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Medicare Advantage (sometimes called Medicare Part C or MA) is a type of health insurance plan in the United States that provides Medicare benefits through a private-sector health insurer.[1] In a Medicare Advantage plan, a Medicare beneficiary pays a monthly premium to a private insurance company and receives coverage for inpatient hospital ("Part A") and outpatient ("Part B") services. Typically, the plan also includes prescription drug ("Part D") coverage.[2] Many plans also offer additional benefits, such as dental coverage or gym memberships.[3] By contrast, under so-called "Original Medicare", a Medicare beneficiary pays a monthly premium to the federal government and receives coverage for Part A and Part B services, but must purchase other coverage (e.g., for prescription drugs) separately.[4]

Most such plans are health maintenance organizations (HMOs) or preferred provider organizations (PPOs).[5] Public Medicare Part C plans, including Medicare Advantage plans, finance at a minimum the same medical services as "Original" Parts A and B Medicare finance via FFS. Public Part C plans, including Medicare Advantage plans, also typically finance additional services, including additional health services; in 2019 extensive non-medical services such as assistance for daily living (ADL) services were added by many plan sponsors.[citation needed] A public Part C Medicare Advantage beneficiary must first sign up for both Part A and Part B of Medicare in order to choose Part C.

From a beneficiary's point of view, there are several key differences between Original Medicare and Part C. For example, Medicare Advantage plans include an annual out of pocket (OOP) spending limit, critical financial protection against the costs of catastrophic illness or accident. That is, under Part C plans, there is a limit on how much a beneficiary will have to spend annually OOP. That amount is unlimited in Medicare Parts A and B, which can cause financial ruin and incentivizes almost everyone on just Parts A and B to make other financial protection arrangements, typically by adding some kind of private supplemental indemnity insurance (and even those policies often do not provide absolute 100% financial protection because they only cover what Parts A and B cover to the limits of Parts A and B).[citation needed]

Original Medicare and Medicare Advantage also handle payments to healthcare providers differently. Under Original Medicare, the Medicare program reimburses healthcare providers with a fee for each service provided to a beneficiary.[citation needed] This fee is often calculated with a formula (for example, the prospective payment system for hospital services), and while providers can reject Medicare's reimbursement rates (and thus opt out of the Medicare program), they cannot bargain over the reimbursement rates.[citation needed] By contrast, most Medicare Advantage plans negotiate payment rates and form networks with healthcare providers, similar to how purely private health insurance plans operate.[citation needed] In turn, the Medicare program pays Medicare Advantage insurers a monthly fee per enrollee (capitation) to cover the cost of carrying their beneficiaries.[6]

Nearly all Medicare beneficiaries (99%[citation needed]) will have access to at least one public Part C health plan in 2020; the average beneficiary will have access to 39[citation needed] plans per county. This number varies yearly as new sponsors apply to CMS and/or old ones drop out (a process that takes place between January and June of the preceding year).

History

In the 1970s, less than a decade after the beginning of fee for service (FFS) "Original Medicare," Medicare beneficiaries gained the option to receive their Medicare benefits through managed, capitated health plans, mainly HMOs, as an alternative.[citation needed] But initially this choice was only available under temporary Medicare demonstration programs.[citation needed] The health maintenance organizations (HMOs) or preferred provider organizations (PPOs).[5] Public Medicare Part C plans, including Medicare Advantage plans, finance at a minimum the same medical services as "Original" Parts A and B Medicare finance via FFS. Public Part C plans, including Medicare Advantage plans, also typically finance additional services, including additional health services; in 2019 extensive non-medical services such as assistance for daily living (ADL) services were added by many plan sponsors.[citation needed] A public Part C Medicare Advantage beneficiary must first sign up for both Part A and Part B of Medicare in order to choose Part C.

From a beneficiary's point of view, there are several key differences between Original Medicare and Part C. For example, Medicare Advantage plans include an annual out of pocket (OOP) spending limit, critical financial protection against the costs of catastrophic illness or accident. That is, under Part C plans, there is a limit on how much a beneficiary will have to spend annually OOP. That amount is unlimited in Medicare Parts A and B, which can cause financial ruin and incentivizes almost everyone on just Parts A and B to make other financial protection arrangements, typically by adding some kind of private supplemental indemnity insurance (and even those policies often do not provide absolute 100% financial protection because they only cover what Parts A and B cover to the limits of Parts A and B).[citation needed]

