What exactly are Advantage Plans? 

Question: What are Advantage Plans and how do they work? When were they first introduced and what was the original goal of the program?

Answer: Maybe the best way to explain what Medicare Advantage Plans are is first to explain what they aren’t. Medicare Advantage Plans ARE NOT secondary to Medicare nor designed to pick up the gaps in Original Medicare, the Part A $1,736 hospital deductible and the 20% for Part B services. What they do is privatize your Medicare benefits and pay in place of Original Medicare. 

When you choose an Advantage Plan, instead of Medicare paying your hospital bill, minus the $1,736, and 80% of covered Part B services, Medicare actually pays an approved private company of your choice about $14,000 per year to “take over” and become your one and only insurer. 

This large annual reimbursement is why Advantage Plans can offer $0 and other low premium plans that are so popular. In return, the insurance company you choose then becomes responsible for providing you with a benefit package and paying all approved claims, minus your share of the bills in the form of co-pays, coinsurance (a percentage of the total bill), and deductibles, as outlined in the policy’s Evidence of Coverage document. 

Medicare Advantage Plans are regulated to cover all the same services as Original Medicare, and as good or better than Original Medicare. Advantage Plans also provide a limit, or cap, on what an individual can be charged for covered medical services in a calendar year, referred to as the Maximum Out of Pocket (MOOP).

Co-pays can be as little as $0 for primary care doctor visits or blood work and $20 to $50 for X-rays, specialist visits and Urgent Care. Other services are more expensive; $120 for a trip to the Emergency Room and $200 to $300 for CT scans, MRIs, and outpatient surgeries. Inpatient hospitalization co-pays  vary by plan and run anywhere between $350 to $2,500. Coinsurance for infusion or injection therapy are generally the costliest services with Advantage Plans.  For example, those who need chemotherapy, Remicade infusions, or shots in their eyes for Macular Degeneration are responsible for paying 20% of the total approved billable charges, which can be thousands of dollars, up to the MOOP, which range between $4,500 and $6,500 on the most popular plans in Western PA, and from $3,500 to $9,250 in other states. 

When did the Advantage Plan program begin? 

Advantage Plans were first introduced under another name in 1997 and were rebranded as Medicare Advantage in 2003. However, they were not very popular until Part D prescription coverage was introduced in 2006 and started to be included in most Advantage Plans. This is when they really began being marketed to the public. I got into the Medicare insurance business not long after, in 2007, and have been a witness to the massive growth of Medicare Advantage to what it is today with over 34 million Americans enrolled. 

Why was the program started? 

Even 25 years ago, the rising costs of Original Medicare was a real concern, especially as the mass of baby boomers were approaching age 65. Simply put, the number one goal of Medicare Advantage was to save money. I distinctly remember being told in 2007 during my initial training that each person who enrolled in an Advantage Plan saved the government (taxpayers) approximately 10% versus someone on Original Medicare. 

The second goal of the program was to provide additional choices for those on Medicare. Prior to the introduction of Advantage Plans, Supplements were the only option to cover the gaps in Original Medicare. Not everyone could afford a Supplement forcing millions of Americans to ride with Medicare only which had, and still does have, no limit on how much one could be billed. As I already discussed, Medicare Advantage Plans were regulated to provide an out of pocket limit, the MOOP, as well as coverage that was as good or better than Original Medicare, making the original concept a win/win; the government (taxpayers) saves money and those on Advantage Plans get better benefits at little or no additional costs. At inception, it was absolutely genius! Unfortunately, the original plan to save tax dollars didn’t last very long, something I will get into more in Part 3 of the series.  

How do Advantage Plans differ from Supplements? 

There’s a long list of differences between Advantage Plans and Supplements. Let’s talk about what I feel are the most important. First, and as I mentioned previously, Advantage Plans ARE NOT secondary to Medicare nor pay the gaps in Medicare like Supplements do which limits out of pocket medical costs to little or nothing. Advantage Plans have cost sharing for almost all services and as I also touched upon, can expose those who have them to hundreds or thousands of dollars in medical bills each year. 

Supplements provide nationwide access to doctors or hospitals with no restrictions or additional costs. Advantage Plans are HMOs or PPOs and have networks, most of which are regional. HMOs limit access to doctors and hospitals to only those in network. PPOs provide access to out-of-network providers, but there are limitations and often much higher costs to use non-network doctors and hospitals. 

A huge driver in the growth in Advantage Plans is the low premiums.  In Western PA, the most popular Advantage Plans are $0 to $35 per month. Supplement Plan N starts at $80 to $110/month for a 65-year-old and increases as one gets older, some years as much as 10% to 20%. 

Also fueling the popularity of Advantage Plans in the last few years is the generous and valuable ancillary benefits they provide such as dental, vision, hearing, OTC allowances, gym memberships, and more at no extra cost. Supplements don’t provide any of these extra benefits. 

Another important contrast is the difference in how some medical care is approved and can be accessed. Those on Supplements don’t have to worry about getting prior authorizations from an insurance company. Virtually every service can be received immediately as ordered by a physician. That’s not the case with Advantage Plans and MRIs, CT scans, surgeries, among a few other services must be prior authorized from by the insurance company before they can be received which can cause delays in getting tests or procedures. 

There is plenty more that people need to learn before making the decision in enrolling in a Supplement or Advantage Plan. It’s vital to understand it all because one’s initial choice can have implications that last a lifetime. 

If you have questions regarding Part 1 of this series, The History and Facts of Medicare Advantage, please call us at 724-603-3403 or email me personally, Aaron@GetYourBestPlan.com. 

In Part 2, I will answer the following: Why are Advantage Plans such a vital part of Medicare? Why have they become so popular? Who benefits from them and is best to choose one instead of a Supplement?