There are lower premiums but more cost sharing with a Medicare Advantage plan.
Medicare Advantage (also known as “MA”) plans monthly premiums are typically much lower than a traditional Medicare Supplement plan. The reasoning behind this is “cost sharing.” Some Medicare Supplements cover 100% of the cost sharing left by Medicare on Medicare approved expenses. Therefore, they carry a higher premium. In the alternative, Medicare Advantage plans have more “cost sharing” which requires the Medicare beneficiary to pay a portion of the costs of their medical coverage. Cost sharing includes co-payments, co-insurance, and deductibles associated with doctor’s visits, hospital stays and other healthcare services.
Medicare Advantage plans that have a built in prescription drug plan (also known as “MAPD”) have cost-sharing separate from their health care services. There are separate out-of-pocket limits established for the medical expenses and the prescription expenses. There are also separate co-payments, coinsurances and deductibles for the drug portion of their coverage. An out-of-pocket limit is defined as the maximum amount the Medicare beneficiary will pay out of their pocket before the plan is required to pay 100% of Medicare approved medical and drug expenses. Therefore, it is important to consider all plan costs and not just the premium, when considering a Medicare Advantage plan.
Medicare Advantage plans may have networks that help keep the premium low.
A second reason Medicare Advantage plans premiums are lower is the fact that they are typically HMO (Health Maintenance Organization) or PPO (Preferred Provider Organization) Plans. There is an occasional PFFS (Private-Fee-For-Service) plan that allows the Medicare beneficiary to see any physician and receive treatment. However, with a PFFS plan a physician can decide on a case by case basis whether or not to accept the plan. This means that a physician may accept the plan and provide evaluation and treatment one or more times, but then can decide not to accept the plan for any other visits. A PFFS plan typically carries a higher monthly premium as well as cost-sharing because it allows more flexibility.
A HMO plan restricts or controls the availability of physicians the Medicare beneficiary can see and be covered under the plan. A HMO provides or arranges managed care by requiring that you select a Primary Care Physician (also known as “PCP”) to manage a Medicare beneficiary’s care. The PCP coordinates care and helps decide when you need to see a specialist. A referral to a specialist must come from the PCP and the specialist must be a part of the HMO. The physicians that are a part of the HMO plan have agreed by contract to treat patients in accordance with the HMO’s guidelines and restrictions. Since the physician or medical facility is in the network they have agreed to accept a specific amount for their services, which in turn reduces the amount of fees paid by the insurance company. In turn, by paying reduced fees to a HMO physician allows the plan to offer a lower premium. Some HMOs offer a POS, or point-of-service, option that may allow you to use services out of the network or without a referral or prior approval. However, use of a physician or medical facility that is not in the network typically requires the Medicare beneficiary to pay a higher co-pay or co-insurance.
A PPO plan allows more flexibility than an HMO. Typically, the Medicare beneficiary does not have to select a primary care physician to manage their care. This allows the Medicare beneficiary to see a specialist without a referral. However, a network of physicians, specialists and medical facilities is set forth as part of the PPO plan. A PPO plan allows the beneficiary seek treatment from a physician, specialist or medical facility that is in the network for a lower co-pay or cost sharing. The physicians, specialists or medical facilities have agreed to provide health care at reduced rates to the Medicare Advantage plan. In turn, payment of reduced fees allows the Medicare Advantage plan to offer a lower premium. If the Medicare beneficiary goes outside the network then he or she will have to pay higher cost sharing.
Medicare Advantage plans get Federal funding when a beneficiary enrolls.
Medicare Advantage plans are required to cover the services under Medicare Part A and Medicare Part B. When a Medicare beneficiary enrolls in a Medicare Advantage plan, the plan takes over for Medicare Part A and Medicare Part B. To support the Medicare Advantage plan’s ability to do this Medicare pays the plan to cover your Part A and Part B benefits. Medicare pays the Medicare Advantage Plan for each beneficiary who enrolls a monthly amount based on a complicated formula. The Centers for Medicare and Medicaid Services takes vast amounts actuarial data, enrollment, local cost numbers and crunches it in a formula to create capitation rates or the average amounts they reimburse plans by county. This amount is currently a hot topic of debate in Washington, DC. It is important to remember that even if you join a Medicare Advantage plan you are still in Medicare. You do not lose your Medicare by joining a Medicare Advantage plan.
In sum, a Medicare Advantage plan premium is lower based upon the fact that its expenses are lower because the plan is usually either an HMO or a PPO. Physicians, specialists and medical facilities have agreed to accept lower fees for their services, which reduces the overall expenses paid by the insurance company for the Medicare beneficiary’s health care. Payment of reduced fees combined with cost-sharing and Medicare funding allows an MA plan to offer coverage for a lower monthly premium.
A Medicare Supplement plan requires no cost sharing and there is no network of physicians which results in the insurance company paying higher costs for the Medicare beneficiary’s care. Medicare Supplements also do not receive any Federal funding. As a result of this flexibility of coverage and care Medicare Supplement’s monthly premiums are higher than Medicare Advantage plan’s premiums.
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Medicare Pathways, Inc.