Medicare Advantage

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Medicare Advantage (Medicare Part C, MA) is a type of health plan offered by Medicare-approved private companies that must follow rules set by Medicare. Most Medicare Advantage Plans include drug coverage (Part D). Under Part C, Medicare pays a sponsor a fixed payment. The sponsor then pays for the health care expenses of enrollees. Sponsors are allowed to vary the benefits from those provided by Medicare's Parts A and B as long as they provide the actuarial equivalent of those programs.^[1]: 61 The sponsors vary from primarily integrated health delivery systems to unions to other types of non profit charities to insurance companies. The largest sponsor is a hybrid: the non profit charity AARP using UnitedHealth.

Part C plans are required to offer coverage that meets or exceeds the standards set by Medicare Parts A and B, but they do not have to cover every benefit in the same way (actuarial equivalence is required). The major advantage of a public Part C Medicare Advantage plan is that each features an out of pocket annual spend limit of the beneficiary's choosing, typically ranging from $1500 to about $8000 in 2023. The lower the limit the higher the premium as with insurance of all types. Many Part C plans with a high limit have no premium (but the Part C enrollee still has to pay a Part B premium if otherwise required). Original Medicare Parts A and B do not include such out of pocket spend limit protection.

Plans must be approved by the Centers for Medicare and Medicaid Services (CMS). If a MA plan changes some benefits, the savings must be passed along to consumers by lowering co-payments for doctor visits (or any other plus or minus aggregation approved by CMS).^[2] Coverage must include inpatient hospital (Part A) and outpatient (Part B) services. Typically, the plan also includes prescription drug (Part D) coverage.^[3] Many plans also offer additional benefits, such as hearing or dental coverage or vision services not covered by Part B of Medicare. Such plans typically require a higher premium.^[1]: 62

Those who do not enroll in a Part C plan receive coverage for Part A and Part B services. Many purchase private supplemental coverage (Medigap)^[4] to cover the large co-pays, co-insurance and deductibles in Original Medicare Parts A and B, and enroll separately in Part D for coverage of prescription drugs.^[1]: 8 Public Part C Medicare Advantage plans also include nominal co-pays and co-insurance but there are no deductibles

Most MA plans are managed care plans (e.g., PPOs or HMOs) with limited provider networks. About 40% of Medicare Advantage enrollees with prescription drug benefits pay an additional premium.^[4]

Original Medicare and Medicare Advantage pay healthcare providers differently. Original Medicare typically reimburses healthcare providers with a fee for each service.^[5] This fee is often calculated with a standard formula (for example, the prospective payment system for hospital services). Providers either accept Medicare's reimbursement rates or opt out of the program.^[5] Public Medicare Advantage plans negotiate payment rates and form networks with healthcare providers, similar to private health insurance plans that almost all Americans not of Medicare age use.^[6][7]

As of 2023, about 50% of Medicare beneficiaries were members of Medicare Advantage plans.^[8] Nearly all Medicare beneficiaries^[9] have access to at least one Medicare Advantage plan; on average 39^[10] plans per county were available. By design, the cost to the trust funds of Medicare Advantage plan members and those beneficiaries receiving services on a fee basis should be the same by county. However the convoluted framework/bid/rebate process built into the 2003 and 2010 revisions to the 1997 Medicare Advantage law means this one-one relationship will always be out of synch. On average, over the 25 years of the program comparable people on both programs (that is, for example, people not on Medicaid or Federal retirees or people still working or in the VA system or in union plans) have costs the Trust Funds equal amounts .^[11]

Other plan types, such as 1876 Cost plans, are available in some areas. Cost plans are not Medicare Advantage plans and are not capitated. Instead, beneficiaries keep their Original Medicare benefits while the plan sponsor administers their Part A and Part B benefits.