Treasury Inflation-Protected Securities

By David Enna, Tipswatch.com

If you watch any news programming on television, you’ve seen annoying ads for Medicare Advantage running year round. “$0 monthly premiums!” “More benefits!” “Call to see if you qualify!”

Medicare Advantage, also called Part C of Medicare, is a private insurance option for covering hospital and medical costs. These plans bundle in Medicare Parts A and B. You will still pay Part B premiums, but the insurer may cover part of those costs. If you have Medicare Advantage, you don’t need a Medigap supplement and probably won’t need a Part D drug plan.

The industry argues that many of these plans offer extra benefits, such as eyeglasses, gym memberships and dental care, not available under original Medicare. That is appealing to a a lot of consumers.

The federal government requires Medicare Advantage plans to cover everything that is covered by Medicare parts A and B, but Advantage plans may have different deductibles and co-payments. In most cases, with Medicare Advantage you can only only use doctors and other providers who are in your plan’s network and service area. And you may need a referral to see a specialist.

Medicare Advantage plans generally lower the monthly cost of Medicare, although total costs can be higher if you need a lot of medical services. The TV ads focus on the lower monthly costs, of course, and the pitch is working. According to KFF, an independent source for health policy research, in 2022 more than 28 million people were enrolled in a Medicare Advantage plan, accounting for 48% of the eligible Medicare population.

Many people are in excellent health when they first sign up for Medicare. Later, when their health declines, the drawbacks of Advantage plans may become apparent. These plans have limited networks of providers, and enrollees going out of network face higher costs.

A Kiplinger article from April 2018 pointed out that enrollees in poor health were substantially more likely to dump an Advantage plan than those in good health.

Medicare Advantage “tends to work for people when they are relatively well,” says Judith Stein, executive director of the Center for Medicare Advocacy. “But if they become ill or injured and really need a significant length of care, they’re not as well served.”

If you are interested in more information on Advantage plans, read the Centers for Medicare and Medicaid Services’s Guide to Understanding Medicare Advantage Plans (.pdf). From that document:

Why are these plans so heavily marketed?

KFF, formerly known as the Kaiser Family Foundation, found in an analysis of 2021 financial data that health insurers report much higher gross margins per enrollee in the Medicare Advantage market than in other health insurance markets.

In 2021, KFF found, Medicare Advantage insurers reported gross margins averaging $1,730 per enrollee, at least double the margins reported by insurers in the individual/non-group market ($745), the fully insured group/employer market ($689), and the Medicaid managed care market ($768).

How does this work? Private insurance companies contract with Medicare to create HMO or PPO plans to cover beneficiaries. Medicare pays Advantage plans a set amount for each enrollee. The amount paid varies by county, and enrollees defined as “sicker” bring in a higher risk-adjusted payment. Medicare Advantage insurers then have a set amount coming in for each enrollee, and if they can keep their patient costs below that number, they can gain a sizable profit.

As of 2019, the typical federal payment to Advantage insurers was about $11,100 per enrollee a year, but that number could vary widely.

In 2019, according to KFF data, the federal government paid Medicare Advantage plans $11,844 per enrollee, or $321 more per person than Medicare would have spent if these beneficiaries had instead been covered by traditional Medicare.

Medicare Advantage insurers obviously have an interest in cutting costs for health care for beneficiaries. Lower costs mean higher profits. These measures might include 1) a limited number of doctors in the plan’s network, 2) co-pays for office visits, 3) c0-pays for specialist visits, 4) requiring approval before the plan covers certain drugs or services, and 5) denying service requests.

High rate of service denials

AARP notes in a comparison of original Medicare and Medicare Advantage that the Advantage plans might resemble your past employer-sponsored plan: “Under Medicare Advantage, you will essentially be joining a private insurance plan like you probably had through your employer.”

In most cases you would have a primary care physician who would direct your care, meaning you would need a referral to a specialist. That request could be denied, and the specialist would have to be in your network. Other medical services — such as chemotherapy or extensive rehab treatments — could also be denied.

KFF issued a report on Feb. 2, 2023, noting that Advantage plans denied 2 million prior authorization requests in 2021, about 6% of all 35 million requests. KFF notes:

Prior authorization is intended to ensure that health care services are medically necessary by requiring providers to obtain approval before a service or other benefit is covered. …

Historically, Medicare beneficiaries were rarely required to receive prior authorization. That is still the case for beneficiaries enrolled in traditional Medicare, who are only required to obtain prior authorization for a limited set of services. However, virtually all Medicare Advantage enrollees (99%) were enrolled in a plan that required prior authorization for some services in 2022. Most commonly, higher cost services, such as chemotherapy or skilled nursing facility stays, require prior authorization. Prior authorization may play a role in helping Medicare Advantage plans reduce costs and maintain profits.

Here is a summary of the report’s finding from 2021 data:

• More than 35 million prior authorization requests were submitted to Medicare Advantage insurers on behalf of Medicare Advantage enrollees.
• Over 2 million prior authorization requests were fully or partially denied by Medicare Advantage insurers.
• Just 11% of prior authorization denials were appealed.
• The vast majority (82%) of appeals resulted in fully or partially overturning the initial prior authorization denial.

KFF concludes:

The high frequency of favorable outcomes upon appeal raises questions about whether a larger share of initial determinations should have been approved. … (M)edical care that was ordered by a health care provider and ultimately deemed necessary was potentially delayed because of the additional step of appealing the initial prior authorization decision, which may have negative effects on beneficiaries’ health.

Thoughts: Original Medicare vs. Advantage?

I’ll admit this is not an area of expertise for me. My wife and I are on original Medicare with Plan G Medigap coverage from UnitedHealthcare. This decision was an easy one because we travel frequently and Plan G includes some overseas coverage. Everything has worked well, so far.

I have no personal experience with Medicare Advantage. But I have heard some horror stories from friends about “out-of-network” doctors and denied services. I am sure many of these insurers are fine and many customers are happy with the lower costs and additional services. Plus, I admit that getting some sort of coverage for dental, hearing and eye glasses would be appealing.

Four things concern me:

1. The AARP’s comparison of Advantage plans to employer health insurance — often a bureaucratic mess — gives me pause. I consider original Medicare with a Plan G supplement to be the “near-Cadillac” plan I want. (And up until now, I will admit, I have been paying more for these coverages than I have received in benefits.)
2. The intense level of marketing for these Advantage plans indicates they are highly profitable for insurance companies, as the KFF data demonstrate.
3. Profits are fine, but there is an inherent conflict of interest for the insurers to deny medical services.
4. The “high-ish” level of service request denials means necessary health care could be delayed upon appeal or never received. That’s potentially dangerous, and a hassle I don’t need.

Site reader Jim of the “I Was Retired” YouTube channel has similar views on this topic, which he posted on YouTube in September 2021. There is a lot of good information in this:

What are your experiences with original Medicare or Medicare Advantage? If you are happy with your Advantage plan, or have other opinions, share your thoughts in the comments section below.

Have a great 4th of July holiday.

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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.