Medicare Advantage

Medicare Advantage Plans Are Not on the Fringe 

As of April 2024, there are over 66 million Medicare Beneficiaries and almost half of them are enrolled in a Medicare Advantage (MA) Plan.  The MA system, sometimes referred to as Medicare Part C, does not appear to being waning in popularity; rather, it is growing as more and more beneficiaries choose to receive their Medicare benefits through the MA system.  See link for supportive data: Medicare Monthly Enrollment – Centers for Medicare & Medicaid Services Data (cms.gov) (Accessed page on 4/29/24) 

It is not difficult to see the MA marketing efforts at work.  Print, television, social media are all advertising methods used frequently by MA plan sponsors to promote their plans, which naturally promotes the MA system as a whole.  If you have a belief that Medicare Advantage Plans in general are bad or stupid, I recommend that you take a step back and recognize that Medicare Advantage plans actually work a lot like the individual and group health insurance plans that Americans have experienced for the past several decades. 

Medicare Advantage Plans Do Not Break the Mold 

Think about the following typical characteristics of a non-Medicare health insurance plan.  (These points are generalized; of course there are many exceptions.) 

• Policies are purchased from private insurance companies.  Prior to Medicare eligibility, this often occurs through Healthcare.gov, through an employer, or from the insurance carrier directly. 
• Claims are sent to and processed by a private insurance company. 
• Policies are based on some type of network system like an HMO or PPO. 
• Policy holders share the medical costs with the insurance carrier through Deductibles, Copays and Coinsurance features. 
• Coverage is based on some form of “managed care” philosophy.  That is, the insurance company (not just you and your doctor) has a say in what type of treatment is covered, what type of care requires pre-authorizations, and what sort of treatment requires the doctor to try other things before approval is granted for a more expensive kind of treatment. 

My point here is not that all these characteristics are ideal, but that they are not unique to the MA system.  Many of us have been navigating a healthcare system with many similarities to the Medicare Advantage system long before becoming a Medicare Beneficiary. 

Medicare Advantage Plans are Accountable to CMS 

The Centers for Medicare and Medicaid Services (CMS) is a Federal Agency under the Department of Health and Human Services.  (Click here for the About CMS | CMS) The entire Medicare system falls within the scope of the CMS, both Original Medicare and Medicare Advantage Plans.  Therefore, each Medicare Advantage Plan must be approved by The Centers for Medicare and Medicaid Services (CMS) before an insurance carrier (known as the sponsor of the plan) begins to market the plan to consumers.  If the plan is approved, then a portion of the Medicare budget is directed to the plan sponsor on behalf of each Medicare Beneficiary who enrolls in the plan.  As one might imagine, there are a lot of Federal dollars flowing to the plan sponsors.  Because of this, there are also a lot of regulatory “strings” attached.  From how a plan works in terms of coverage to how a plan is marketed and explained to the public – the rules and regulations are copious and detailed.  The prevention of Fraud, Waste and Abuse is a big priority for the government.  At least, so they tell me as I undergo required annual certification on this matter. 

Medicare Advantage Plans Have Pros and Cons 

Like every healthcare system, there are pluses and minuses, pros and cons, costs and benefits; you get the point.  Therefore, when one evaluates whether to receive their Medicare benefits through Original Medicare or through the Medicare Advantage system, he must consider the costs and benefits in a general sense, but also at the Plan level.  He should ask, “Does this particular MA Plan have more benefits than costs, for ME?”  Everyone has unique healthcare requirements and preferences, so even between two people who have been married for more than 50 years, they each may choose a Plan different from one another based on their personal priorities and needs.  Fortunately, the MA system allows for such choices. 

How Can Medicare Advantage Plans Be Free? 

Medicare Advantage Plans are NOT free.  True, there are a lot of MA Plans available across the country with zero premiums, but that is not the same thing as “FREE”.  In fact, CMS regulations forbid insurance carriers and agents from referring to zero-premium Plans as being free.  As one may suspect, no insurance carrier is offering major medical coverage to the public solely out of the goodness of their hearts.   

When a MA Sponsor offers a zero premium or low premium plan, how do they get money?  Who pays the Sponsor if not the enrollee?  Let’s consider two facts.  First, Medicare Beneficiaries continue to pay for their Part B coverage, even if they are enrolled in a MA Plan.  Second, as mentioned above, the insurance carriers receive payments from the federal government for each Plan enrollee.  Does this mean that the Part B premiums are flowing directly to a Medicare Advantage Sponsor?  Not exactly.  Like many areas of the federal budget, revenue is collected and “pooled” together.  Then expenses are paid out of the “pool”.  The calculations involved in determining how much an MA Sponsor is paid per enrollee are far beyond the scope of this page.  What matters in this context is not the amount that is paid or how that amount is determined.  What matters is the fact that MA Sponsors are being paid per enrollee and that that the system is designed to incentivize and reward Sponsors who do a good job at providing healthcare to their enrollees.   

The Sub-Contractor Analogy 

To understand the relationship that Medicare has with Medicare Advantage Sponsors, I think it is helpful think of the Sponsors as Sub-Contractors and Medicare as the General Contractor.  Americans who are eligible for Medicare have an agreement with the Federal government.  Laws were passed which created the arrangement and eligible Medicare Beneficiaries became entitled to healthcare benefits specified in the laws pertaining to Medicare.  From 1965 until 1997, Medicare benefits were primarily administered within federal departments designed to handle the oversight and claims processes.  As the Baby Boomer generation started aging into Medicare eligibility, the administration of the Medicare system became a massive undertaking.  New laws were passed to allow private insurance companies to become part of the system.  Basically, the General Contractor began hiring Sub-Contractors to help carry the load.  Fast forward from 1997 and the Medicare system is dealing with over 66 million enrolled beneficiaries, many of whom have chosen to continue to receive their benefits under Original Medicare (from the General Contractor).  However, almost half of the population of Medicare Beneficiaries have elected to receive their benefits through one of the many “Sub-Contractors”, known better as Private Insurance Companies that has been contracted by Medicare to administer Medicare benefits to eligible enrollees.  These private insurance companies cannot simply make up their own rules regarding coverage and enrollment; they are obligated to follow strict guidelines set by Medicare or else the will lose their contract as well as face penalties.  

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