Medicare Advantage

Medicare Advantage is a type of United States health insurance program within Part C of Medicare. Medicare Advantage plans provide a managed health care plan (typically a health maintenance organization (HMO) but also often a preferred provider organization (PPO) or another type of managed care arrangement) that is paid based on a monthly capitated fee. This Part of Medicare provides beneficiaries an alternative to "Original Medicare" Parts A and B Medicare, which provides insurance for the same medical services but pays providers a fee for service (FFS) directly rather than through managed care plans. However a Medicare Advantage beneficiary must first sign up for both Parts A and B of Medicare. All three of these Parts of Medicare -- A, B and C -- are administered by private insurance companies (often the same insurance companies).

Medicare Part A provides payments for in-patient hospital, hospice and skilled nursing services, excluding those of physicians and surgeons. Part B provides payments to physicians and surgeons in hospitals and skilled nursing facilities, as well as for medically necessary outpatient hospital services such as ER, laboratory, X-rays and diagnostic tests, certain preventative medical services, and certain durable medical equipment and supplies. Part C health plans, including Medicare Advantage plans, not only cover the same medical services as Parts A and B but also typically include an annual physical exam and vision and/or dental coverage of some sort not covered under Original Medicare. Less often, hearing and wellness benefits not found in Original Medicare are included in a Medicare Advantage plan. The most important difference between a Part C health plan and FFS Original Medicare is that all Part C plans, including capitated-fee Medicare Advantage plans, include a limit on how much a beneficiary will have to spend annually out of pocket; that amount is unlimited in Original Medicare.

Most but not all Medicare Advantage plans (and many of the other public managed-care health plans within Medicare Part C) include integrated self-administered drug coverage similar to the standalone Part D prescription drug benefit plan. The federal government makes separate capitated-fee payments to Medicare Advantage plans for providing these Part-D-like benefits if applicable just as it does for anyone on Original Medicare using Part D.

Since the 1970s, Medicare beneficiaries have had the option under Medicare demonstration programs to receive their Medicare benefits through managed capitated-fee health plans, mainly HMOs, as an alternative to FFS Original Medicare. The Balanced Budget Act of 1997, which formalized the demonstration programs into Part C of Medicare, introduced the term Medicare+Choice as a pseudo-brand for this option and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 renamed +Choice "Medicare Advantage." These names are government artifacts and may or may not be visible to the beneficiary. Other managed Medicare plans include COST plans (which are not capitated), dual-eligible (Medicare/Medicaid) plans, and PACE plans (which try to keep seniors that need custodial care in their homes). However 97% of the beneficiaries in Part C are in one of the roughly one dozen types of Medicare Advantage plans (HMO, EGWP, SNP, regional PPO, etc.), primarily in classic vanilla HMOs.

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