Medicare Advantage Plans Need Careful Study

Health reform and other regulatory changes will cause big shifts in popular supplemental coverage.


If you are new to Medicare or one of more than 11 million people with a Medicare Advantage (MA) policy, be prepared to do a careful review early this fall when the new policies for 2011 are made available on the Medicare site. MA plans provide more comprehensive coverage for Medicare hospital (Part A) and physician and other medical services (Part B) than are offered in basic Medicare. People who can afford the extra premiums can choose from a MA plan or a Medigap supplemental policy. If they're lucky, they also might choose to combine one of these policies with some form of continued retiree health coverage from their former employer.

[ See America's Best Affordable Places to Retire.] The annual open enrollment period for next year's Medicare policies runs from Nov. 15 to the end of the year. The new MA plan details and rates should be available to consumers around Oct. 7, an agency spokesman says.

MA and Medigap both offer supplemental coverages to fill in the areas not covered by basic Medicare -- mostly co-pays and deductibles. MA plans usually also cover prescription drugs, which also have been covered since 2006 by stand-alone Medicare Part D policies. Medigap plans do not cover prescription drugs. Another primary difference between MA plans and Medigap policies is that most MA plans provide services through health maintenance organizations (HMOs) and other provider networks, whereas Medigap policies let consumers seek medical services from any physician or facility that accepts Medicare. Both types of policies offer many choices. The more complete coverages charge higher premiums.

MA plans evolved from Medicare's efforts to seek lower costs by promoting HMOs. To do so, the government provided more support -- about 14 percent on average -- to insurers offering MA plans, helping them provide coverage sweeteners to attract customers. That support is being reduced, and private insurers offering MA plans are expected to respond with a combination of higher premiums and reductions in covered services. Plans also differ by state.

[See Good Health Raises Lifetime Care Costs.]

"The plans that are active in this marketplace will have to make a whole new set of decisions," says Dan Mendelson, CEO of Avalere Health, a Washington-based healthcare consultancy. "In all likelihood, the benefits will not be as generous, and there will be many regions [in the country] where it will not be financially viable to offer MA plans. . . . Some changes will take place this year, and some next year." He also expects MA plans to work more closely with their local network of service providers -- hospitals, other specialists and the like -- to provide more cost-effective and higher-quality programs. Such partnerships are also designed to make the plans "more sticky" by enhancing their appeal to consumers.

Quality is being rewarded under the new health reform law. Beginning in 2012, government bonuses will go to MA plans with high service quality ratings. These ratings haven't been heavily promoted to consumers but as plans seek to qualify for the bonuses, consumers are likely to become more aware of the ratings. Right now, according to an Avalere analysis, few MA plans have superior quality ratings.

During the past several years, consumers with MA plans have tended to stick with them and not change insurers. "I think a lot of seniors have developed a comfort level with the plan that they're in," Mendelson says. "A lot of them don't even notice the cost increases because the premiums are deducted from their Social Security benefits."

[See Why You Should Get a Health Savings Account.]