Gin and Tonic asked a great question yesterday;
now that we’re in Medicare open enrollment and every second TV ad is about that, I’m left wondering how private insurers can offer what appear to be better benefits for the same or sometimes less money, while still making a profit. Is there some form of cream-skimming going on, where only the people with more expensive needs stay on Federal Medicare? This does not seem viable in the long term.
This is a great question.
Let’s think about revenue and expenditures..
We’ll do revenue first. Medicare Advantage insurers are supposed to be paid the risk adjusted average regional cost of treating the patients that they enroll. An individual with metastatic cancer who enrolls in a Medicare Advantage plan will trigger a larger payment from the federal government to the insurer than an individual with high blood pressure who lives across the street from the first individual. The challenge is that risk adjustment is imperfect and gameable in both benign and malicious manners.
Recent estimates state that the federal government pays Medicare Advantage plans 2% to 3% more for a similar patient than traditional Medicare due to very aggressive risk adjustment. This 2% to 3% wedge happens even after CMS takes off a decent chunk of a risk score to account for upcoding and risk adjustment gaming. Medicare Advantage insurers are really good at optimizing risk adjustment (when I worked at UPMC Health Plan I was in charge of optimizing Medicaid risk adjustment for several years using a similar set of tools). We know that tying payment to coding incentives vary how providers code events in traditional Medicare. Traditional Medicare which does not determine payment by diagnosis code at the outpatient office level will always be playing catch-up to normalize the gap between observed and reported realities in Medicare Advantage populations.
An extra 2% or 3% of revenue buys a lot of extra small benefits as a lot of people will look at a benefit, smile, buy on the basis of the existence and option value of that benefit and then never use it.
Now let’s talk about expenses.
Medicare Advantage tends to pay clinicians and hospitals close to the same rates as traditional Medicare. There is not a huge per unit cost difference. So where is the expense wedge?
The big thing is that Medicare Advantage is allowed to actively manage patient care. Traditional Medicare does not have differential cost-sharing within a type of service or by physician nor are there significant prior authorization or approval processes. Medicare Advantage will restrict which physicians people can use, they will restrict hospitals people use. Some of the selection of the network will be a function of the provider’s efficiency of care. For instance, excluding from the network docs who order MRIs willy nilly for unspecified lower back pain on the initial visit would be an “efficiency” decision. Some facilities and docs would be excluded because they want 110% Medicare and a good enough network could be built at 105% Medicare fee levels.
But the real expenditure squeeze is Medicare Advantage insurers will change care delivery pathways. There are procedures that could be done either in-patient or outpatient. Traditional Medicare has few tools to drive people to the cheaper outpatient settings. Medicare Advantage insurers will aggressively drive people to the cheaper outpatient settings. Recovery and post acute care are often squeezed and directed. These changes in treatment pathway are pervasive and spill-over into practice and care patterns for other payer types.
So Medicare Advantage increase revenue by a bit, pay about the same per unit of care but significantly reduce the number of units of care that their patients receive.
Is that a good trade-off — more benefits and better catastrophic protection for slightly more money and a lot more restrictions?
That is the key question.
rikyrah
Thanks for the information
Cervantes
Well, none of that is necessarily a bad deal for the patient. If you’re procedure can be done outpatient, you’re usually better off than going into the hospital. Hospitals are dangerous places that you want to stay out of if you can. Excessive image ordering is more likely to do harm than good, because it results in overtreatment as well. Getting up on your feet sooner is usually good for you. Not being able to go any old doctor or hospital is usually not much of a burden if you’re in a well-resourced location. No premiums, lower co-pays, dental and vision coverage, free stuff — not much not to like about it. Yeah, maybe it’s costing Medicare more but part of that really is flowing to the patients. You could make Medicare more generous for the patients and cut out the skimmer in the middle, but from my point of view, I’m getting a good deal. (AARP UHC)
lowtechcyclist
Great question, G&T, and thanks, David, for the explanation!
IIRC, Medicare Advantage programs were initially subsidized fairly substantially, and the revenue stream for those subsidies was repurposed to help fund the ACA. I was surprised at the time that that wasn’t the end of Medicare Advantage, and I never did understand why it wasn’t. Until now.
Suzanne
@Cervantes:
Yes yes yes.
