Medicare Advantage

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Background

Private health plans are entities that contract with Medicare to provide services to enrollees. The term includes managed care plans and other models, such as private fee-for-service plans. Private health plans have been available in Medicare almost since the program began. When Congress first authorized private plans in Medicare, its intent was to contain the growth in spending and improve the payment method for certain providers. It also sought to provide beneficiaries, including those residing in rural areas, with more choices and enhanced benefits. These objectives remain relevant. Medicare Advantage (MA), also known as Medicare Part C, is Medicare’s private plan program and is an alternative to traditional Fee-for-Service (original) Medicare. MA plans must cover all Medicare benefits (except hospice) and may also provide additional benefits. Most MA plans offer Part D drug coverage as well.

In order to be eligible for an MA plan, a Medicare beneficiary must be eligible for Medicare Parts A and B. All MA plans are required to establish enrollee out-of-pocket spending limits that do not exceed annual maximums established by CMS. Maximums vary by plan type, and CMS sets a voluntary and a mandatory cap with the former being lower. CMS permits MA plans greater flexibility in establishing cost-sharing for Parts A and B services if they use the lower, voluntary limit. For 2018, a typical voluntary annual limit can be no higher than $3,400, while the mandatory maximum may not exceed $6,700 for in-network services.

MA has several plan types: health maintenance organizations (HMOs); provider-sponsored organizations (PSOs), preferred-provider organizations (PPOs), regional PPO plans, special-needs plans (SNPs), private fee-for-service (PFFS) plans, and medical savings accounts (MSAs). Most, but not all, rely on a specific network of covered or preferred providers rather than covering all Medicare participating providers.

Health maintenance organizations (HMOs)—an HMO may also offer a point-of-service option that allows an enrollee to obtain services out of network for higher out-of-pocket costs. MA HMOs may include different models of HMOs including staff model, group model, or network model HMOs.

Provider-sponsored organizations (PSOs)—similar to HMOs, PSOs are organized and operated by physicians and hospitals. They provide most services within their organized network.

Preferred-provider organizations (PPOs)—PPOs are networks of physicians and hospitals that have agreed to discount their rates for plan members. Enrollees may obtain services from non-network health professionals but must pay higher out-of-pocket costs if they do.

Regional PPO plans—similar to local PPOs, regional PPOs cover a larger service area. They feature a single deductible for Part A and Part B services and an out-of-pocket limit for in-network care and expenditures for benefits that are also offered by traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it… .

Special-needs plans (SNPs)—SNPs focus on the needs of individuals who are institutionalized, are dually eligible for Medicare and Medicaid, or have severe or disabling chronic conditions. Most SNPs are HMOs.

Private fee-for-service (PFFS) plans—PFFS plans are risk-based plans that closely resemble traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it… but are operated by private insurance companies. They permit enrollees to go to any Medicare-approved doctor or hospital willing to accept the plan’s payment. Unlike other MA options, physicians in PFFS plans may balance-bill 15 percent above the plan’s fee schedule. This and other PFFS plan features have the potential to cause confusion for Medicare beneficiaries and make it difficult for them to distinguish this option from traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it… .

Medical savings accounts (MSAs)—MSAs have two components. The first is an MA plan with a high yearly deductible (which varies by plan) with premiums paid by Medicare; the plan pays for covered benefits once the deductible has been met. The second is a tax-free savings account to which both Medicare and beneficiaries contribute. It may be used to cover deductibles and coinsurance charges or to pay for health services that Medicare does not cover. Beneficiaries who choose the MSA option may not have Medicare Supplement Insurance (Medigap).

Private health plans in Medicare pose both opportunities and risks for the program and its beneficiaries. The wide array of private health plan options gives beneficiaries greater opportunity to find plans that meet their needs and preferences. But giving beneficiaries more choices makes the task of selecting coverage more complicated and may be so confusing for some that it leads to poor decisions.

This concern is supported by behavioral economics research findings that indicate greater choice does not necessarily lead to better decisions. Although consumers value choice, it is necessary to balance the desirability of a wide range of complex choices with the cognitive burden of having to select from among too many. Experts advise that one strategy for improving consumer decision-making is to reduce cognitive burden by limiting the number of choices and by creating accessible and easy-to-interpret materials that allow clear comparisons of various choices.

