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Medicare Advantage (Part C) private health plans

Medicare's annual open enrollment period (October 15 to December 7) offers a chance to reevaluate – and change – Advantage coverage

Key takeaways

What is Medicare Advantage?

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 as well as additionals supplemental benefits.

And unlike Original Medicare, the plans do include a cap on out-of-pocket costs that currently can’t exceed $7,550. (This is a significant increase from the previous several years, when the limit was $6,700 through 2020.) 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.

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 for Medicare Part B, also tend to be less expensive than Original Medicare plus a Medigap plan plus a Part D plan. This article helps to illustrate the pros and cons of each option.

How many Americans have Medicare Advantage coverage?

As of April 2022, there were more than 29 million Americans enrolled in Medicare Advantage plans — nearly 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. 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.

What are the benefits of Medicare Advantage?

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.

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, dental care, and various other supplemental benefits. Since 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. Some plans have chosen to offer these benefits, although they are still not particularly widespread as of 2022.

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 US counties (most Advantage plans do not include rebates for Part B premiums, but most areas do have at least one plan that does).

Where these plans are available, it’s common to see them reduce a person’s Part B Social Security premium deduction by $30 to $70 per month, although the premium rebates range from as little as ten cents per month to as much as the full cost of the Part B premium.

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.

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: 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.

How much do Medicare 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.

Advantage plans can charge monthly premiums in addition to the Part B premium, although 59% of 2022 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 standard amount, if they select a plan with the giveback rebate benefit described above).

But across all Medicare Advantage plans, the average premium is about $19/month for 2022. 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.

Some Advantage plans have deductibles, others do not. But all Medicare Advantage plans must currently limit in-network maximum out-of-pocket (not counting prescriptions) to no more than $7,550. 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. CMS will continue to gradually change it over time, although it’s still $7,550 for 2022. (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.)

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 2021 was approximately $5,091 for in-network services — 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%, 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 has ordered several plans to suspend enrollment in 2022 coverage due to a failure to meet the MRL requirements.

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% 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 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.

What if you want to leave Medicare Advantage and switch to Original Medicare?

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) 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 back 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 plans C and F are no longer available to people who become 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 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 29 million Advantage enrollees in 2022, which accounts for nearly 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 2022 to the highest in the last decade, with a total of 3,834 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 39 plans in 2022.

How does the Affordable Care Act affect Medicare overall?

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