If we used football scoring to
track the progress of healthcare reform, this would be the
moment to declare: Touchdown…Advantage!
Obamacare opponents have been warning for several years now
that Medicare Advantage, the private plan option, that seniors
can pick instead of traditional fee-for-service Medicare, would
fail because of the healthcare law’s impact on the program. The
prediction was that the gradual elimination of extra federal
reimbursements to Medicare Advantage would kill it.
But the opposite is happening.
Advantage plans, which combine Part A (hospitalization) Part
B (outpatient services) and usually Part D (prescription drugs),
are on a big-time roll. Enrollment has jumped an impressive 10
percent in each of the past three years, according to data
compiled by the Kaiser Family Foundation (KFF), a non-profit
healthcare research and policy organization. About 28 percent of
all Medicare enrollees this year are in an Advantage plan.
“The growth is remarkable, and no one anticipated it,” says
Dan Mendelson, chief executive officer of Avalere Health, a
healthcare consulting and research firm. “Advantage plans will
be over 40 percent of the market soon.”
The growth of Advantage likely will shift into an even
higher gear during the next few years following the launch of
the state public insurance exchanges under the Affordable Care
Act (ACA). Most are managed care plans – 65 percent are health
maintenance organizations (HMOs) and 22 percent are preferred
provider organizations (PPOs), according to KFF. Many of the top
players in Advantage also will be marketing insurance in the
exchanges and they will have ample opportunity to cross-market
Advantage plans to older users of exchange products as they
transition to Medicare.
Savings on premium costs are a big driver of Advantage plan
growth. Enrollees pay their regular Part B premium, which
is$104.90 this year. The Advantage plans also can charge a
supplemental premium, but many don’t. This year, 55 percent of
enrollees are in plans with no extra premium, and two-thirds of
HMO Advantage plan members pay nothing extra, KFF says.
That means Advantage participants do not pay standalone
premiums for prescription drug coverage, averaging $30 per month
this year. They also are not paying for Medigap supplemental
plans, which are popular in traditional Medicare and cover
deductibles and coinsurance for long hospital stays and
outpatient services, and help lower out-of-pocket costs.
Prices vary, but it’s not uncommon to find monthly Medigap
premiums around $200. (Medigap is not sold with Advantage
NO FEAR OF MANAGED CARE
Advantage plans also are gaining because the baby boomers
coming into the Medicare system are accustomed to managed care.
“The next generation of Medicare enrollees were in the
workplace during the managed care revolution of the 1990s, so
they’re more used to care networks and rules,” says Joe Baker,
president of the Center for Medicare Rights, a non-profit
consumer service organization.
Mendelson takes that one step further, arguing that seniors
are losing patience with traditional fee-for-service healthcare.
“Our survey work shows a growing level of frustration with
the fee-for-service approach,” he said. “Patients see a system
that lacks coordination of care and quality metrics. They sense
that doctors have less and less time to take care of patients.”
Under Obamacare, fee-for-service providers are encouraged to
band together into Accountable Care Organizations (ACOs), which
aim to coordinate care. But ACOs still are in the experimental
So the rapid growth of Advantage leaves an open question: Is
a private managed care plan good for everyone on Medicare?
The savings on premiums are an important plus for healthy
seniors, since their overall usage of care will be low and
out-of-pocket costs will be minimal. Baker urges less-healthy
seniors to proceed with caution.
“If you’re a relatively healthy 65-year-old who goes to the
doctor once a year, you will save some money on premiums,” Baker
says. “But costs can escalate if you get sick.”
That’s because Advantage plan members have exposure to
potentially high out-of-pocket costs if they use a lot of
healthcare. Federal regulation caps their annual out-of-pocket
spending at $6,700, although most plans cap cost-sharing at much
lower levels. The average out-of-pocket cap in Advantage plans
this year is $4,317 and half of enrollees are in plans capped at
or below $3,900, KFF reports.
Traditional Medicare, by contrast, has no cap, but if you
have Medigap, many out-of-pocket charges such as copays are
Choosing between Advantage and traditional Medicare boils
down to a bet on your health prospects when you first enroll in
the program, usually at age 65. You also can switch between
fee-for-service and Advantage during Medicare’s annual fall
If you are inclined to take traditional Medicare, there is
an advantage to picking it when you first enroll because the
Medigap policy won’t be able to exclude you for any pre-existing
condition or charge a higher premium due to any past health
problems. Depending on your state, you might have trouble
getting a Medigap policy, or have to pay more, if you try to get
a policy past that point.
And what about those reimbursement cuts? Before the ACA,
Medicare Advantage plans were reimbursed by the federal
government at 114 percent of regular Medicare rates, a payment
scheme that was put in place to stimulate the Advantage market.
The ACA reduces them by $116 billion over a period of years,
ultimately equalizing reimbursements with traditional Medicare.
Written by Mark Hermiller, broker at Humble & Davenport, and owner of Peak Advisors.