Jane Dotson
Medicare is a public health insurance program, while private insurance is offered by private companies. It is possible to have both private insurance and Medicare at the same time, and the primary payer is determined by a process called coordination of benefits. Medicare Advantage (MA) plans are a type of Medicare policy that is sponsored by parent companies and sold by insurers across multiple markets. MA plans have been profitable for large insurers, and their payment structure allows for several ways for plans to earn profits. However, MA plans are required to have a medical loss ratio (MLR) of no lower than 85%, which limits administrative expenses and profits to 15% of total revenues. While MA plan margins were roughly 5% in 2019, the total revenue per enrollee is substantially higher than in commercial insurance.
| Characteristics | Values |
|---|---|
| Can you have private insurance and Medicare? | Yes |
| Who pays first? | The primary payer pays first, which can be either Medicare or private insurance depending on the type of private insurance and individual situation |
| Who is eligible for Medicare? | People aged 65 or older, people with a disability or ALS, people with ESRD |
| Medicare Advantage (MA) plan margins in 2019 | 5% |
| MA plan margins in 2022 | 104% of traditional Medicare spending |
| MA medical loss ratio | No lower than 85% |
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What You'll Learn
Medicare Advantage Plans and Medical Loss Ratios
Medicare Advantage (MA) plans are playing a growing role in public insurance programs, with more than half of eligible Medicare beneficiaries enrolled in a private Medicare Advantage plan. The Medical Loss Ratio (MLR) is a measure of the percentage of premium dollars that a health plan spends on medical claims and quality improvements, versus administrative costs. The Affordable Care Act (ACA) set minimum MLR standards for health insurance in the US, requiring that health insurance carriers spend the bulk of the premiums they collect on medical expenses for their insured. Individual and small-group carriers must spend at least 80% of premiums on medical expenses, and for large-group plans, the requirement is 85%.
The ACA also requires MA plans to maintain an MLR of at least 85%. If a plan uses less than 85% of premium revenues for health expenses, it could be subject to sanctions. Since 2014, MA organizations, Part D prescription drug plan sponsors, and cost plans are required to submit an MLR report to the Centers for Medicare and Medicaid Services (CMS) annually. The purpose of the report is to share information relating to the MLR reporting process. The MLR requirements for MA organizations and Part D sponsors have been codified in the regulations at 42 CFR Part 422, Subpart X, and 42 CFR Part 423, Subpart X.
MA plans are paid based on annual premium bids made against a market benchmark set by the CMS. The difference between revenues and incurred costs is profit. A portion of the difference between plan bids and the market benchmark is returned to the plan in the form of a rebate, which must be used to provide extra benefits to beneficiaries. The projected premium for the supplemental benefit associated with the rebate is based on an actuarial estimate, and differences between the projected and actual costs are profits.
The debate around MA plans centres on whether they are "overpaid" and the extent to which regulatory arrangements can constrain potential overpayments. Since the enactment of the ACA, Medicare Part C or MA policy has aimed to improve the alignment of plan costs and payments by requiring that health plans in MA attain an MLR of 0.85. The ACA also reduced some payments to MA plans.
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Medicare beneficiaries and profits
Medicare beneficiaries can have both public and private health insurance. Private insurance can be obtained through an employer or a spouse's employer, or through COBRA or TRICARE. When a beneficiary has both private insurance and Medicare, a process called "coordination of benefits" determines which insurance provider pays first. This is called the primary payer. The secondary payer covers costs that the primary payer does not, although it may not cover all costs. Medicare beneficiaries can also obtain supplemental coverage, such as a Medicare Supplement Insurance (Medigap) policy, or join a Medicare Advantage Plan.
Medicare Advantage Plans, or MA plans, are offered by private insurance companies that have been approved by Medicare. MA plans have been a source of profit for large insurers such as UnitedHealthcare and Humana. The payment structure of MA plans allows for several ways for plans to earn profits. For example, MA plans can keep part of the difference between their bid and the local benchmark, which is called a rebate. This rebate can be used to lower patient costs, lower premiums, or provide some coverage for additional benefits. MA plans are also required to have a medical loss ratio (MLR) of no lower than 85%, which means that administrative expenses and profits can be up to 15% of total revenues.
The profitability of MA plans has been a subject of debate. MedPAC reported that MA plan margins were roughly 5% in 2019, which is well under the average across industries. However, it is important to note that total revenue per enrollee is substantially higher than in commercial insurance, and that those revenues consist largely of taxpayer dollars. Additionally, the related businesses of MA plans can account for 20-71% of spending, which may shield profits from MLR regulations.
In summary, Medicare beneficiaries can have both public and private health insurance, and may obtain supplemental coverage or join a Medicare Advantage Plan. MA plans have been a source of profit for large insurers, and there are several factors that contribute to their profitability, including rebates and MLR regulations. However, the extent of profits and the impact of related businesses on pricing practices are still being evaluated.