Hospitals are slowly going to become birthing centers and ICUs as the Boomers get older. Emergency departments are primary care, behavioral admitting, and trauma.
MattF
Well, the procedures followed for the colonoscopy I had at a hospital on Monday were clearly modeled on the procedures that would be followed at an outpatient enterology clinic— I know, because I’ve done both. I’d guess that the hospital could argue that they’re managing risk better because there are a zillion other possibly relevant services nearby and data management is more unified.
Scout211
Where you live is also a key question. I live on the border of two counties in California. I just looked up Advantage plans available in my county and there are only two, both PPOs. (In the recent past there were zero).
In the next county (San Joaquin) there are 31 plans and a vast menu of different PPOs and HMOs with all kinds of different options. If you live in my county you cannot choose a plan that is offered in other counties, even a large branded “national” plan. You can only choose one of those two plans.
A couple who live down the road from us actually live 4 days a week in an apartment in San Joaquin County so they can be members of Kaiser, a very popular Advantage plan in California.
Advantage plans are not universal, they are regional by state and also by county. Obviously, here in a county that has only two plans, the providers and facilities who accept Medicare Advantage are few and far between.
Soprano2
My husband has a Medicare Advantage plan, and it seems to be good for him. It’s through United Healthcare. They have a program called “House Calls” that he won’t do, though, and they call incessantly about it. I guess they come to your house and evaluate you.
OzarkHillbilly
I have a medicare advantage plan (humana) and have been quite happy with it. I go in next week for a lung cancer screening (smoker for 36 years, not to mention breather of concrete dust and gypsum dust and saw dust etc etc) and it won’t cost me a penny.
Cervantes
@Soprano2: Yes, the reason they want to do that is so the nurse can find something to diagnose you with and upcode you, so they get more revenue. Definitely refuse that, and tell them to stop calling.
OzarkHillbilly
@Soprano2: Yeah, I get those once a year too, and like your husband I always tell them to stuff it. This year the poor gal was bound and determined to read the whole spiel that she just kept going even after I told her twice, “I’m not interested.” Finally I just said, “Goodbye.” and hung up.
gene108
From family on Medicare, Medicare Advantage can be a better deal, if a person is relatively healthy as they get older, i.e. conditions that require minimal to no regular care to manage.
Betsy
My family was all in a horrific wreck and my 86-yo dad has been denied many important needs by his kakistacular medicare supplement plan, Humana.
The absence of what was denied could kill him or shorten his lifespan considerably.
All of his care has been worse because of profit-taking, reduced investment in nursing and therapy, and proceduralization that makes care providers into consultants and contractors.
I hate Humana with the white-hot fury of a thousand burning suns. Also the Republicans who did this to us.
dww44
Thanks for this timely information. While I’ve not fully digested it all, is there anything else going on with Medicare Supplement plans that explains why some local physicians are saying they are no longer accepting new Medicare patients?
Is this a result of Georgia’s refusal to expand Medicaid? Are these doctors trying to push us to a Medicare Advantage plan? Or is there some recent payment change from Medicare itself that explains this recent move?
WereBear
At least in NY, once you are in a Medicare Advantage plan, there’s no getting out. I didn’t know that until recently,
As always, the less dense the area, the the fewer choices we have anyway. Still, as someone whose conditions were deeply aggravated by High Efficiency/High Profit scenarios created by our current system, I’m not sure yet how well this would work for me.
But then, in a few years, it will change…
I think someone with a rare and or baffling diagnosis is the worst boat, because no one pays for diagnosis. The lab gets a couple of cracks at it, then it’s Prozac/Ambien/Go away. At least it was before I went my own way.
A warning note: long-term Ambien turns out to be dangerous, in that the person thinks they are getting sleep, but are actually very sleep deprived. Like untreated CPAP medically bad.
Betsy
@WereBear: Thank you, werebear. You said it better than I did.
And thanks for the warning on ambien.
Cervantes
@Betsy: That’s not a Medicare advantage plan. Entirely different issue.
Gin & Tonic
Thank you David, and other commenters who have shared their experiences. This really is a full-service blog.
