How does Traditional Medicare compare to Medicare Advantage?
Medicare Advantage has come under criticism for spending too much on advertising and costing taxpayers more than Traditional Medicare, but is increasing in popularity post the Affordable Care Act.
Medicare Advantage seems to be gaining momentum after the Affordable Care Act as the number of enrollees increase.
– Marilyn Tavenner, CMS Administrator
Our analysis of Medicare Advantage vs Traditional Medicare:
Medicare Advantage vs Traditional Medicare
Private plans can coordinate care within their networks.
Plans can negotiate rates with providers. While in Traditional Medicare, doctors can either take it or leave it.
Medicare Advantage plans are thought to be designed so that the sickest people choose Traditional Medicare by optimizing benefits in such a way.
In Traditional Medicare, there’s an incentive to over serve as the more patients you see and bill for procedures, the more you get paid. While, in Medicare Advantage, the insurers have a fixed capitation per individual, so they have an incentive to under serve to keep costs under capitation.
Enrollees in Medicare Advantage may have to pay a monthly premium in addition to Original Medicare Part B (but this depends on the population demographics of that region).
People in Traditional Medicare can go to any doctor they like, while in Medicare Advantage, you can only go to doctors within your network.
Medicare Advantage plans are required to offer the same package that covers everything Original Medicare covers but not necessarily in the same way (i.e. they can offer lower copayment for doctor visits to balance out plans that require higher out-of-pocket costs.) They may use the capitation amount to offer supplemental benefits. However, the insurer pays for 100% of services once maximum out-of-pocket costs are reached.
Medicare Advantage must cover out-of-network costs, if those procedures and tests are covered by Traditional Medicare.
In 2013, Medicare Advantage enrollees consisted of 14.4 million Americans (28% of all Medicare beneficiaries.) This is a 30% increase from 11.1 million in 2010.
Medicare Advantage Organizations are restricted to a 15% margin on administrative expenses and profit. There have been arguments made for and against the privatization of Medicare; specifically that the Center for Medicare & Medicaid Services (CMS) has a lower administrative cost than Medicare Advantage. However, the CMS cost does not include other government agencies helping out the CMS (like the IRS). Additionally, since Traditional Medicare tends to serve a “sicker” percentage of the population, its administrative cost to benefits paid would be a lower than Medicare Advantage.
Results: Medicare Advantage vs Traditional Medicare
Data shows that there is a 20% fewer inpatient admissions utilization under Medicare Advantage
There is a 10% less utilization for outpatient services
People in their last few years of life used the Emergency Room 40-50% less in Medicare Advantage
Note: There are more preventive services in Medicare Advantage vs Traditional Medicare
The future for the Medicare Advantage program remains uncertain as proposed funding cuts are due to be voted on in the next few years. There were cuts proposed for 2015 but then they were reversed. Both programs provide plenty of benefits to enrollees, but with Medicare Advantage gaining momentum, will there be a reason to keep Traditional Medicare alive?