Medicare was established in 1965, freeing older adults from the trap of unaffordable health care in their senior years. It has been a highly successful program.
Medicare Part A, free for over 65’s and those of any age with permanent disability or chronic kidney failure, covers hospital care. Part B, for which you pay a monthly fee (usually taken out of your Social Security payment) covers doctors’ bills and other services. The more recently added Part D helps with prescription drugs. (Note that while Part D is optional, the cost goes up every year you do not take it.)
Because Parts A and B have deductibles, most people pay for a “medigap” policy to cover these.
In the spirit of “if it ain’t broke, fix it,” in 1982 Congress enacted laws establishing Medicare Part C, also known as Medicare Advantage, commonly abbreviated MA.
MA plans are run by private health insurance companies. They receive a fixed amount per enrollee from Medicare and are responsible for all health care costs. The amount per enrollee is adjusted upward if they can demonstrate that their members are sicker than average.
If you are 65 or older, you will soon be deluged with mailings and phone calls touting different MA plans and encouraging you to join their plan during the open-enrollment period that runs October 15 to December 7 for the following year.
From a national viewpoint, MA has been a windfall for the insurance industry and a disaster for the federal budget. Insurers make double the amount per enrollee on MA than they do on commercial health plans for those under 65. The gross margins on MA enrollees in 2021 was $1,730 per person versus $689 per person on commercial plans.
A recent report estimated that in 2022, MA plans cost Medicare at least $88,000,000,000 more than what it would have paid for the same people if they had stayed in traditional Medicare. How do insurers make MA so profitable? One way is through fraud. It has been widely documented that they use a variety of data-mining techniques to make their enrollees appear sicker than they are, thereby getting excess funding that is not deserved.
Another way, of more concern to you if you are considering joining a MA plan, is by cutting expenses.
Under traditional Medicare, you can for the most part see any doctor you wish and be treated at any hospital. MA plans have a closed network: You must see a doctor in their plan and be hospitalized at a hospital in their network for your care to be covered.
If you are healthy and are sure you will be healthy all next year, you may not care. If you have a serious illness, you may be sorry to learn that the highly recommended specialist you want to see will not be covered, and the hospital with the most expertise in your condition likewise.
MA plans also require prior authorization for many surgeries and tests, unheard of under traditional Medicare. A government audit found that 13% of their denials were medically wrong. If you need rehab after surgery, you should know that MA enrollees were much less likely to receive inpatient rehab at highly rated facilities.
The pharmacy benefits under MA plans are often generous in covering cheap, generic drugs, but be aware that the common 20% copay may hit hard should you need one of the new highly effective but very expensive drugs for a serious condition.
Bottom line: MA plans often save you money by letting you avoid a Medigap plan (you still must pay Part B premiums) and add coverage for some things Medicare does not cover such as eyeglasses or limited dental or hearing-aid coverage. The downside is that you will be restricted in your choice of doctors and hospitals and must accept that the plan will be able to override some of your doctor’s decisions.
So… When the glossy ads hit your mailbox and telemarketers call, think carefully whether a contribution towards eyeglasses or a gym membership is worth it in the long run.
Edward Hoffer MD is Associate Professor of Medicine, part-time, at Harvard.
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