I am in a pretty good position, as I am retired from a long career at a company with very good benefits. Until this year, they only offered a Medigap plan, which you more or less had to take because if you declined once, you could never get back in – and they cover 75% of the cost. This year they’ve added a Medicare Advantage plan, also through BC/BS, and we have to choose. But according to the benefits manager, if we choose Advantage (a PPO plan) and later decide we want to go back to the Medigap plan, we can do that. For people buying on the open market, that might be difficult due to re-underwriting. Here in RI, we basically don’t have counties, so all plans are state-wide. Due to our proximity to Boston, this area is well-resourced, and neither my dear wife nor I have any serious medical conditions, nor any expensive pharmaceutical needs, so I think the choice is becoming clearer.
Scout211
My father moved from California to Florida to live near my sister a few years before he died. He had Kaiser here in California for many years and chose an Advantage plan in Florida that was nothing like Kaiser. The network was narrow and providers and facilities were miles away from where he lived. As he declined in health, my sister and BIL had to take off work on order to drive him all over Orange County for his appointments.
Then when he moved to assisted living, the plan he had did not cover the available on-site medical coverage. My sister finally forced him to change his plan to regular Medicare and then the staff could assist him with his medications and he could see the on-site healthcare staff. This also happened to my mother under Kaiser when she was in assisted living. Kaiser would not cover the healthcare staff there. We finally worked out a way for her Kaiser doctors to send her medications after a phone consult with the medical staff.
Most new Medicare enrollees don’t anticipate having to move to assisted living. It’s just another issue to consider with narrow networks.
Baud
Volume!
WereBear
@Betsy: You are very welcome. There’s all sorts of cutting edge treatments out there which are ridiculously non-expensive.
I follow Dr. Terry Wahls for autoimmune and Mr WereBear does Dr. Sarah Myhill for CFS/ME, which I think is in its latest form with Long Covid.
Mr WereBear & I treat our health issues with the ideas of these physicians, run through our own doctor. If this was implemented nationwide, health care costs would plummet.
All I ask is for the medical profession to admit the current standard for dozens of chronic illnesses is highly inadequate. To look into the cutting edge stuff other doctors and researchers are doing with these life-destroying, but not terminal, illnesses.
WereBear
@Scout211: That’s an excellent point about unforeseen need for even the most basic things if we make a bad choice. Turns out we can choose another Medicare Advantage plan for the Mister, but we actually have the best one now.
But they change all the time, as we well know.
I think it’s ridiculous that insurance is so hard to navigate and requires a degree of clairvoyance that I, as a Democrat, cannot believe exists.
Ohio Mom
As I said yesterday, Advantage plans cheat.
A few days ago, the NYT had an article on this: ‘The Cash Monster Was Insatiable’: How Insurers Exploited Medicare for Billions. By next year, half of Medicare beneficiaries will have a private Medicare Advantage plan. Most large insurers in the program have been accused in court of fraud.
Will this link work, I don’t know. ‘The Cash Monster Was Insatiable’: How Insurers Exploited Medicare for Billions
https://www.nytimes.com/2022/10/08/upshot/medicare-advantage-fraud-allegations.html?smid=nytcore-ios-share&referringSource=articleShare
As already discussed, Advantage plans are basically HMOs, with limited numbers of doctors in their networks. That works if you are relatively healthy but as you age and collect medical conditions, you might want to see specialists who aren’t in your plan.
The catch is, if you want to switch to traditional Medicare. you may not be able to find a Gap plan which will underwrite you and your pre-existing conditions, at least not at a rate you can afford.
From https://www.ehealthinsurance.com/medicare/enrollment/can-i-switch-from-medicare-advantage-to-medigap/
“Once you’ve left your Medicare Advantage plan and enrolled in Original Medicare, you are generally eligible to apply for a Medicare Supplement insurance plan. Note, however, that in most cases, when you switch from Medicare Advantage to Original Medicare, you lose your “guaranteed-issue” rights for Medigap. You generally have guaranteed-issue rights for six months when you are both 65 or older and enrolled in Medicare Part B. Guaranteed-issue rights ensure that you can buy any plan sold in your state, and that you won’t be charged higher premiums based on your health status.
Without guaranteed-issue rights, your insurance company may require medical underwriting before it sells you a plan. During medical underwriting, the insurer looks at your past medical history and current health status. If the company determines the risk of covering you is too high, it can refuse to sell you the plan you want, or it may charge you much higher premiums for the coverage.”
