The Catch: The Medicare Advantage Edge

Medicare may spend more on enrollees in Medicare Advantage plans than on enrollees in traditional Medicare plans, but the enrollees also get more benefits, and a rebate program enhances those benefits.

Analysts at Avalere Health L.L.C., Washington, a health policy consulting firm, quantifies the value of rebate program benefits in a commentary based on data from the Centers for Medicare & Medicaid Services (CMS).

The analysts found that, in 2010, the average Medicare Advantage plan enrollee received extra benefits and coverage cost reductions with a total average value of $73 per enrollee per month.

The value of the rebates ranged from $0 per enrollee per month in Alaska to $154 per enrollee per month in Florida.

THE BASICS

Medicare Advantage is a program that gives private insurers a chance to sell health plans that replace the basic, government-provided Medicare plan entirely.

Insurers typically attract enrollees by offering consumers benefit plan designs that are much richer than the benefits the basic Medicare Part A hospitalization plan and the Medicare Part B physician services plan offer.

Medicare Part A and Medicare Part B, for example, leave the patient on the hook for many deductible and coinsurance amounts, and they place no cap on out-of-pocket expenses. Until this year, the basic benefits package did not cover preventive care. Basic Medicare enrollees can fill in many of the gaps by paying for Medicare supplement (Medigap) insurance policies, but even many of the Medigap policies may expose enrollees to the risk of having to pay substantial medical bills out-of-pocket.

Medicare Advantage plans may have low or no premiums, low co-payments, and benefits designs that include coverage for extras such as dental care and audiology services.

Critics at CMS, in Congress and elsewhere say that Medigap and Medicare Advantage plans lead to extra costs for the Medicare program, because enrollees who get more benefits with low out-of-pocket expenses tend to use more care and more expensive care.

Insurers and their trade group, America’s Health Insurance Plans, Washington, have argued that claims tend to be higher for Medigap and Medicare Advantage users because the enrollees are often older and sicker, and because Medicare Advantage enrollees, in particular, get valuable extra services that may extend the length of their lives and improve the quality.

In recent years, CMS has asked Medicare Advantage carriers to sweeten plans by bidding against benchmarks CMS sets each year. The lower amount a carrier offers, the more likely it is to win the bid. The carrier then is supposed to use the difference between the benchmark amount and the bid amount to provide rebates for enrollees.

The Avalere analysts say the average value of Medicare Advantage rebate packages is usually higher in states where the cost of traditional Medicare plans is especially high.

In those states, Medicare Advantage plans “can often perform more efficiently than Medicare and are able to bid in a way that may be lower than benchmarks,” the analysts say.