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How Medicare Works

Medicare Advantage Plans (Part C)

Until the late 1990s, Medicare was structured as a fee-for-service program. In 1997, Medicare began to offer HMO-modeled plans for the program's beneficiaries through private insurers. These plans were known as Medicare+ Choice, then as Medicare Part C. Today, the plans are called Medicare Advantage plans. They provide all of the same benefits as Medicare Part A and B, and sometimes offer prescription drug coverage. The plans are popular because they typically cost much less than original Medicare plus Medigap, although you typically have to go through the plan's provider network. (The 2020 monthly premium was estimated at $23.00 according to the U.S. government's Centers for Medicare and Medicaid Services.) In 2019, 34 percent of all Medicare beneficiaries were enrolled in a Medicare Advantage plan. And the Congressional Budget Office (CBO) predicts that by 2029, the percentage will rise to nearly 50 [source: KFF].

There are four types of Medicare Advantage plans:

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Health Maintenance Organization (HMO) plans — These plans emphasize preventive health care. Only doctors within the HMO network are covered, and an appointment with a specialist requires a referral from a primary care physician. Additionally, HMO Point of Service (HMOPOS) plans are offered, which allow you to go outside of the network for care, although you'll have to pay more to do so. The majority of Medicare Advantage enrollees – 62 percent – are covered by HMO plans [source: KFF].

Preferred Provider Organization (PPO) plans — PPOs are similar to HMOs, except beneficiaries have the option of seeing a physician who's outside the plan network, although out-of-network services typically cost more. A referral from a primary care doctor is not usually required for specialist appointments. In 2019, 31 percent of Medicare Advantage beneficiaries were enrolled in PPOs [source: KFF].

Private Fee-for-Service (PFFS) plans — PFFS plans are offered by private insurance companies. While PFFS plans are required to offer the same benefits as Original Medicare, the insurers can offer additional benefits and require different fees and payment terms. Although most PFFS plans use provider networks, they are required to cover out-of-network care. However, you may pay more if you see an out-of-network professional. One downside of PFFS plans is that not all doctors and hospitals accept them, plus these plans might not be available in your state or county. In 2019, only 1 percent of people carrying Medicare Advantage plans were enrolled in PFFS plans [source: KFF].

Special Needs plans (SNPs) — Special Needs Plans are for three specific groups of people: those eligible for both Medicare and Medicaid; those living in long-term care institutions; and those with certain chronic conditions. In 2019, nearly 3 million people were enrolled in SNPs, the vast majority of whom gained eligibility by being dually eligible for Medicare and Medicaid [source: KFF].

Additionally, some regions offer Medicare Medical Savings Accounts (MSAs), which are similar to Health Savings Accounts (HSAs) for individuals under 65. Medicare MSAs are a combination of two plans: a high-deductible Medicare Advantage (Part C) plan and a special Medical Savings Account (funded by Medicare) to pay for health care costs incurred before you meet the deductible in your Medical Advantage plan.

Medicare Cost plans are also available, but only in certain parts of the U.S. Enrollees in Medicare Cost plans can join if they carry Original Medicare or just Medicare Part B. This hybrid plan gives beneficiaries the option to go to out-of-network providers on a fee-for-service structure (including the expense of Part A and Part B deductibles and coinsurance).

Medicare Savings Programs (MSP) are available to help low-income seniors pay their Medicare premiums. Sometimes they also pick up the cost of Original Medicare deductibles, copays, coinsurance and prescription costs. To qualify, participants have to meet state income and asset limits. In 2019, the gross monthly income limit for qualified Medicare beneficiaries in most states was $1,061 for individuals and $1,430 for couples, while the asset limits were $7,730 for individuals and $11,600 for couples.

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