Now I write from a somewhat privileged position. I live in a city with a university-affiliated health system that will always take traditional Medicare; I’m not sure but I think the local “indigent care” levy makes up any difference in cost. I have good doctors and so far, knock on wood, a collection of common conditions.
I have friends who have determined they can’t afford traditional Medicare and have gone the Advantage route. I don’t judge them. But I think no discussion of Advantage plans should ignore that like all privatized government services, they exist to skim our tax money.
Ohio Mom
@Gin & Tonic: “neither my dear wife nor I have any serious medical conditions, nor any expensive pharmaceutical needs”….YET. I hope it stays that way but I might not bet on it.
JCJ
As David mentioned the prior authorization (and frequent denials) portion of Medicare Advantage plans is not an obstacle with Medicare. As such there can be denial or delay of care. I am currently seeing an 87 year old gentleman with low grade lymphoma with involvement of left axillary lymph nodes. He has a pacemaker so it would be a good idea to do daily image guidance (IGRT) so that this device does not receive an amount of radiation which could damage it. After dragging their feet for two weeks the medical director of his Medicare Advantage plan said no to payment authorization. If you do it anyway but don’t charge for it that is fraud. The radiation treatment volume goes right up to the edge of the pacemaker with the dose just below the safety limit. If he had straight Medicare it would not be a problem to do IGRT.
It seems if you don’t need any significant medical care Medicare Advantage is likely a good deal.
Scout211
@Ohio Mom: Thank you for explaining this. I have heard that it is not easy to switch to regular Medicare after being on an Advantage plan but I could not find anything to explain why that is on the Medicare website.
So the problem lies with the Medicare supplement plans (or Medi-gap) plans, not the Medicare plan itself. This makes sense. Thank you for explaining it.
ETA: when my sister switched my father back to regular Medicare from his awful Advantage plan, she did not sign him up for a supplement/Medi-gap plan. When he died, she (his executor) had months and months of medical bills to pay off. Supplement plans are really important if you can afford the premiums. End of life medical care is very, very expensive.
Gin & Tonic
@Ohio Mom: Of course. But as noted, I have a guaranteed avenue for going back.
Soprano2
@Cervantes: I have, repeatedly. I’ve told them several times to quit calling my cell phone; they’ll stop for awhile, then start doing it again.
Ohio Mom
@Scout211: Oh yes, without a Gap plan you are responsible for a 20% copay without any limit, and 20% of a gazillion is a lot of money.
i have said this many times, and apologize for being a broken record. After my experience with traditional Medicaid (which Ohio Son has as a disabled adult), our cry should be MedicAID for all. It is the best, most hassle-free, comprehensive coverage any of the three of us has ever had. Medicare on the other hand, as this thread shows, has some awful land mines.
Villago Delenda Est
Bottom line: fuck this shit, single payer, let the insurance companies die deaths they deserve.
Betsy
@Villago Delenda Est: Amen bro (or sis)
frosty
@Gin & Tonic: Before you pull the trigger, make sure you can use the Boston providers with a RI Medicare Advantage plan. My PA Advantage plans wouldn’t cover my Maryland providers so we went with Medigap.
Sure Lurkalot
Also should think about travel out of network if you opt for MA. You can buy coverage for international travel but what if you have an emergency visiting the grandkids a few states away?
My current Medigap provider does bundle some benefits in their plan like reduced gym fees and eye exam discounts, but pretty similar to those you might get joining AARP.
Ocotillo
Thank you Dave (and Gin & Tonic) for this post and thank you to all commenters.
I just turned 65 and Mrs O will next summer so we are starting to explore this. I still work and had heard Thom Hartman now and then saying he was not a fan of M Advantage but since I am in and out of my car with my job, I had never heard his explanation.
I have to admit, after reading this post and comments, I am still confused what to do because I have no issues and take no prescriptions but Mrs O has a number of things including one that has us doing a 5 hour drive to see a doctor who specializes in what she has.
BRyan
I followed this excellent post right up until the very last paragraph:
“Is that a good trade-off — more benefits and better catastrophic protection for slightly more money and a lot more restrictions?”