Another problem is that many beneficiaries may not be aware of certain risks associated with MA plans, including that plans may terminate their relationship with Medicare in any given year; change the premiums, cost-sharing charges, or benefits from year to year (including drug coverage); and drop physicians from their networks during the year. Beneficiaries may also not be aware that if they want to voluntarily leave an MA plan and return to traditional fee-for-service Medicare, they may be subject to medical underwriting for a Medicare supplement (Medigap) policy. This underwriting may result in their being refused a policy or being required to pay higher rates.

Additionally, by having multiple coverage options and two pathways to coverage (MA and Traditional), the Medicare risk pool is segmented. There is some evidence that the healthiest beneficiaries are more likely to enroll in an MA option, leaving the sicker, more expensive beneficiaries in the traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it… program resulting in higher premiums. Among the MA plan options, PFFS and MSA plans are likely to attract the healthiest beneficiaries of all.

The tendency of healthy beneficiaries to join MA plans underscores the importance of risk-adjusting Medicare payments to these plans. An accurate risk-adjustment mechanism can help to mitigate the effects of risk segmentation by increasing payments to health plans for high-cost or high-risk enrollees and reducing payments to plans with healthier enrollees. Without these corrections, Medicare will overpay providers with a larger proportion of healthier beneficiaries and underpay those with a larger proportion of sicker beneficiaries.

MA plans are an important alternative for many Medicare beneficiaries, especially those with low income. Data from the 2015 Medicare Current Beneficiary Survey indicate that:

  • 38 percent of African American beneficiaries and 48 percent of Hispanic beneficiaries were in MA plans, and
  • 53 percent of beneficiaries in MA plans had incomes of $30,000 or less (compared with 46 percent of all Medicare beneficiaries).

MEDICARE ADVANTAGE: Policy

Choice of Medicare coverage options

In this policy: Federal

Medicare beneficiaries should have a genuine choice among Medicare coverage options and providers. The traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it… program should remain viable and affordable. Within the Medicare Advantage (MA) program, there should continue to be an adequate number of private health plan options (see also this chapter's section on Managed Care: Policy for policy on choice of plans).

Medical savings accounts and private fee-for-service plans should not be included as Medicare coverage options.

CMS should actively monitor private plan performance and report on comparisons by plan type that examine beneficiary access, out-of-pocket spending, and the impact on total Medicare spending.

Congress should consider whether PFFS plans and MSAs provide added value in Medicare, particularly whether these plan types attract healthier enrollees than others or prove costly for Medicare to sustain. Policymakers should assess the value of offering an excessively large number of plans (see also this chapter's section on Managed Care: Policy).

Consumer protection and enrollment assistance

In this policy: FederalState

Policymakers should evaluate the reasonableness of any significant increase in the premium or cost-sharing charges of private health plans.

Congress should facilitate switching from one Medicare coverage option to another and ensure access to Medigap policies for beneficiaries seeking to change their enrollment from an MA plan to the traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it… program.

In managed care plans that contract with multiple medical groups, enrollees should be allowed to select providers from among all participating medical groups. If this is not feasible, beneficiaries enrolled in health plans offering multiple medical groups must be fully informed about limitations on access to providers in other groups. Plan enrollees should be permitted to change providers whenever they choose.

Congress should adequately fund CMS to conduct outreach and education programs to ensure that Medicare beneficiaries understand both the advantages and disadvantages of enrolling in an MA plan. These programs should advise beneficiaries about a private health plan’s rights to terminate its relationship with Medicare on an annual basis, to annually change the benefits (including drug coverage) it offers or the premiums and cost-sharing it charges, and to drop providers during the contract year. Beneficiary education also should include information comparing the benefits, cost, and quality of available coverage options.

Ombudsman programs

In this policy: FederalState

Consumers should have access to an independent, nonprofit ombudsman program that has a sufficient number of personnel and resources to meet the need and receives federal or state funding.

Ombudsman programs would:

  • assist consumers in understanding a plan’s marketing materials and coverage provisions;
  • educate members about their rights within health plans;
  • help identify and investigate enrollee complaints;
  • assist enrollees in filing formal grievances and appeals;
  • operate and staff a telephone hotline; and
  • report to and advocate before appropriate regulatory bodies on issues of concern to consumers.

Health plans should be required to cooperate with such programs.

Insurance counseling

In this policy: FederalState

Government-supported insurance counseling programs should have sufficient funding to provide adequate staff training to meet the demand for assistance among beneficiaries.