Understanding Medicare Part C – Medicare Advantage Plans and its Dizzying Level of Choices
Introduction: What Is Medicare Part C or Medicare Advantage?
Medicare Part C or Medicare Advantage is a Medicare-sponsored adaptation of health maintenance organizations (HMO) or preferred provider organizations (PPO), regulated and supported by monthly capitation payments from Medicare. Other types of plans are available, but HMOs and PPOs account for most plans available. These capitation payments (around $1,100 per month paid by Medicare to the private sponsor) may be augmented by monthly premiums and co-pays directly from the beneficiary – you. Medicare Advantage plans were launched in the 1980’s, and augmented by legislative updates in 1997 and 2010, expanding the flexibility of benefits available to plan participants beyond those offered by original Medicare. Popular additional benefits include drug coverage (in 90% of Part C plans – an alternative way to participate in Part D), dental coverage, hearing, meals, vision, fitness, transportation, and emergency care outside the US.
The expansion in benefits has contributed to the growing popularity of Medicare Advantage Plans – with 40% of Medicare beneficiaries participating in Part C today.
Medicare Advantage Plans are available on a county-by-county across the US, and participation varies widely based on local norms, physician concentrations and previous popularity of HMO and PPO plans. Participation ranges from less than 1% to over 70% by county in the US.
1. Cost and Coverage
At a minimum Advantage Plans must cover all services covered in original Medicare, and all participants in Part C must be enrolled in Part B. Medicare limits the maximum out-of-pocket costs for Part C participants to $7,550 (in-network) and $11,300 (in and out-of-network) in 2021. Most plan participants pay much less than these maximums due to plan design and utilization – averaging $4,486 and $8,828 in 2020 respectively.
The annual enrollment period for Medicare Advantage runs from October through December, and all participants can change plans during that period. Part C plans frequently undergo significant annual changes in benefits and costs and are rated annually by Medicare based on a 5-star rating system.
These annual changes produce a feeding frenzy from October 15th through December 7th (called the Annual Enrollment Period) by plan sponsors seeking new participants – and a commensurate explosion in TV commercials featuring ancient former quarterbacks, familiar only to aged Medicare beneficiaries. The Annual Enrollment Period (AEP) is the easiest time for open enrollment, In part because of the marketing hype and confusion, in 2019 Medicare created a 3-month Open Enrollment Period (OEP) period from January 1 through March 31st when Part C participants can change plans without penalty.
2. All Medicare Advantage Plans are “Star” Rated for Comparison
Medicare uses a 47 point system to rate Medicare Advantage Plans on a system from 0 to 5 stars. There is little evidence that more stars means better care, but there is little question that more stars means better participant satisfaction with service. Medicare created a special enrollment period for Part C participants and 5-star plans, such that participants can switch one time between December 8th and November 30 – effectively a year-long opportunity to switch out into a 5-star plan only.
The data for the ratings is objective and is drawn from Healthcare Effectiveness Data and Information Set (HEDIS) and the Consumer Assessment of Healthcare Providers and Systems (CAHPS) data.
There is real money attached to the star ratings – with Medicare bonus capitation payments from 3.5% to 10%. For large and stable Medicare Advantage plans, bonus payments begin at 4-star ratings and 5% bonus payment. These bonus payments have grown from $3.0 billion in 2015 to $11.6 billion in 2020. In 2021, over 80% of all plan participants are in plans rated 4 stars or above. Medicare provides a nice interactive format for review of star ratings by plan, and even compares the individual plan with comparable satisfaction with original Medicare participants.
A key consideration for Medicare participants is that these plans are all managed care, and wickedly complicated. For retirees in the “go-go” years of retirement, who may spend a lot of time offshore, the range of benefits and longer periods of offshore stay make these an attractive alternative. They are also attractive to participants in the “slow-go” or “no-go” phases of retirement when choice is dictated by limited ability to travel, and local networks are the only feasible alternative.
But Medicare Advantage is managed care, which means reduced choice and prior authorization. There are real cost differentials for participants based on utilization of care as shown in the table below.
3. Choice and Availability
Medicare Advantage functions based on the ability of private insurers to arrange care delivery networks that are both appealing to consumers and cost-effective. This clearly favors plan development in urban areas and in wealthy suburbs with high levels of medical care. As with Medicare Supplements, I’ll examine those plans available to me in my home, Nashville Tennessee, and two former residences, Hanover, New Hampshire, and Hampden, Maine. You can find these comparison tools from Medicare (here). Additionally, I’ll look at some of the availability of selected benefits through those plans. The selections included assume that I do not qualify for additional benefits based on either income or disability.
It is important to note that of the 42 plans available to me in Nashville, 26 are $0 premium plans (62%) – clearly the market is skewed towards thrift in Nashville. There are 7, $0 premium plans for Hampden, Maine (out of 21 or 33%) and 15 for Pelham, NY (out of 42 or 35%) respectively.
- Costs shown are monthly premiums for Part C Plan and do not include Part B premium, which varies with income, but has a base level of $148.50 per month and needs to be added to Plan premium for total monthly cost, prior to co-pays and deductibles.
The increase in plan benefits has been significant – as an example virtually all the plans summarized above include vision, dental and hearing benefits. The problem is that these benefits are not standard across plans, and therefore not directly comparable. They may be limited by network availability, co-pays, deductibles, and aggregate benefits. The “extra benefits” of Part C plans will continue to expand as acceptance grows and standardization becomes more critical.
4. Profitability Drives Growth – So Expect Expanded Choice
Medicare Advantage has been the most profitable product line for health insurance line for domestic insurers for many years based on gross margin per participant (See Figure 6 below).
Medicare Advantage plans have developed into a profitable and growing product line for health insurers, while offering expanded benefits for plan participants. These plans are not all created equal, and each year requires a large amount of effort to re-evaluate plan options to make a decision correct for your personal circumstances.
That’s why we are here. Give us a call – we can help.