Most Medicare beneficiaries can choose between two distinct paths for coverage: traditional fee-for-service Medicare, or a federally subsidized private Medicare Advantage (MA) plan. MA plans typically place some limitations on the beneficiary’s access to health care providers but they may also expand coverage to some services not covered by traditional Medicare.
When the Medicare Modernization Act was enacted in 2003 the political decision was made to try to shift Medicare enrollees from traditional government run Medicare to private MA Plans. To accomplish this, the government began paying MA plans a premium over what it cost for beneficiaries who remained in traditional Medicare. The premium is currently around 14% or over $1,100 per plan enrollee. The extra money allows Advantage Plans to cover their higher administrative costs and still be able to attract enrollees with extra benefits. For an average of $40 to $74 more a month over their regular Medicare premium, an enrollee can get a host of extra benefits not included in traditional Medicare.
Medicare Advantage Plans are aggressively marketed and have been particularly popular in Pennsylvania where a growing number of seniors have opted to enroll in them rather than the traditional government program. In Pittsburgh, 56% of Medicare beneficiaries are enrolled in an Advantage plan, the highest percentage of any metropolitan area in the country.
Over the next several years the Affordable Care Act will take some of the Advantage out of Medicare Advantage Plans.
The new law will return the competition between Advantage plans and traditional Medicare to a more level field by reducing the extra payments to MA plans to an average of only 1%. Actual payments to individual MA plans will vary depending on Medicare costs in the geographic location and the plan’s performance ratings.
Like many of the health reform provisions, these MA plan cuts will be phased in over time. In 2010, no cuts will be made. In 2011, payments will be frozen at current levels. Starting in 2012, the remainder of the cuts will phase in over two to six years.
MA plans that rate well on certain quality measures will receive bonuses. (MA plan ratings are available on the Medicare.gov website under "Find & Compare Health Plans.") Plans receiving 4 to 5 stars will be rewarded with bonus payments of 1.5 percent in 2012, 3.0 percent in 2013, and 5.0 percent in 2014 and later years. The Affordable Care Act also requires the suspension of MA plan enrollment for 3 years if a plan’s medical loss ratio is less than 85% for 2 consecutive years and the termination of the plan contract if the medical loss ratio is less than 85% for 5 consecutive years.
The reduced payments will likely mean that MA plans will begin reducing benefits and/or raising premiums. If your clients are comfortable with getting their Medicare from an Advantage plan, they are probably going to want to stick with a plan that's been around for at least five years and, if available, earns four or five stars from the government.
This article is adapted from Jeff Marshall’s opening "Elder Law Update" presentation at the Pennsylvania Elder Law Institute in July 2010. For more of Jeff’s presentation, view his materials on at