Original Medicare and Medicare Advantage also handle payments to healthcare providers differently. Under Original Medicare, the Medicare program reimburses healthcare providers with a fee for each service provided to a beneficiary.[citation needed] This fee is often calculated with a formula (for example, the prospective payment system for hospital services), and while providers can reject Medicare's reimbursement rates (and thus opt out of the Medicare program), they cannot bargain over the reimbursement rates.[citation needed] By contrast, most Medicare Advantage plans negotiate payment rates and form networks with healthcare providers, similar to how purely private health insurance plans operate.[citation needed] In turn, the Medicare program pays Medicare Advantage insurers a monthly fee per enrollee (capitation) to cover the cost of carrying their beneficiaries.[6]

Nearly all Medicare beneficiaries (99%[citation needed]) will have access to at least one public Part C health plan in 2020; the average beneficiary will have access to 39[citation needed] plans per county. This number varies yearly as new sponsors apply to CMS and/or old ones drop out (a process that takes place between January and June of the preceding year).

In the 1970s, less than a decade after the beginning of fee for service (FFS) "Original Medicare," Medicare beneficiaries gained the option to receive their Medicare benefits through managed, capitated health plans, mainly HMOs, as an alternative.[citation needed] But initially this choice was only available under temporary Medicare demonstration programs.[citation needed] The Balanced Budget Act of 1997 formalized the demonstration programs into Medicare Part C, and introduced the term Medicare+Choice as a pseudo-brand for this option.[citation needed]

Initially, fewer sponsors participated than expected, leading to less competition than expected by the Democrats[citation needed] who in 1995 conceived what became Part C in 1997.[7] In a 2003 law, the Part C capitated-fee benchmark/framework/competitive-bidding process was created effective in 2005 (for the 2006 plan year) to increase sponsor participation. However those changes also made the costs per person of the Part C program variable (whereas during the demonstration projects and under BBA the cost was 95% of the FFS cost per person). This new benchmark/framework/competitive-bidding process lead to the costs per person of a beneficiary on Part C being higher than the costs per person of a person on just A and/or B (an unfair comparison given that a Part C beneficiary must be on both A and B but that is the way it was done) each year from 2006 to 2011. In addition it turned out through deeper investigation by MedPAC, the arm of Congress that researches Medicare (see any MedPAC report on Medicare Advantage, 2014-2018) and CMS that the disconnect with the original goal of Part C (to cost the Trust Funds the sames as or less per person) was primarily caused by so-called Private Fee for Service (PFFS) plans (designed primarily for the rural and urban poor) introduced in 2003, special needs plans (SNPs), and Multiple Employer Group plans (which primarily served retired union members). A special situation relative to Puerto Rico contributed to the imbalance also. And the lack of parity even applied slightly to vanilla HMO and PPO plans nationwide for one year. The actual comparative absolute numbers (although still potentially misleading) can be found in Table II.B.1 of any Annual Medicare Trustees report.

Therefore benchmark/framework/competitive-bidding process changes were made in 2010 (effective for the 2012 plan year) to better align the variable per person costs of Part C a

Initially, fewer sponsors participated than expected, leading to less competition than expected by the Democrats[citation needed] who in 1995 conceived what became Part C in 1997.[7] In a 2003 law, the Part C capitated-fee benchmark/framework/competitive-bidding process was created effective in 2005 (for the 2006 plan year) to increase sponsor participation. However those changes also made the costs per person of the Part C program variable (whereas during the demonstration projects and under BBA the cost was 95% of the FFS cost per person). This new benchmark/framework/competitive-bidding process lead to the costs per person of a beneficiary on Part C being higher than the costs per person of a person on just A and/or B (an unfair comparison given that a Part C beneficiary must be on both A and B but that is the way it was done) each year from 2006 to 2011. In addition it turned out through deeper investigation by MedPAC, the arm of Congress that researches Medicare (see any MedPAC report on Medicare Advantage, 2014-2018) and CMS that the disconnect with the original goal of Part C (to cost the Trust Funds the sames as or less per person) was primarily caused by so-called Private Fee for Service (PFFS) plans (designed primarily for the rural and urban poor) introduced in 2003, special needs plans (SNPs), and Multiple Employer Group plans (which primarily served retired union members). A special situation relative to Puerto Rico contributed to the imbalance also. And the lack of parity even applied slightly to vanilla HMO and PPO plans nationwide for one year. The actual comparative absolute numbers (although still potentially misleading) can be found in Table II.B.1 of any Annual Medicare Trustees report.