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Medicare with private insurance
Medicare is a public health insurance program provided by the government. When an individual becomes eligible for Medicare, they can still have private insurance coverage provided by an employer. Medicare beneficiaries can also be covered under a group plan provided by their spouse's employer. Additionally, retirees can be offered coverage under a group plan by their previous employer. This is called retiree coverage, in which Medicare pays first, and the retiree coverage pays second.
There are two basic types of health insurance: private and public. Private health insurance plans are offered by private companies, and public health insurance plans are government-funded. Private insurance companies manage some parts of Medicare, and while these plans can be considered private insurance, the companies that offer them must be approved by Medicare and agree to follow its rules.
It is possible to have both private insurance and Medicare at the same time. When an individual has both, a process called "coordination of benefits" determines which insurance provider pays first. This provider is called the primary payer. The primary payer pays for any covered services until the coverage limit has been reached, after which the secondary payer pays for costs that the primary payer does not cover. Whether Medicare or private insurance is the primary payer depends on the type of private insurance and the individual's situation.
Medicare Advantage (MA) plans are a type of Medicare policy that allows private insurers to administer Medicare benefits. MA plans have been a source of earnings growth for several large insurers, such as UnitedHealthcare and Humana. The MA payment structure allows for several ways for plans to earn profits. For example, if an MA plan's bid is below the local benchmark, the plan keeps part of the difference, which can be used to pay for administrative expenses and profits.
Medigap, or Medicare Supplemental Coverage, is another option for individuals with traditional Medicare to cover additional costs not covered by Medicare, such as the 20% copayment for most routine Part B doctor's services. Medigap coverage is provided through private insurers, and the premium that enrollees pay is in addition to the Medicare Part B premium.
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Medicare Supplement Insurance
Medigap is available to individuals aged 65 and older enrolled in Medicare Parts A and B. Additionally, in some states, it is also available to those under 65 who are eligible for Medicare due to disability or end-stage renal disease. To purchase a Medigap policy, individuals must already have Original Medicare, which includes Part A (Hospital Insurance) and Part B (Medical Insurance). The availability and benefits of Medigap plans may vary depending on the state and the insurance plan chosen. For example, individuals living in Massachusetts, Minnesota, or Wisconsin may find that their Medicare Supplement policy is named differently compared to the standard "Medicare Supplement Plans A through N".
When it comes to costs, Medigap plans typically offer benefits at higher premiums with limited out-of-pocket expenses. Plans A through G are known for this structure, whereas Plans K through N are cost-sharing plans offering similar benefits at lower premiums but with higher out-of-pocket costs. It is worth noting that Plan F, which is one of the higher-premium plans, is not available to individuals new to Medicare as of January 1, 2020. Additionally, individuals may be eligible for a discount on their monthly premium if they enroll online, although this discount is not available in all states.
It is possible to have both private insurance and Medicare at the same time. In such cases, a process called "coordination of benefits" determines which insurance provider pays first, known as the primary payer. The primary payer covers the costs until the coverage limit is reached, after which the secondary payer covers any remaining costs, although they may not cover all of the remaining expenses. The determination of which insurance provider is the primary payer depends on the type of private insurance and the individual's specific situation.
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Medicare Part C
Medicare Advantage Plans may offer extra benefits, such as vision, hearing, dental, and/or health and wellness programs. Most include Medicare prescription drug coverage (Part D). Medicare pays a fixed monthly amount for your care to the companies offering these plans. These companies must follow rules set by Medicare, but each plan can have different out-of-pocket costs and rules for accessing services. For example, you may need a referral to see a specialist, or you may be required to use only specific doctors, facilities, or suppliers that belong to the plan network.
It is important to note that you must sign up for Part A or Part B before enrolling in a Medicare Advantage Plan. Additionally, if you have Medicare Part C, there is no yearly limit on what you pay out-of-pocket unless you have supplemental coverage, like a Medicare Supplement Insurance (Medigap) policy.
Since the enactment of the Affordable Care Act (ACA) in 2010, Medicare Part C has aimed to improve the alignment of plan costs and payments. This was achieved in part by requiring that health plans in Medicare Advantage attain a Medical Loss Ratio (the share of premiums spent on medical care) of 0.85. The ACA also reduced some payments to Medicare Advantage Plans, addressing previously documented overpayments.
Medicare Advantage Plans have seen strong market entry, and earnings reports suggest that they have been a source of earnings growth for several large insurers. The MA payment structure allows for several ways for plans to earn profits, and by 2025, it is projected that MA will enroll 50% of Medicare beneficiaries.
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Frequently asked questions
Yes, it is possible to have both private insurance and Medicare. When you have both, a process called “coordination of benefits” determines which insurance provider pays first.
Medicare Advantage, or Medicare Part C, is a type of Medicare policy that allows private health insurance companies to bid to enroll Medicare beneficiaries in their plans.
The choice between traditional Medicare and Medicare Advantage can be frustrating, complex, and confusing. Many beneficiaries seek advice from their doctor, a broker, or a State Health Insurance Assistance Program (SHIP).
Since 2014, Medicare Advantage plans have been required to have a medical loss ratio of no lower than 85%. This means that plans' administrative expenses and profits, or margins, can be no higher than 15% of the total revenues that plans receive from the federal government.
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