How does medicare advantage offer “better catastrophic protection for slightly more money”? Is the “better catastrophic protection” a function of the Advantage plan’s annual out-of-pocket max? (Admittedly, I’m not even aware if my medigap supplement plan has a limit on their payouts.)
and “slightly more money”? It seems like the major selling point of Advantage plans is their lower cumulative costs — zero premiums, etc. How do Advantage plans end up costing slightly more?
Ohio Mom
@Ocotillo: This isn’t employer-sponsored care, you and Mrs. O can have different plans — say, you on an Advantage Plan and Mrs. O on Traditional Medicare.
Ohio Dad and I ended up with the same configuration of Gap and Part D plans but that was coincidence; I wouldn’t be surprised if our Part Ds are different in the future.
You can call your local Council on Aging for information on free Medicare counseling. When we met our volunteer counselor at the local library, it was something of a tutoring session, he wasn’t selling us anything. I believe every state has aversion of this.
frosty
@Ocotillo: If you’re going with MA, make sure that the specialist will be covered. It shouldn’t be an issue with Medigap.
dnfree
@Gin & Tonic: Yes, the re-underwriting is the issue. With my medical conditions, I looked into changing plans a couple of years ago and got a flat NOPE from other insurers. Not even higher premiums—just NOPE. So try to make the most flexible choice you can up front. On traditional Medicare, I can go anywhere that specializes in whatever condition I develop, as long as they accept Medicare.
I’ve said before, when I retired I went for a presentation by the one and only Advantage plan in the county where we lived then. The salesman even said “If you have a pre-existing condition, and if you can afford it, you’re better off with traditional Medicare and a supplement plan.” It has been working well for us so far.
ETA that we do pay our own dental. Vision tests are covered under medical (diabetes), but we have to buy our own glasses.
Ohio Mom
@BRyan: As I understand it, Advantage plans are cheaper when you are younger and healthier. I think of them as backloaded.
I will end on my sister’s observation: “Their actuaries are better than your actuaries.” In other words, you are an amateur, they have trained professionals working for them, it’s all a gamble and don’t be surprised if the house wins.
Ohio Mom
@Villago Delenda Est: This isn’t much different than my rallying cry, MedicAID for all!
Kim Walker
I’m a US citizen currently living in Canada and am starting to think/worry about Medicare. I plan to retire at 68 (5 more years) and will likely move back to the States. I have (nominally, but not really) free basic health care and have a supplemental plan through my employer. Where do I even start with Medicare? Does it start at 65 or does it start when you reach the retirement age for your cohort (67 y, 10 m for me). Do I have to establish residency in a state first? Any links gratefully accepted!
David Anderson
@BRyan: Precisely — Medicare Advantage has capped exposure and the more money is federal expenditures but not consumer/patient/enrollee expenditures.
A good supplemental plan can effectively transform Traditional Medicare into a capped exposure plan but that is coming directly out of an enrollee’s pocket…
There are big policy trade-offs based on values here.
dnfree
@Kim Walker: Medicare has different parts, designated by letter. Part A you should sign up for when you turn 65. It doesn’t cost anything. Part B is traditional Medicare, what we’re discussing here. Part B plus a supplement or Part C (Advantage) you should sign up for when you no longer have other coverage, for example through an employer. Those generally come into play either at age 65 or when you leave employment and lose coverage. The social security eligibility age doesn’t come into play. Part D is a drug plan if you have traditional Medicare. It’s usually included in the Advantage plans, I think, just as it is with employer plans.
it is complicated, and there are penalties financial and otherwise for getting it wrong. For instance, if you don’t sign up for Part D when you should, because you don’t take any medication, and later you decide you need to, you’ll pay a premium penalty every month going forward. One of my drugs costs over $2000 for a 3-month supply. My out of pocket cost with insurance is “only” $500. You see happy users of this medication on TV all the time. I just feel fortunate that I can afford the cost.
I suggest reading and also meeting with an independent insurance agent. There are agents that specialize in Medicare. Maybe before you turn 65.
Ohio Mom
@Kim Walker: I can’t answer your question in any detail but I know that Medicare doesn’t care about your Social Security full retirement age, you are eligible at 65.
