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Why Medicare Advantage Plans Were Created

When Medicare was first made law over fifty years ago, insurance carriers created Medicare Supplements, or Medigap plans, to help people insure against the various cost-sharing for which they would be responsible under the new federal health insurance program for seniors. These plans, as originally designed, help consumers cover the expense of Medicare Part A & B deductibles and co-insurance. For many years, these were the only type of supplemental plans available. As part of the Balanced Budget ACt of 1997, though, the government created a whole new type of program called Medicare Advantage (MA). These plans are not medicare supplements, though, and they operate very differently so it’s important that you know the difference before making a decision on which kind of plan would be right for you.

Why did Congress create Medicare Advantage plans? Well, they came about as the result of several factors.

First, there were was the increasing costs for Medicare itself and for medigap plans. Over the years, the Medicare deductibles and co-insurance increased with inflation, as does the cost of most things in America. Since many medigap plans cover these costs for insured members, the monthly premiums for those same plans also continued to increase.

Second, at the same time, many Americans counted on social security to be their entire retirement income, and sometimes they didn’t realize until it was too late that this income was not nearly enough to meet all their living expenses. The outcome was that a fair amount of people over age 65 could not afford the cost of Part B and the premium for a medigap plan. This problem was compounded by the fact that Medicare did not cover for retail prescription drugs, so citizens had to pay for these entirely out of their own pockets. The outcry from Medicare beneficiaries was clear: many were having to make choices between healthcare costs and groceries or rent.

When some beneficiaries decided to forego medicare supplements and just take their chances, an epidemic of tragedies soon followed. Someone healthy at age 65 might have decided not to buy insurance. However, when that individual later developed a health condition requiring, for example, an open heart surgery or chemotherapy, he  found himself facing tens of thousands of out-of-pocket expenses for the 20% he owed after Medicare had paid its share. Congress feared these individuals then would be denied care because they couldn’t pay.

Finally, there has always been an inherent budgeting problem with Medicare, because there is no way to estimate exactly how much one individual beneficiary will spend on healthcare costs each year. Some are quite healthy so they cost very little; others have serious conditions which costs hundreds of thousands of dollars. This created a guessing game in the congressional budget office when trying to estimate how much our federal government would spend annually on healthcare for our aging Americans.

So Congress addressed these issues by creating, or allowing, the sale of private Medicare health plans, originally called Medicare+Choice plans. Later these plans evolved into Part C of Medicare, which is more commonly known today as Medicare Advantage. MA plans seemed to be a potential solution to the problems discussed earlier in this article. Here’s how:

1) The government could budget a set amount of money to pay the insurance company every month in exchange for that company taking on the medical risks for Sally Sue Beneficiary. This money could be put into the national budget as a firm number, because now all the medical risk was on the shoulders of the private insurance company

2) Sally was offered a considerably lower monthly premium for this coverage than she would have paid for a medigap plan, because she agreed to use a network of providers and share in some copays for services, such as $5 for a doctor office visit. So Sally now had access to another type of coverage if she could not afford a medigap plan.

In a nutshell, Sally got a health plan for a lower premium, and the government got a straightforward number to plug into their budget.

When choosing whether you prefer a Medicare supplement or a Medicare Advantage plan, you should carefully consider how the plans differ. Supplements pay secondary to original Medicare, and do not have networks. Often you have no copays because you have paid a higher premium for the supplement up front. Conversely, Advantage plans typically have lower monthly premiums. However, they will have rules about what providers you must seek your care from, and you will have copays for various kinds of services, such as doctor visits, lab-work, ambulance rides and surgeries.

Each state has Medicare Advantage plans offered by a number of insurance companies. The popular private health plans are made available by a wide variety of health insurance carriers, and certain counties have more options to choose from than others due to population. Each plan will have different benefits, copays, networks and formularies, so it takes a bit of research to sort them out.

How can you be sure that you fully understand which kind of coverage you purchase? The easiest way is to consult an expert insurance agent who specializes in Medicare-related insurance coverage. In our lives, we seek advice from a financial planner about our retirement savings. We consult attorneys about legal documents. When it comes time to choose your Medicare insurance coverage, get advice from an independent insurance broker in your state. Ask a friend for a referral, or search the internet for a respected Medicare insurance agent with a good amount of experience. What seems a huge task can be made simple and clear by an agent who works with these products every day.


Source by Danielle Kunkle

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