Therefore benchmark/framework/competitive-bidding process changes were made in 2010 (effective for the 2012 plan year) to better align the variable per person costs of Part C and the per person costs of people just on Parts A and/or B. As a result, on average counting all the various types of Part C health plans, as reported annually by the Medicare Trustees, over the period 1997-2018 (most recent year available) the cost per person for a person on Part C has been lower on average than the cost per person for a Medicare beneficiary not on Part C (but some years it has been as much as 6% negative and other years it has been as much as 6% positive). However the numbers cannot be completely aligned in any given year without a major change in Medicare law because the benchmark/framework/competitive-bidding for Part C, which happens county by county, for any given year depends on the A and/or B per-person spending in the comparable counties two years prior.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 -- which created the benchmark/framework/competitive-bidding process -- also renamed +Choice plans to "Medicare Advantage" plans. Other managed Medicare plans include COST plans, dual-eligible (Medicare/Medicaid) plans and PACE plans (which try to keep seniors that need non-medical custodial care in their homes).[citation needed] However 97% of the beneficiaries in Part C are in one of the roughly one dozen types of Medicare Advantage plans (HMO, employer group, SNP, regional PPO, etc.), primarily in classic vanilla HMOs.

Enrollment in the public Part C health plan program, including plans called Medicare Advantage since the 2005 marketing period, grew from zero in 1997 (not counting the pre-Part C demonstration projects) to over 24 million projected in 2020. That 20,000,000-plus represents about 35%-40% of the people on Medicare. As of about 2015 over half the people fully signing up for Medicare for the first time are choosing a public Part C plan of some type as opposed to FFS Medicare (as reflected in the 0% to over 35% penetration rate growth in 21 years).

As noted millions more beneficiaries are on Part C since 2011 than before 2011 and the per-person cost numbers have been at parity or below since 2012. This is good because that was the Part C program's intention from the time in 1995 when Democrats first proposed it. One such change ended the out-of-balance PFFS plan program except for grandfathered beneficiaries. The out-of-balance Employer Group plan program was cut back beginning in 2017. On an absolute basis and even still including these out of balance Part C programs, in 2018 the Medicare Trustees spent 0.1% less on Medicare Advantage and other Part C beneficiaries per person than it did per person on Medicare beneficiaries under FFS Medicare[8]

Public Part C health plans, including Medicare Advantage plans, cover the same medical services as "Original" Medicare Parts A and B but also typically include an annual physical exam and vision and/or dental coverage of some sort, none of which are covered under Parts A and B. Medicare Part A provides FFS payments for admitted in-patient hospital care, hospice, and skilled nursing services if a person is first admitted inpatient for three days. Part B provides payments for many physician, rehabilitation and surgical services, even some that take place in hospitals and skilled nursing facilities after admittance, as well as for medically necessary outpatient hospital services such as ER, surgical center, laboratory, X-rays and diagnostic tests, certain preventative medical services (but not annual physical exams), and certain durable medical equipment and supplies. Less often, hearing and wellness benefits not found in Medicare Part B are included in a Medicare Advantage or other Part C plan. As of 2019, many additional non Part B services were added to public Part C plans, including Medicare Advantage plans. Examples of these additional services include transport to medical-service appointments, coverage of over the counter drugs, adult day care, and assistance for daily living. Some such additional non-medical services are tailored to beneficiaries with particular chronic conditions.

Beneficiaries can enroll in Medicare Advantage and other Part C health plans either by enrolling when they first become Medicare-eligible and first join both Parts A and B or during an annual or special enrollment period as outlined in "Medicare and You, 2020," released in September 2019. There are over a dozen such enrollment peri

Beneficiaries can enroll in Medicare Advantage and other Part C health plans either by enrolling when they first become Medicare-eligible and first join both Parts A and B or during an annual or special enrollment period as outlined in "Medicare and You, 2020," released in September 2019. There are over a dozen such enrollment periods. In addition, a special Medicare Advantage Open Enrollment period extends from January to March of each year during which the over 20,000,000 people on Medicare Advantage (but not others on Part C) can switch or drop plans. This January-March enrollment period is not to be confused with the annual election period, which was intended initially primarily for Part D of Medicare, because the January-March Open Enrollment applies only to people already on Medicare Advantage.

For each person who chooses to enroll in a Part C Medicare Advantage or other Part C plan, Medicare pays the health plan sponsor a set amount every month ("capitation"). The capitated fee associated with a Medicare Advantage and other Part C plan is specific to each county in the United States and is primarily driven by a government-administered benchmark/framework/competitive-bidding process that uses that county's average per-beneficiary FFS costs from a previous year as a starting point to determine the benchmark. The fee is then adjusted up or down based on the beneficiary's personal health condition; the intent of this adjustment is that the payments be spending neutral (lower for relatively healthy plan members and higher for those who are not so healthy).

Private sponsors