There are some allowances for people who continue working and receive coverage through their employers but for me, who wasn’t covered by an employer, there would have been a penalty (in the form of higher Part B premiums for the rest of my life) if I hadn’t enrolled by the third month after my 65th birthday.
Is that true for people who are covered through work, I don’t know, and the rules for people like you, covered by another country? Could be a third set of rules. You are right to ask these questions, and look for answers ASAP.
Medicare does have an 800 number: Call 1-800-MEDICARE.
Kim Walker
Thanks dnfree and Ohio Mom!
Ohio Mom
@dnfree: I did not know about the penalty for signing up for Part D late. Lucky me and Ohio Dad, we both have several chronic conditions that require daily meds so this never came up for us.
Ohio Mom
@Kim Walker: Here is something from AARP on your question. https://www.aarp.org/health/medicare-qa-tool/medicare-if-living-outside-united-states/
dnfree
@Ohio Mom: I knew someone who was outraged when they found out about the Part D penalty. I basically told them it’s like any other insurance—the cost is based on some people being insured even though they aren’t using it. We have homeowners insurance for years, and while we aren’t making claims, other people are, and the cost is spread around. You can’t just sign up for homeowners insurance when you see that your house is on fire.
Ohio Mom
@dnfree: Everytime I hear a story like your acquaintance who was angry about the Part D penalty, I can only say, Yup, let’s step back and look at the larger picture. In the end you are mad because you think you should have free or low cost coverage because on some level you understand health care is a human right. Don’t blame me, I’m a Democrat and we have been trying to inch over to that for decades. But in the mean time, this is how it works.
On another note, when I learned about the Part B penalty, I immediately thought back to the original plan for the ACA which also had a penalty for not signing up.
Reverse tool order
Inverse situation for me, wanted to keep the same network in transitioning from employer group plan to Medicare. Had to do their Advantage plan to keep it. I use it a fair amount and feel well taken care of including by extensive in-house specialists. It’s Kaiser in Sonoma County, CA.
There might be a wait for busy departments but I have not had authorization delays or hoops to jump thru to go do what’s needed. Like any human endeavor it’s not perfect, of course.
Frustrated
@dww44:
I agree this is good information. I am trying to deal with Aetna Medicare gap as well as commercial Cigna. It is a Royal pain! Now I can’t change because I am past my six month grace period for gap insurance. Why isn’t there a business that will help you deal with this stuff and all the non payments and terrible drug prices. What if you get really sick?
Betsy
@Cervantes: Okay, fine.
Reading the rest of the comments leaves me blind with confusion. Why do we DO this to ourselves? All this red tape and gobbledygook, how much does it slash worker productivity as we waste time worrying about this stuff!! How much retiree happiness does it eliminate!!
I have one more thing to say and that’s that the Swiss would never do this to themselves!!!
dnfree
@Reverse tool order: My California brothers have Kaiser and like it. One brother has a small winery in Sonoma.
Reverse tool order
@dnfree:
How about that. My wife or I might have crossed paths with him here, though there are a lot of small wineries just in Sonoma Valley and many more in the whole county.
Back to Kaiser, it’s truly a network and team. Something unfamiliar coming up can be informally addressed with a call directly to a specialist. Everything just seems more readily available internally.
whatsleft
As a licensed agent, I was told that MA carriers are paid $1000/month/beneficiary by Medicare for administering the claims/benefits, which are reported to Medicare for oversight.
Was I misinformed? If there is a more in-depth explanation, I certainly appreciate your expertise.
Thank you!
whatsleft
whatsleft
@Kim Walker: if you paid into Medicare for 40 quarters (10 years), you automatically qualify for Part A at age 65. If not, you can purchase Part A at age 65 or after. If you have creditable coverage through your employer in Canada (call 1-800-Medicare to see if your present coverage qualifies), you can purchase Part B when you lose your current coverage. You can apply for Part A at ssa.gov, and here is a site that can help explain https://www.ssa.gov/benefits/medicare/
if your present healthcare plan is deemed eligible, you should apply for Part B at least 2 months before you plan to exit your present plan just to make sure things go smoothly. Part B has a monthly premium which can either be paid quarterly or come out of your SS check (or Railroad Retirement check if you have one) monthly.
I hope this helps!