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FAQ: Cost of Medicare Advantage

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An agent from Osprey, FL asks…

Q: Approximately how much (percent and real dollars) does Medicare Advantage cost the federal government versus original Medicare?

A: Private Medicare plans were initially started because policy makers believed that they would save the government money. However, over the years, the opposite has turned out to be true. Medicare members enrolled in private plans now cost more than those in traditional Medicare. This is because, although Medicare used to pay health plans five percent less for beneficiaries enrolled in private plans, thanks to powerful health lobby groups, the government now pays them significantly more than it would cost to cover the same beneficiaries through traditional fee-for-service Medicare.

Today, the government pays an average of 14 percent more to cover a beneficiary in a private Medicare Advantage plan than it would cost to cover that same beneficiary in traditional Medicare. And some types of private plans can receive much larger payments. For example, private fee-for-service plans are paid about 17 percent more than traditional Medicare, and plans in some localities are paid 50 percent more than traditional Medicare. In simple dollar terms, Medicare pays about $1,000 more a year to cover a beneficiary in a private plan than it would cost to provide care to that same beneficiary under traditional Medicare.

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If you would like to be considered for our Medicare FAQ expert panel to answer frequently asked questions, email associate editor Heather Trese.