Medicare Advantage: A Policy Primer
Commonwealth Fund May 3, 2022
What is Medicare Advantage?
Medicare Advantage plans are private health insurance plans paid by the federal government to provide Medicare-covered benefits as an alternative to “traditional” or “original” Medicare.
Private plans have been an option in Medicare since the 1970s, but enrollment in private plans remained relatively low through the 1990s.1 Aside from changing the name of Medicare private plans from Medicare+Choice to Medicare Advantage (also referred to as Medicare Part C), the Medicare Modernization Act of 2003 made significant changes that propelled enrollment growth. The Affordable Care Act (ACA) of 2010 also made many changes that enhanced plan enrollment.
Most Medicare Advantage plans are either HMOs, which generally cover only care provided by in-network doctors, hospitals, and other health providers, or by PPOs, which also offer access to out-of-network providers but at a higher cost than in-network providers. Other types of plans include: Private Fee-for-Service plans, Medicare Medical Savings Accounts, PACE plans, or cost plans, the latter of which do not assume financial risk. Enrollment in these other plan types is relatively low.
What does the future look like for Medicare Advantage?
Medicare Advantage plans are an integral part of the Medicare program. They provide beneficiaries a multitude of options and offer additional benefits to enrollees. As the popularity of these plans continues to grow and enrollment rises, however, the Medicare program will face several challenges. First, higher costs relative to traditional Medicare will strain federal spending and the solvency of the Hospital Insurance (Part A) trust fund. Second, increased enrollment could necessitate changes to the payment system for Medicare Advantage plans. Third, questions remain about the quality of Medicare Advantage plans relative to traditional Medicare.
With Medicare Advantage plans predicted to soon become the dominant form of Medicare coverage, it will be important to assess beneficiaries’ experiences and the long-term sustainability of the program to ensure Medicare Advantage plans provide effective, efficient, and equitable care.
