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Sizing up Medicare Advantage

By Dr. Don Taylor ·
Wednesday, July 2, 2014
Posted: 4 pm ET

Does the quality of care improve under Medicare Advantage when insurers are paid more to provide that care? Wharton professors Mark Duggan and Amanda Starc, along with Wharton Ph.D. student Boris Vabson, take a look at this issue in a research paper titled: "Who benefits when the government pays more? Pass-through in the Medicare Advantage Program."

© Robert Kneschke/

According to the authors, about 52 million people are covered by Medicare. About 30 percent opt out of the traditional fee for service Medicare to enroll in a Medicare Advantage plan. With the traditional fee for service plan, Medicare pays the doctors and hospitals. With Medicare Advantage, Medicare pays the companies a monthly stipend per enrollee and then the health insurance company is responsible for managing and financing the enrollee's healthcare.

How much the insurance companies get paid by the government varies by the size of the metropolitan area they're serving. In areas with a population over 250,000, the insurance companies receive about 10.5 percent more. The authors compared areas that were just above and just below that population level to evaluate the impact of the higher payout.

The study's findings

Their key findings were that the higher payouts attracted more insurance companies and more enrollees into Medicare Advantage. Also, more money was spent on advertising. But it did not result in better patient coverage. The authors found that while there can be advantages to patients with respect to additional benefits, such as vision care or a gym membership, these may be partially explained by premium differentials in the Medicare Advantage plan. Doctor availability can be better or worse in these plans since, as the authors point out, most doctors and hospitals contract with traditional Medicare, but an insurance company can also contract with high quality doctors that don't contract with traditional Medicare.

All of this has important policy implications as the Affordable Care Act, or Obamacare, is scheduled to reduce the payments to Medicare Advantage plans. I'd guess that most seniors are worried about the impact to their finances more than the public policy implications, even though the two are related.

I'd like to hear from seniors that are in a Medicare Advantage program. Please weigh in on what you like and don't like about the program, and how you think it might change if the federal government reduces its payments to the plan providers.

Follow me on Twitter: @drdonsays

Read more on the topic: Star ratings rank Medicare Advantage plans.

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Ron Epperson
March 12, 2015 at 9:54 pm

My wife and I have Regence Med Advantage. So far, we have had a good experience with this plan. Zero co-pays for most prescriptions, $20 co-pay for the doctor and $30 for a specialist. My wife has lupus so she takes various medications plus an infusion. We pay about $280 per month for the infusion even though the billed costs is over $4,500 per month.
This was the only plan offered us through the county from where I retired. We were both scared of what would happen with this plan but, so far, we have had no problems and would like to keep it.

Brenda Duncan
March 12, 2015 at 1:36 pm

I have Medicare Advantage with Kaiser Permanente. I have never understood what advantages I receive for this higher premium. I have asked but received only the vaguest responses. I do know I pay $20 co pay for every visit. It was recommended that I go to Physical therapy three times a week but at $20 a visit, this became unaffordable for me, so I had to stop going. Not good. I have always liked Kaiser and felt very good about their preventive care services but since becoming a senior on Medicare I'm not sure that I receive the care and attention that I did. It may just be that my current primary doctor is not as "people minded" as previous very good doctors at Kaiser, or it may be an unpublished policy to lessen the care once we turn a certain age. My current doctor just wants to give me pain pills rather than restorative care.

Richard Tebaldi
September 25, 2014 at 7:29 pm

I got my wife and I out of Humana's PPO supplemental due to the $189/month price. Between Medicare and the suplemental our annual costs were around $7800.
With bank rates at .01% and other costs going up, I wanted to see what I could save. We don't use MD.s much. Health Ins. Pundits suggested B+ B shield value RX program @ $51./Mo... When my MD's tried to contact B+BShield, they spent HOURS trying to get someone on the line. VERY difficult to do business with. Now I will search out another supplemental plan... I could move to Florida if I can find a better program for less than $189/Mo... I need a plan that will cover us in the U.S. not an HMO deal that doesn't. Reading the silibus' from health insurance companies may be easy for H.I. employees or Medicare folk, or even lawyers, but it's neigh onto impossible to make an intellegent decision by we taxpayers the way policies are written. A salesperson can tell you what they think, and may be wrong, but you are held responsible for reading the policy...and we cannot make a good decision the way they are written...they jump around and the "ifs,and the rest... Bah! Same with RX programs... ask them a question, they say look it up! WHERE? There are no answers to "what happens if I wind up with a catastrophic disease?" The said "depends" to which I replied, "no thanks don't need them yet!" Confused retired taxpayer, ME