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Medicare Advantage (Part C) private health plans

The Medicare Advantage Open Enrollment Period (January through March) offers a chance to reevaluate – and change – Advantage coverage

Louise Norris

What is Medicare Advantage?

Medicare Advantage plan is a private coverage alternative to Original Medicare that often incorporates additional benefits, including Part D coverage and extras such as dental and vision.

How does Medicare Advantage differ from Original Medicare?

Unlike Original Medicare, the plans include a cap on in-network out-of-pocket costs that currently can’t exceed $8,300. (This cap has increased in recent years; it was $6,700 for several years, through 2020. But Advantage plans tend to have out-of-pocket caps well below the allowable limit, averaging less than $5,000 in 2022.) This out-of-pocket limit only applies to services that would otherwise have been covered by Original Medicare, so it does not include prescription drug costs, which Original Medicare does not cover.

Medicare 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 (Medigap and stand-alone Part D) coverage. But Advantage plans, including the cost of Medicare Part B, also tend to have lower monthly premiums than Original Medicare plus a Medigap plan plus a Part D plan. This article helps to illustrate the pros and cons of each option.

What does Medicare Advantage cover?

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 debuted a small pilot program in 2021 in which a limited number of Advantage plans are providing hospice services through the Advantage plan rather than through Original Medicare. As of 2023, there are 52 Medicare Advantage organizations participating in the pilot program, covering about 6 million Medicare beneficiaries.

Advantage plans also cover urgent and emergency care services, and in many cases, the private plans include Part D prescription drug benefits, and also cover vision, hearing, health and wellness programs and dental care.

Discuss your Medicare Advantage coverage options today with a licensed Medicare advisor. Call 1-844-309-3504.

How many types of Medicare Advantage plans are there?

Insurance companies offer six different approaches to Medicare Advantage plans, although not all of them are available in all areas:

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 does Medicare Advantage 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.

Advantage plans can charge monthly premiums in addition to the Part B premium, although 66% of 2023 Medicare Advantage plans with integrated Part D coverage are “zero premium” plans. This means that beneficiaries only pay the Part B premium (and potentially less than the full Part B premium, if they select a plan with the giveback rebate benefit described below). Nearly all beneficiaries have access to at least one zero-premium Advantage plan.

But across all Medicare Advantage plans, the average premium is about $18/month for 2023. 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 higher.

Medicare Part C out-of-pocket costs

Some Advantage plans have deductibles, while others do not. But all Medicare Advantage plans must currently limit in-network maximum out-of-pocket (not counting prescriptions) to no more than $8,300. The out-of-pocket maximum had previously been $6,700 each year from 2011 through 2020, but it increased as of 2021, under new methodology that was finalized in 2018, and increased again in 2023. CMS will continue to gradually adjust the out-of-pocket cap over time. (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. Drug costs will be capped starting in 2024, as a result of the Inflation Reduction Act.)

But many plans have out-of-pocket limits below this threshold, so it’s important to consider the maximum out-of-pocket when comparing policies. The average out-of-pocket cap in 2022 was $4,972 for in-network services — well below the maximum amount required under federal regulations, and lower than the average out-of-pocket maximum the year before, which had been $5,091.

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 ‘giveback’ rebates

Some Medicare Advantage plans also offer “giveback” rebates, which reduce the amount that’s deducted from the beneficiary’s Social Security check to cover the cost of Medicare Part B (Medicare Advantage enrollees still have to pay for Part B, so even if the Advantage plan has a $0 premium, the person has to pay the federal government for Part B; the giveback rebate offsets some of this cost).

Plans that have giveback benefits, also known as premium reduction plans, are not available in all areas, although they are available in the majority of U. S. counties (most Advantage plans do not include rebates for Part B premiums, but most areas do have at least one plan that does). As of 2023, nearly 17% of Medicare Advantage plans include at least some reduction in the Part B premium, although it’s important to note that this can range from as little as ten cents to as much as the full Part B premium, so the benefit varies considerably across the plans that offer this.

For most Medicare beneficiaries, the Part B premium is simply deducted from their Social Security check. In that case, the giveback rebate will be credited to the Social Security check to offset the amount that’s deducted for Part B. But some Medicare beneficiaries pay for their Part B coverage directly. If those beneficiaries enroll in an Advantage plan that has a giveback rebate, the amount of the rebate will be reflected on the Part B invoice that they receive.

Medicare Advantage medical loss ratio (MLR) requirements

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%, which is the same as the requirement for plans issued to employers in the large group market. That means 85% of their revenue must be used for patient care and quality improvements, and their administrative costs, including profits and salaries, can’t exceed 15% 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.

The federal government ordered several plans to suspend enrollment in 2022 coverage due to a failure to meet the MRL requirements.

Who is eligible to enroll in Part C 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 can choose to enroll in any Medicare Advantage plan available in your area, instead of Original Medicare (note that there are some rural areas of the country where no Medicare Advantage plans are available). There are several points to keep in mind about eligibility for Medicare Advantage coverage:

  • 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% of Medicare Advantage enrollees are enrolled in employer-sponsored Advantage plans.)
  • Individuals with End-Stage Renal Disease (ESRD) were generally not eligible to enroll in Advantage plans prior to 2021 – with the exception of Medicare Advantage ESRD Special Needs Plans, although these are not widely available. But this changed as of the 2021 plans year, as a result of the 21st Century Cures Act. Medicare Advantage plans are now guaranteed issue for all Medicare beneficiaries, including those with ESRD.
  • You should know that if you enroll in a Medicare Advantage Plan, you will not need to purchase Medigap coverage, nor will you be able to buy it. If you already have Medigap coverage, you can keep the coverage (which could be potentially 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 out-of-pocket expenses, such as copayments and deductibles.

Can I switch from Medicare Advantage to Original Medicare?

If you change your mind and want to switch 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) 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 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 to Original Medicare.

  • If you enrolled in Medicare Advantage when you were first eligible and are switching 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 Medigap plans C and F are no longer available to people who became newly eligible for Medicare on or after January 1, 2020.)

For a person who has been enrolled in Medicare Advantage for more than a year and wants to switch to Original Medicare, the lack of guaranteed-issue access to Medigap plans can be a significant obstacle. Original Medicare provides much more extensive access to medical providers nationwide, and when combined with a Medigap plan, it can also offer lower out-of-pocket costs than Medicare Advantage plans (albeit with potentially higher total monthly premiums, so there is a trade-off there). But if a person is unable to enroll in a Medigap plan, the unlimited 20% coinsurance for Medicare Part B can result in unaffordable out-of-pocket costs if extensive and ongoing medical care is necessary.

How many Americans have Medicare Advantage coverage?

As of September 2022, there were about 30 million Americans enrolled in Medicare Advantage plans, amounting to 46% of all Medicare beneficiaries.

Enrollment in Medicare Advantage has been steadily growing since 2004, when only about 13% of Medicare beneficiaries were enrolled in Advantage plans.

When did Medicare Advantage start?

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.

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 more than 30 million Advantage enrollees by late 2022, which accounts for about 46% of all Medicare beneficiaries. That’s up from just 13% in 2004, and 24% in 2010, the year the ACA was enacted.

The number of Medicare Advantage plans available has increased for 2023 to the highest in the last decade, with a total of 3,998 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 43 Medicare Advantage plans in 2023.

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