Basics of Medicare Advantage

Ian McCarthy | Emory University

What is Medicare Advantage

  • Private provision of health insurance for Medicare beneficiaries
  • Medicare “replacement” plans
  • It’s just private insurance for those eligible for Medicare

Medicare Advantage History

  • Existed since 1980s, formalized in the 1990s, expanded in 2000s
  • Medicare+Choice as part of Balanced Budget Act in 1997
  • Largest expansion: Medicare Modernization Act in 2003 (also brought Medicare Part D)

Medicare Advantage Details

In its current form…

  • Insurers submit plan details and a price needed to cover traditional Medicare (“bid”)
  • If approved, Medicare pays risk-adjusted bid or benchmark
  • Bid \(<\) benchmark, insurer gets a rebate
  • Bid \(>\) benchmark, insurer charges premium
  • Seperate bidding for Part D

Medicare Advantage in Real Life

Let’s take a look at the Medicare Advantage plan options…

Medicare Plan Finder

Medicare Advantage Quality Ratings

  • Initial MA Star Ratings (2007)
  • Overall rating introduced in 2009
  • Complicated formula…
  • key point: ratings from several domains are averaged and then rounded
  • More details available here

Role of Quality Ratings

  • Potentially affect plan choice
  • Quality bonus program in 2012
    • Demonstration program at first (2012 through 2015)
    • ACA quality bonus payments begin 2015

Details of QBP

Eligible plans may receive two bonuses:

  1. Benchmark bonus: Increased benchmark payment of up to 5%
  2. Rebate bonus: Share of bid-benchmark differential going back to insurer (from 50% up to 70%)
  • Applied to plans with 3-stars and above from 2012-2015 (demonstration period)
  • Applied to plans with 4-stars and above beginning 2015

Some good primers

Quality Ratings and Plan Choice

Quality Ratings as Information Disclosure

  • Health insurance is a complicated product with many dimensions
  • Strong empirical evidence of “bad” choices in health insurance
  • Quality disclosure might help consumers make better choices