Medicare Advantage’s Future Is Bad But Not As Bad As Rumors Would Have You Believe

When the Patient’s Protection and Affordable Care Act (a.k.a. Obamacare or the ACA) was first passed there was a huge cry over the treatment for the program to allow private insurance companies to administer health insurance for people with Medicare.

Without Medicare Advantage, the federal government is the only option that people over 65 have for health insurance.  Yes, people can purchase Medigap from private health insurance companies but that will only pay a benefit if Medicare pays first.

When the ACA was first signed into law in 2010 I was given to believe that the end had arrived for Medicare Advantage.  In this post I will share with you some of the rumors that I have heard in the past couple of years about Medicare Advantage and reality.

“Obamacare did away with Medicare Advantage”

This is not a true statement.  The Medicare Advantage program was initially established as part of Bill Clinton’s attempt to reform health care.  It would not be politically correct to brag about the surplus of funds that was gathered during the Clinton Administration and then dismantle one of his programs.

The ACA does not eliminate Medicare Advantage.  It just changes how private insurance companies are paid.  A new rating system has been developed to identify under-performing Advantage plans.  Only those plans that are of average quality or better will get bonus money.  Those plans that are consistently below average will be allowed to wither and dry-up.

“40% of those with a current Advantage plan will return to Original Medicare”

Actually, the rumor that I heard said that 40-60% of those who have a current Advantage plan will be forced to return to Original Medicare.  The correct number is not quite that high.  In her September 21, 2012 testimony before the House Ways and Means Subcommittee on Health, Karen Ignagni, president of Americans Health Insurance Plans, stated “In its March 2012 baseline, CBO projected that the ACA’s funding cuts will cause Medicare Advantage enrollment to decline to 10.7 million in 2019. This decline represents a 23 percent reduction from the pre-ACA enrollment level of 13.9 million that was anticipated for 2019 according to CBO estimates issued in 2010.”

Twenty-three percent is still a large decrease but it is only half of what I was originally told.

“Insurance companies will be forced to raise their premium rates”

Private insurance companies are bill paying services.  They must be able to make a profit in order for them to stay in business.  Between the change in how they are paid and the new insurance company fee/tax, insurance companies will no longer be able to offer plans with a $0 premium.

The fear-mongers are correct to say, “Private insurance companies will raise the premiums on Medicare Advantage plans.”  What they are not saying is that the increases they will make will be minor compared to the alternative.

According to a study by the actuarial firm, Oliver Wyman, premium increases will start in 2014 at $16 a month and rise to $42 a month in 2023.

That is bad but minor compared to the premium many of my clients are paying for Medigap and Medicare D.

Yes, the days of Advantage plans with $0 premiums may be numbered.  They may get more expensive in the future but even if the premium does increase, it is likely that they may still be a good option for those people who do not travel much and are willing to stay within the Advantage network.