Saturday, March 30, 2019

Medicare Advantage finance

Some people with Medicare Advantage coverage wonder why they must pay Medicare Part B premiums when they aren't covered by Medicare. They show their Medicare Advantage card to medical providers and pharmacists and don't need to show their Medicare cards. A few of these even pay Part A premiums, which are higher than the Part B premium for most such people, when neither they nor their spouse has 40 or more quarters of Social Security coverage.

Why must they pay said premiums when they do not have Medicare coverage? Medicare Advantage insurers relieve Medicare of paying claims on behalf of those who choose a Medicare Advantage plan. Medicare -- more specifically the Center for Medicare and Medicaid Services (CMS) -- pays Medicare Advantage insurers for each person who enrolls in a Medicare Advantage plan. Indeed, CMS pays them a lot of money -- called capitation payments -- currently on average about $11,000 per year per person enrolled in a Medicare Advantage plan. So in effect, the Part B premium (plus any Part A premium) paid by the Medicare Advantage insured is an indirect payment to the insured's Medicare Advantage insurer. For most the Part B premium of $1,626 (=12*$135.50) for 2019 is about 15% of the $11,000.

The capitation rates vary by county and are higher for higher risk insureds. Receiving said capitation money is how some insurers can offer and advertise a Medicare Advantage plan with $0 premium.

"$0 premium" does not mean the insured person pays nothing. In addition to the Medicare Part B premium, and for a few the Medicare Part A premium, the insured persons pay deductibles, coinsurance, and co-pays when they utilize the services covered by the Medicare Advantage plan. This page gives more detail.

In 2018, 34% of Medicare beneficiaries – 20.4 million people – were enrolled in a Medicare Advantage plan (link). So about 66% have original Medicare. They may also have a Medicare supplement plan (also called Medigap) and a Part D prescription drug plan. In 2016,  81% of original Medicare beneficiaries had some type of supplemental insurance, including employer-sponsored insurance (30%), Medigap (29%), and Medicaid (22%). Link.

The major sources of revenue for all of Medicare in 2018 were general revenues 43.2%, payroll taxes 36.2%, and premiums 15.3% (source: Medicare Trustees Report).

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