Medicare Overview

Original Medicare, Medicare Advantage, Part D, and Medicare Supplement Insurance (Medigap) are some of the main offerings of Medicare. An overview of the Medicare landscape in the US has been presented below, along with an outline of the research strategy.

Key Differences Between Medicare Offerings

  • Medicare offers four main offerings — Original Medicare, Medicare Advantage, Medicare Supplement Insurance, and Medicare drug coverage (Part D). While Original Medicare is the general Medicare plan, Medicare Advantage and Medicare Supplement Insurance add certain benefits to the original plan.
  • Hospital insurance (Part A) and medical insurance (Part B) are the standard features included in Original Medicare. Medicare Advantage (Part C) is an alternate plan that offers some additional benefits, such as prescription drug coverage, to Original Medicare.
  • Medicare Supplement Insurance (Medigap) only supplements Original Medicare and does not act as an alternative.
  • Many people prefer adding a drug plan (Part D) with Medigap. Part D of Medicare covers prescription drugs that Original Medicare only covers in certain situations.
  • In Original Medicare, there are certain gaps that the plan does not cover. Such gaps include coinsurance at skilled nursing facilities, copayments at a doctor’s office, and the deductibles not covered by Part A of Original Medicare. Medigap covers all these remaining healthcare costs.
  • Similarly, Original Medicare covers multiple medical services, such as hospitalizations, doctor visits, diagnostic tests, blood work, and outpatient surgery. However, Original Medicare and Medigap do not cover dental, vision, hearing aids, and gym memberships. The Medicare Advantage plans cover the aforementioned services in addition to prescription drug coverage.
  • The Medigap policy and Medicare Advantage plans have different costs when compared to Original Medicare, depending on the benefits. Medigap and other prescription drug insurance policies have significant premiums. However, Medicare Advantage plans may have a lower or no premium when compared to Medigap.
  • While Medicare Advantage is an alternative way to get Medicare benefits, a Medigap policy only supplements the Original Medicare benefits. This is the key difference between the offerings. Similarly, a person can’t have access to both Medicare Advantage plans and Medigap.

Pricing of Medicare Programs

1. Original Medicare

  • The Centers for Medicare & Medicaid Services (CMS) is the federal agency that provides Original Medicare. The agency pays Medicare from two trust funds in the US Treasury. The premium for Original Medicare is the same throughout the country.
  • Original Medicare comprises Part A (Hospital Insurance) and Part B (Medical Insurance). Most people don’t pay monthly premiums for Part A because they fit the eligibility requirements for the premium-free Part A.
  • The people who don’t qualify for the premium-free Part A have to pay “a premium of either $252 or up to $458 each month in 2020 depending on how long they or their spouse worked and paid Medicare taxes.”
  • The standard government-regulated premium fee for Part B is $144.60. According to Medicare’s website, most people pay the standard premium for Part B. Private insurance companies don’t have control over the pricing of Original Medicare because it is completely regulated and controlled by the government.

2. Medicare Advantage Plans (Part C)

  • Medicare Advantage plans are provided by CMS-approved private health insurance companies. The pricing of Medicare Advantage varies on the basis of the selected plan. Many plans under Medicare Advantage have a $0 premium.
  • The premiums for Medicare Advantage plans are regulated by and filed with the CMS. The pricing of the plans can differ from state to state, depending on the plans available under Medicare Advantage in the states. Therefore, there are no fixed regulated prices.
  • The pricing and fees for different plans under Medicare Advantage mostly depend on their availability, premium charges, yearly deductibles, and services.
  • Since the program is regulated by the federal agency, the premium fee for a single plan under Medicare Advantage costs the same across different insurance providers. Therefore, insurance companies don’t have much control over the pricing and fees. However, the out-of-pocket costs for the plan might vary.
  • The pricing for a specific plan and area can be identified from Medicare’s website. For example, 50 different Medicare Advantage plans are available for Dallas, Texas.

3. Medigap and Part D (Medicare Drug Coverage)

  • Medigap and Part D are also provided by Medicare-approved private health insurance companies. The health insurance premiums for the Medigap policy are filed with and regulated by the Department of Insurance of the respective states of the US.
  • The pricing of Medigap varies, depending on the states. It also depends on the plan type, the private insurance company offering the policy, and the plan rating. Therefore, there are no fixed regulated prices.
  • Some articles and reports that provide more information on how the pricing of Medigap is set can be found on Medicare and Medicare Resources.
  • The prices for Medigap plans for different areas can be compared from this link.
  • The pricing of Medicare drug coverage (Part D) depends on the drug tier, prescriptions, the drug benefit phase, the pharmacy, and the insurer. According to eHealthInsurance, private insurance companies set their own costs for Medicare drug coverage (Part D).
  • According to Medicare’s website, “each insurance company decides how it will set the price, or premium, for its Medigap policies.” Therefore, insurance companies have a lot of control over the pricing of Medigap policies and Part D.

Revenue-Generating Medicare Programs

  • Medicare Advantage (Part C) and Medicare Supplement Insurance (Medigap) are the Medicare programs that generate the most revenue for insurance companies. These Medicare programs are offered by private health insurance companies.
  • According to a report by KFF, “gross margins are the difference between premiums collected and medical expenses and do not account for administrative expenses.” For the 2016-2018 period, the aggregated annual gross margin for Medicare Advantage was $23.9 billion. According to the report, the average simple loss ratio (total medical expenses as a percentage of earned premiums) for Medicare Advantage was 86% for the same period.
  • According to a report by Darwin Research, many top insurers in the US saw big increases in their Medicare Advantage (MA) market in 2019. Top companies, such as UnitedHealthcare, CVS Health, and Humana, all saw significant increases in their MA enrollment. Similarly, these companies experienced significant increases in their revenue in 2019.
  • According to Fierce Healthcare, “big-name health insurers raked in $8.2 billion in profit for the fourth quarter of 2019 and $35.7 billion over the course of the year.” According to the article, growth in the Medicare Advantage market of those insurers was a common theme in their financial growth. The article contains more in-depth financial data.
  • According to a study by Mark Farrah Associates, Medigap plans collectively earned around $31.3 billion and incurred $24.7 billion in premiums and claims in 2018, respectively. Similarly, Medigap plans experienced an aggregate loss ratio (incurred claims as a share of earned premiums) of 78.9% (1.2% increase from 2017) in 2018. The report also contains other useful information.
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