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] 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 interest group 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.
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) 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. 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. 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.
Some MA plans cover both Medicare and Medicaid services for people who are eligible for both.[12] To be eligible both Medicare and Medicaid coverage, often referred to as "dual eligibility," individuals must meet specific eligibility criteria for each program separately. Medicare is typically available to those aged 65 and older, certain individuals with disabilities, and those with end-stage renal disease or ALS.[13] Medicaid eligibility is income and asset-based, varying by state, and is generally available to low-income individuals.[14]
The CMS Innovation Center's Medicare Advantage Value-Based Insurance Design (VBID) model tests the effect of offering customized benefits that are designed to better manage their disease(s) and address social needs, including food insecurity and social isolation. The VBID Hospice Benefit Component provides access to palliative/hospice services.
The number of people using public Part C of Medicare grew from almost zero since 1998 to 26.5 million in 2021. The top-25 Medicare Advantage insurers enroll a combined 21.6 million people, or 87 percent of the total. Nine plans saw growth over 10% in 2021.[15]
In 2022, 295 plans (up from 256 in 2021) covered all Medicare services, plus Medicaid-covered behavioral health treatment or long term services and support.
In 2022, 1000 MA plans were projected to enroll 3.7 million people in VBID. The hospice benefit will be offered by 115 Medicare Advantage plans in 22 states and territories.
In 2019, Medicare Advantage Organizations denied 13% of prior authorization requests that would have been accepted if the beneficiaries were in original Medicare.[16] In 2019 alone, Medicare Advantage plans cost tax-payers $9 billion more dollars than if beneficiaries were in original Medicare.[17] This is due to a financial incentive for insurance companies associated with these plans to manipulate diagnosis codes. In addition, while original Medicare allows for beneficiaries to visit any provider that accepts Medicare, most Medicare Advantage plans restrict the number of providers and hospitals that beneficiaries can visit.[18]
As a result of labeling beneficiaries with more severe diagnoses as a way to generate profit, many companies that participate in MA plans such as UnitedHealth, Humana, Elevance, and Kaiser have or are facing federal fraud lawsuits from the Department of Justice.[19]
A Wall Street Journal analysis in July 2024 concluded that private insurers made dubious diagnoses in their clients in order to trigger large payments from the government's Medicare Advantage program. The patients often did not receive any treatment for those insurer-added diagnoses. The report, based on Medicare data obtained from the federal government under a research agreement, calculated that in the three years ending 2021, insurers pocketed $50 billion from Medicare for diseases no doctor treated.[20] Several estimates of Medicare Advantage overbilling by private insurers reach the budgets of major government agencies like the FBI or the US Customs and Border Protection, and most large private insurers in the Medicare Advantage program have been accused of fraud in court or by the Office of Inspector General.[21]