Medicare Advantage Plans: A Scam or a Viable Option?

Physicians for a National Health Program estimate, based on 2022 spending, that Medicare Advantage overcharges taxpayers by a minimum of 22% or $88 billion per year and potentially by up to 35% or $140 billion. By comparison, Part B premiums 2022 totaled approximately $131 billion, and overall federal spending on Part D drug benefits cost roughly $126 billion. A 2021 analysis from the Kaiser Family Foundation found that for a hospital stay of six days, most of those on Medicare Advantage would incur higher costs than they would with Original Medicare.

“Every year, tens of thousands of people enrolled in private Medicare Advantage plans are denied necessary care that should be covered under the program. Tens of millions of denials are issued each year for both authorization and reimbursements, and audits of the private insurers show evidence of” widespread and persistent problems related to inappropriate denials of services and payment,” an investigation found.”Every year, tens of thousands of people enrolled in private Medicare Advantage plans are denied necessary care that should be covered under the program. Tens of millions of denials are issued each year for both authorization and reimbursements, and audits of the private insurers show evidence of “widespread and persistent problems related to inappropriate denials of services and payment,” an investigation found.

Medicare Advantage plans are sold assiduously by celebrity pitchmen as a better way for Americans who qualify for Medicare to get insurance coverage. Many plans add services such as dental and hearing care and wellness programs not offered under traditional Medicare, for which beneficiaries pay extra.

Medicare Advantage plans have grown in popularity recently, with enrollment more than doubling nationwide since 2013. One explanation: The programs are often cheaper than a Medicare supplement, sometimes called Medigap.

Brokers selling the so-called advantage plans aren’t the only ones making money on them. UnitedHealth Group, the largest Medicare Advantage provider with 7.6 million people in its plans, generated $257 billion in premium revenues in 2022, some 13% over the previous year. The company’s financial filings said a significant driver of that growth was its Medicare Advantage plans.

Humana, the next largest provider, counts 5.3 million Medicare Advantage customers; during the six months that ended June 30, almost 80% of Humana’s $51 billion in premium revenues came from individual Medicare Advantage plans, its filings show.

By law, Medicare Advantage plans are supposed to base their reimbursements on Medicare rules. But there’s room for interpretation, says the Department of Health and Human Services. For example, insurers can use their clinical criteria to determine whether to authorize or pay for care. A report last year by the department’s Inspector General found that in June 2019, the 15 top Medicare Advantage plans denied authorization for 13 percent of claims that had met Medicare rules. The report said the plans also denied payment for 18 percent of claims that met Medicare coverage and billing rules.

What is Medicare Advantage?

Medicare Advantage is a type of Medicare health plan offered by private insurance companies. MA plans must cover all of the same benefits as Original Medicare. Still, they may also provide additional benefits, such as prescription drug coverage, vision and dental coverage, and gym memberships.

How does Medicare Advantage work?

MA plans work by contracting with a network of doctors and hospitals to provide care to their enrollees. When an enrollee sees an in-network doctor or hospital, they will typically pay a lower copayment or coinsurance than they would with Original Medicare. However, if an enrollee visits an out-of-network doctor or hospital, they may have to pay the total cost of their care.

Like individual healthcare needs, every Medicare Advantage plan is different. As a result, some of them have their unique disadvantages. That said, some disadvantages are shared by most (or all) Advantage plans.

On Original Medicare, you can see any doctor who accepts Medicare (about 90% of doctors across the US). Medicare Advantage plans, however, have provider networks. When seeing an out-of-network doctor, you’ll sometimes have a higher share of costs. You’re not covered in other cases if you go out of network.

This is particularly important if you travel a lot because Medicare Advantage plans generally don’t provide out-of-state coverage. You also need to be sure your doctor is covered on your specific plan if you need regular treatment from a specialist.

Unlike Original Medicare, Medicare Advantage plans do have out-of-pocket maximums. This protects you from astronomical costs in a year you may need more (or more expensive) healthcare services. But you might faint when you compare out-of-pocket costs to those paid by Medigap enrollees.

Most Medigap plans don’t have an out-of-pocket max. This is because out-of-pocket costs are so limited that a maximum isn’t as necessary. On Plan G, for example, once you’ve met your Part B deductible ($226 in 2023), you don’t owe anything else for covered services that year.

Medicare Advantage plans can require planholders to get prior authorization before receiving a service. If the benefit is not approved, the plan won’t cover it. On the other hand, Original Medicare does not have prior authorization requirements, making it easier (and faster) for Medicare beneficiaries to get the care they need.

80% of Medicare Advantage beneficiaries are on plans that require prior authorization for at least one covered service. Usually, these requirements are placed on more expensive equipment and services, including durable medical equipment, Part B drugs, and inpatient hospital stays. On some plans, enrollees even need prior authorization for preventive services. With prior authorization denials rising, you should look into a specific Medicare Advantage plan’s rules around prior approval before enrolling.

Medicare Advantage plans seem unsuitable for patients but make lots of money for the companies offering them.