Medicare Advantage analysis

It's time for a balanced conversation about Medicare Advantage spending

When a person becomes eligible for Medicare, he or she has two main choices. 

1. Original or traditional Medicare with or without supplemental coverage via a prescription drug policy, Medicaid, purchasing a Medicare supplement policy (sometimes called Medigap), or from an employer. The model is fee-for-service.  Medicare pays providers for claims for medical services.

2. Medicare Advantage. The insured person chooses one insurer (not Medicare) among many and various plans the insurer offers.  One policy from a private insurer, which pays providers. The Centers for Medicare & Medicaid Services pays each private insurer on a per capita basis, the rates varying geographically. The model is managed care or HMO or PPO. 

In either case, he or she pays the Medicare Part B premium. 

The author of this article favors Medicare Advantage over original Medicare with or without supplemental coverage. She believes it is more cost effective. I don't have the expertise to opine on the thoroughness of her case, but it seems she presents a good and unbiased case for favoring Medicare Advantage.

P.S. Sellers of Medicare Advantage policies often advertise "$0 premium." While this is true regarding the amount of premium the insured person pays to the insurer, it is at least misleading since the insured person must pay the Medicare Part B premium. Rarely does "$0 premium" advertising include this caveat, or it is in fine print (which on tv can appear too briefly to read).

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).