The Loop

Medicare Advantage on the Rise

Filed under: Benefits

Most retirees have a choice of the type of Medicare coverage they want starting at age 65. Medicare Part A is typically free for those who paid Medicare taxes for at least 10 years. It covers hospital care, post-discharge, skilled nursing facility care, and some home healthcare and hospice. Medicare Part B is optional and can be purchased for a fee. It covers physician and specialist care, some preventative services, outpatient care, and medical equipment. Part D, also optional and offered for a fee, provides coverage for prescription drugs.

And then there is Medicare Advantage (MA), known as Part C. This is a Medicare plan issued by private insurers, also for a fee, that offers an alternative to enrolling in Parts A, B and D. MA plans vary based on issuer, but they tend to combine coverages for hospitalization, physician services, and prescription drugs.

While original Medicare tends to be a bit bare bones, Medicare Advantage plans are more likely to offer expanded benefits, such as vision and dental care, and gym memberships. Also, unlike original Medicare, MA coverage caps how much the member is required to pay out-of-pocket each year. However, HMO and PPO Advantage plans limit the providers a beneficiary can visit for to those within the plan network.

MA Popularity Continues To Grow

First authorized in 2003 as a part of the Medicare Modernization Act, Medicare Advantage plans have become increasingly popular. Since 2005, enrollment has more than tripled to 22 million beneficiaries in 2019 – a 33 percent increase. More than three million Medicare Advantage members are enrolled through their employer or union.

According to the Congressional Budget Office, among the 60 million total Medicare beneficiaries in the U.S., 37 percent are expected to be enrolled in Medicare Advantage plans this year. It further predicts that share will rise to 41 percent of all Medicare beneficiaries by 2027.

2019: More MA Plans Available

According to the Centers for Medicare & Medicaid Services (CMS), the number of Medicare Advantage plans available this year increased by almost 20 percent, up to 3,700 from 3,100 in 2018. Nine out of ten seniors who qualify for Medicare are able to choose from 10 or more MA plans. Among the largest Medicare insurers:

  • UnitedHealth will offer Medicare Advantage plans in 47 states and Washington D.C.
  • Humana will expand HMO offerings into 97 new counties and PPO plans in 352 new counties
  • Anthem is launching MA plans in 150 new counties
  • Aetna is offering Medicare Advantage Prescription Drug plans in 358 new counties and six new states

Medicare Advantage Benefits

One of the key benefits of MA plans is that they tend to cost less than carrying all three original Medicare plans (Parts A, B and D). MA premiums have actually dropped and remained relatively stable over the last several years. In 2010, the average premium was $44 per month; in 2019 the average rate is $29 per month.

By contrast, while Part A is generally free; the Part B monthly premium is typically $135.50; and the average nationwide monthly premium for Part D is $34. This comes to a monthly total of nearly $170, not including the annual $185 deductible, after which seniors typically pay 20 percent of the Medicare-approved amount for physician services.

Another reason MA plans are becoming increasingly popular is because CMS continues to expand benefits for higher levels of coverage, some of which went into effect on January 1, 2019.

MA Boosts Coverage for Non-Medical Benefits

CMS has increased the variety of "primarily health-related" benefits covered by Medicare Advantage Plans (only). Examples include air conditioners for people with asthma, healthy groceries, rides to medical appointments, and home-delivered meals. MA plans may even cover the cost of making simple modifications in beneficiary homes to help with mobility and balance (e.g., installing a wheelchair ramp and grab bars in the bathroom), and pay for home aides to help with dressing, eating and other personal care needs related to daily living activities. The new rules require that benefits be "medically appropriate" and recommended by a licensed healthcare provider.

Coverage Changes for All Medicare Plans

MA plans also benefit from new coverage enhancements for all Medicare beneficiaries.

2019: Drug Coverage Gap Change

When Part D was created in 2006, beneficiaries paid 100 percent of the cost of their brand-name drugs when they entered the coverage gap (also known as "the doughnut hole"). Under the Affordable Care Act (ACA), the cost share during the coverage gap was slowly reduced each year. The Bipartisan Budget Act of 2018 reduced the cost of brand-name medications (only) during the coverage gap starting in 2019.

Some Medicare Advantage Prescription Drug plans offer partial or full coverage during the doughnut hole. Note that those with gap coverage tend to charge a higher monthly premium.

Starting in 2019, the following steps illustrate how Medicare Part D drug coverage will be administered:

  1. Beneficiary pays out-of-pocket to deductible
  2. Beneficiary pays any applicable copays/coinsurance until total prescription drug costs reach $3,820
  3. Thereafter, beneficiary pays 25 percent of the cost of name-brand prescription drugs and 37 percent of generic drugs until reaching an annual out-of-pocket total of $5,100
  4. After that, the beneficiary pays only five percent of all drug costs until the end of the plan year

Note that the recent U.S. District court ruling in Texas, if upheld in appeals, would reverse the ACA drug plan provision. This means that beneficiaries would go back to paying 100 percent of drug costs when they enter the doughnut hole.

2019: Therapy Caps Eliminated

The 2018 budget bill also authorized previous annual caps on how much Medicare pays for physical, occupational or speech therapy to be eliminated. Medicare and Medicare Advantage enrollees remain eligible for this coverage indefinitely as long as their medical provider confirms their need for therapy and they continue to meet other requirements.

2019: New Opioid Coverage Limits

However, one reduced benefit that will affect both types of plans is that CMS has issued rules to limit coverage for frequently abused drugs, including opioids and benzodiazepines. Providers must cap initial opioid prescriptions to treat acute pain at seven days.

Marketing

MA plans are actively and extensively marketed by private insurance companies, while the only entity actively marketing traditional Medicare is the U.S. Government. Interestingly, the past few presidential administrations have come out in favor of Medicare Advantage plans. This is largely because the underwriting risk of coverage lies predominantly with private insurers, which helps keep taxpayers off the hook.

Congress also has shown favor to MA plans by passing legislation that enhances coverage options unavailable with original Medicare, such as vision and dental care, non-medical benefits, and limiting out-of-pocket expenses for members. Advantage plans also have greater latitude to set their own rules for certain types of coverage.

The Trump Administration is no different. In fact, a more recent development is that the CMS has engaged in extensive proactive marketing campaigns touting the advantages of MA plans with no comparable support for original Medicare. In some instances, the marketing materials for MA plans do not even mention its inherent disadvantages, as stated previously as requiring members to stay in network to receive full coverage, whereas original Medicare covers any provider that accepts Medicare insurance (which most do).

Insurer Profit

The proliferation of Medicare Advantage plans is boosting revenues for sponsoring private insurers. Last year, for-profit insurers took in a record $215 billion in revenues and (in 2016) earned two times the profit margin of the average original Medicare plan. In fact, MA plans' five percent profit margin surpasses even that of the health insurance industry's four percent profit margin. Moreover, the Trump Administration has initiated a significantly higher increase in payments for MA plans in 2019 – 3.4 percent compared to 2.95 percent the prior year.

Government Savings

However, according to recent research published in the New England Journal of Medicine, there is reason to question whether Medicare Advantage plans save the government money or may actually increase government spending. The Congressional Budget Office estimates that federal spending on MA plans will nearly triple, from $210 billion this year to $584 billion in 2028.

It is possible the perceived cost savings of MA plans is simply related to fewer subscribers. As enrollment continues to surge, the cost of federal payouts to insurers will increase proportionately, potentially weakening the hypothesis that Advantage plans save the government money.


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