Changes in Medicare Advantage Plans Lead to another 7% Drop in Premiums

February 6, 2012 Senior Medicare Issues

As a shining example of a positive move for healthcare reform, the government’s Medicare Advantage program is to be commended in experiencing another 7% drop in premiums while growing its base of enrolled participants by 10% this year alone.  These figures were just released on February 1, 2012 by the U.S. Department of Health and Human Services.

The 2010 Affordable Care Act (ACA) has made affable changes in what is commonly known as Medicare Advantage Plans that have proven to be tremendously successful in many aspects of running and improving the existing program.  Since the ACA’s inception in 2010, the records indicate that Medicare Advantage premiums have been reduced by 16%, evidently due to better administration or the program and the increased pool of Medicare Advantage participants enrolling in the program.

This has come as a pleasant surprise to Health and Human Services analysts who initially predicted only a 4% reduction in premiums. Largely responsible for this phenomenon is the fact that enrollment has increased by an impressive 17 % since the ACA’s  inception date of March 23, 2010 when President Barak Obama sign it into law.  It seems the word is getting out to seniors that Medicare Advantage programs offer more affordable and complete Medicare insurance coverage to its participants.

Medicare Advantage programs have their roots going back to 1997 when the Balanced Budget Act (BBA) was passed by congress.  However, at that early date, these plans did not cover prescription drug costs to seniors and disabled individuals.  But the BBA allowed Medicare participants another choice in insurance coverage other than Medicare in the ability to receive benefits through private insurance plans.  Previously, if you were 65 or over and eligible for Medicare, the only option was the standard Medicare Parts A and B which allowed you to go to virtually any doctor but generally covered only 80% of your medical expenses. The remaining 20% of expenses were to be paid by either you or through a Medicare Supplemental Insurance program which required addition ever-increasing premiums. These plans, later to be called Medicare Advantage plans, in their infancy, were known as Medicare Part-C or Medicare+Choice plans.

In 2003, as part of the Medicare Prescription Drug Improvement and Modernization Act (MPDIMA), these plans were expanded and made more appealing as an option for those in Medicare with the addition of prescription drug coverage added to the plans benefits.   This is when the insurance plans took-on the name Medicare Advantage (MA) plans; the Part-C label was also maintained.

Medicare advantage plans today are offered through insurance companies commonly referred to as Medicare Advantage Organizations (MAO).   These MAO’s are under contract with, administered and held in firm compliance by the government’s Centers for Medicare & Medicaid Services (CMS) division.  Strict monitoring and accountability are required of these Medicare Advantage providers in order to avoid waste, abuse, fraud or otherwise nefarious activities that previously plagued the Medicare system.  These oversights are additionally responsible for keeping premium costs under control and partly for the reductions in premium prices of late.

For an additional premium amount in addition to the standard Part-B premium these plans now have the advantage of providing additional benefits to participants over and above the standard Medicare Part-A and Part-B benefits. These Advantage plans, in addition to prescription drug coverage, can include such value-added services as vision-care, dental-care, and even gym or health club memberships.

Perhaps the main disadvantage to MA plans is that participants are limited to a network of Health Maintenance Organizations (HMO) and Preferred Provider Organizations PPO doctors and hospitals in a given geographic area.  But the number of participating medical professionals and hospitals appears to be growing in many areas.  If a Medicare participant needs to receive services outside of the network, permission or additional charges may be required.

Kathleen Sebelius, Health and Human Services Secretary commented in a recent statement: “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act, we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”

One factor causing reductions in premiums is the competitive environment fostered by large health insurance companies lowering premium prices in order to claim more and more beneficiaries during the open enrollment period.  In order to get into the game, the large health insurance company Humana has purchased two Medicare Advantage contractors in 2011 and has seen its enrollment base increase significantly as a result of their purchase.

These are all good things for seniors and the disabled on Medicare, but there are $200 Billion in cuts to Medicare Advantage due to kick-in as part of the timeline implementation of the Affordable Care Act by 2015.  These cuts are expected to negatively impact the Medicare Advantage program somewhat causing a smaller insured base and resultant higher premiums.

As detailed in this article, benefit and premium changes in existing programs are dramatically affected when congress acts.  Seniors should know these issues both in current and future implementation and study them carefully by researching all of the procedural and changing political issues prior to deciding on or changing your Medicare insurance plan.