In the last 10 years, the number of Medicare beneficiaries enrolled in Medicare Advantage has more than doubled, to 24.4 million as of 2020. That represents more than one-third of all Medicare beneficiaries.
The Congressional Budget Office estimates that by 2030, the proportion of beneficiaries enrolled in Medicare Advantage will rise to about 51 percent.
Most Medicare Advantage plans offer benefits that are not available with traditional Medicare (also referred to as original Medicare). According to the Kaiser Family Foundation, which studies health care policy issues, 90 percent of Medicare Advantage plans offer prescription drug coverage. Most of those plans do not require payment of a separate premium as would be made under traditional Medicare and the Part D drug program.
In addition, most Medicare Advantage programs offer benefits for eye exams and glasses (79 percent), dental care (74 percent), fitness (74 percent) and hearing aids (72 percent).
The COVID-19 pandemic prompted the Centers for Medicare and Medicaid Services (CMS) to authorize additional benefits to promote social distancing. The additional benefits include telehealth, transportation to medical visits and meal services. The scope of additional benefits beyond hospitalization and doctor services is determined by the individual plan.
Delivery of care in Advantage plans is through Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). The HMOs and PPOs are paid a capitated rate by the federal government to provide the enrollees’ health care needs. In contrast, traditional Medicare makes payments on a fee-for-service basis with use of Diagnostic-Related Groups (DRGs) for hospital stays.
A small number of private companies dominate the Medicare Advantage market. Three companies - UnitedHealthcare, Humana and Blue Cross Blue Shield affiliates - account for 59 percent of Medicare Advantage enrollees. According to the Kaiser Family Foundation, other major players are CVS Health, Kaiser Permanente, Centene and Cigna.
Approximately 3 million Medicare enrollees join what are called "Special Needs Plans." Those plans restrict enrollment to people with severe chronic conditions, such as end-stage liver disease, dementia and heart failure. In addition, people who live in certain types of institutions or are dually eligible for Medicaid and Medicare are eligible for Special Needs Plans.
The tradeoff for additional benefits for those who enroll in Medicare Advantage plans is less choice of providers. Coverage under an HMO requires the patient to use an in-network provider. PPOs allow patients to go out of network, but the cost to the patient will be more.
HMOs and PPOs usually require advanced approval from the organization for expensive services such as hospitalization, CTs and MRIs, whereas traditional Medicare generally does not require advance approval other than the physician’s order.
Advantage plans, like traditional Medicare, require payment of monthly premiums. Enrollees in Advantage plans also make copayments and pay deductibles up to an annual out-of-pocket limit of about $5,000 for HMOs for in-network services and about $10,000 for PPOs for in-network and out-of-network services.
A study by the Kaiser Family Foundation reported that the profit per patient in an Advantage plan was about double the profits in individual and group plans.
Kaiser reported the "annual gross margins" averaged $1,608 per covered person in an Advantage plan between 2016 and 2018. "Average gross margin" is the average amount by which premium income exceeds claims costs per enrollee.
Advantage plans use multiple techniques to increase profits. High levels of integrated care with frequent monitoring of a patient’s condition can reduce hospitalizations and other costs. Documentation of a patient’s underlying conditions may increase the risk-adjusted payments to the plan from Medicare. Plans also may protect their profits by shifting some of their risk to physician management companies.
Physicians operating under Advantage plans usually have less autonomy than physicians working with traditional Medicare or working in the pre-HMO/PPO world. With Advantage plans, procedures and contacts tend to be standardized, but there still may be room for negotiation.
The AMA, in a publication titled "Evaluating Medicare Advantage Value-Based Contracts," offers pointers:
Make sure the methodology for determining reimbursement is clear and relevant to your practice;
Have timely access to the data used to improve clinical practices and calculate payments; and
Ideally, changes to the plan’s contract or policies would require your consent, but if that is not the case, ample notice should be provided - such as 90 days.
Jeff Atkinson is a professor for the Illinois Judicial Conference and has taught health care law at DePaul University College of Law in Chicago.