 percent in 2017, and 84.1 percent in 2018), but had remained below 85 percent for three consecutive years, triggering the one-year enrollment suspension. Care Improvement Plus appears to have enrollees in Missouri and Texas. Existing members were allowed to keep their coverage for 2020, but Care Improvement Plus is not allowed to enroll any new members until 2021 (assuming the plan’s MLR improves to at least 85 percent for 2019, which UnitedHealthcare believes will be the case).
Who is eligible to join Advantage plans?
If you live in the designated service area of the specific plan, and already have Part A and Part B (or are eligible to enroll in them), you may join a Medicare Advantage plan instead of Original Medicare (note that there are some rural areas of the country where no Medicare Advantage plans are available). If you have union- or employer-sponsored insurance, you may be able to add an Advantage plan, but be forewarned that in some cases you may lose your employer or union coverage when you enroll in an Advantage plan. [Note that an increasing number of employers are using Medicare Advantage plans to provide health coverage to their retirees; nearly 20 percent of Medicare Advantage enrollees are enrolled in employer-sponsored Advantage plans.]
You should know that if you enroll in a Medicare Advantage Plan, you will not need to purchase Medigap coverage (and you will not be able to buy the coverage). If you already have Medigap coverage, you can keep the coverage (which could be useful if you eventually want to switch back to Original Medicare after your 12-month trial right period has ended), although it won’t pay for Medicare Advantage plan expenses, such as copayments and deductibles.
If you change your mind and want to switch back to Original Medicare in the future, you’ll be able to do so during the annual open enrollment period (October 15 to December 7) or the annual Medicare Advantage open enrollment period (January 1 to March 31), and you’ll have an opportunity to also enroll in a Medicare D plan at that point, regardless of how long you’ve been enrolled in Medicare Advantage. But if you’ve been on the Medicare Advantage plan for more than a year, there is no requirement that Medigap plans be guaranteed issue for people switching back from Medicare Advantage to Original Medicare. So if you’ve got health conditions, it may be expensive or impossible to get another Medigap plan (some states have rules that make it easier for people to enroll in Medigap plans after their initial enrollment window and/or trial right period have ended; click on your state on this map to see how Medigap plans are regulated).
If you’ve been in in the Medicare Advantage plan for less than a year, you’re still in your trial period and you do have the option to enroll in a guaranteed issue Medigap plan when you switch back to Original Medicare; if you enrolled in Medicare Advantage when you were first eligible and are switching back to Original Medicare within a year, you can enroll in any Medigap plan sold in your state. If you dropped your Medigap plan to enroll in a Medicare Advantage plan and you switch back within a year, you can enroll in the Medigap plan you had before, or if it’s no longer available, you can enroll in any plan A, B, C, F, K, or L sold in your state (note that plans C and F are no longer available to people who become newly-eligible for Medicare on or after January 1, 2020).
Individuals with End-Stage Renal Disease (ESRD) are generally not eligible for Advantage plans — with the exception for Medicare Advantage ESRD Special Needs Plans, although these are not widely available – unless they are already in a Medicare Advantage Plan when they are diagnosed with ESRD. But this will change in 2021, as a result of the 21st Century Cures Act. At that point, Medicare Advantage plans will be guaranteed-issue for all Medicare beneficiaries, including those with ESRD.
How has health reform impacted Medicare Advantage?
The Patient Protection and Affordable Care Act has restructured payments to Medicare Advantage plans in an effort to reduce budget spending on Medicare, but for the last few years, the payment changes have either been delayed or offset by payment increases. When the law was first passed, many people – including the CBO – projected that Medicare Advantage enrollment would drop considerably over the coming years as payment reductions forced plans to offer fewer benefits, higher out-of-pocket costs, and narrower networks.
But that has not been the case at all. Medicare Advantage enrollment continues to grow each year. There were 22 million Advantage enrollees in 2019, which was more than a third of all Medicare beneficiaries. And that’s expected to continue to climb in 2020.
The number of Medicare Advantage plans available has increased for 2020 to the highest it’s ever been, with a total of 3,148 plans available nationwide. The majority of beneficiaries still have at least one zero-premium plan available to them, and the average enrollee can select from among 28 plans in 2020.