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Study Highlights Medicare Advantage Plan Cost Effectiveness

Published Jan. 27, 2020

A new study shows that Medicare Advantage plans can deliver a significant cost value when compared to traditional Medicare (also known as fee-for-service Medicare, or FFS). 

The report was published by UnitedHealth Group and was based on an average 72-year-old Medicare Advantage beneficiary who lived on a fixed annual income of less than $27,000 and had healthcare spending amounting to $3,632 in 2019.1

According to the report:

  • The estimated annual health care costs for the example beneficiary ($3,632) were 39 percent less with a Medicare Advantage plan than they would have been with fee-for-service Medicare plus a Medicare Part D prescription drug plan and Medigap Plan F (the most popular Medicare Supplement Insurance plan), which would have totaled $5,960.

  • The estimated annual amount was also less with a Medicare Advantage plan than they would have been for fee-for-service Medicare with a Part D plan and Medigap Plan G, ($5,441), or with fee-for-service Medicare with just a Part D plan ($5,109).

Medicare Advantage (Medicare Part C) plans provide coverage for everything covered by Original Medicare, or fee-for-service Medicare (which includes Medicare Part A and Part B).

In addition, some Medicare Advantage plans may include coverage for benefits like routine dental and vision care, allowances for hearing aids, gym memberships, home-delivered meals, non-emergency transportation and more. 

Medicare Part D plans provide coverage exclusively for prescription drugs. 

Medigap plans, also called Medicare Supplement Insurance, help cover some of the out-of-pocket costs that Original Medicare doesn’t pay for, such as deductibles, copayments and coinsurance.

It’s important to note that Medicare Advantage plans and Medigap plans are not the same thing. You cannot have a Medigap plan and a Medicare Advantage plan at the same time.

Medicare Advantage plans can offer more predictable spending

The study highlighted the variability of Medigap plan premium costs versus the relative stability and predictability of Medicare Advantage plan premiums. 

  • For example, 65-year-old beneficiaries of Medigap Plan G paid an average of $1,393 in annual premiums in 2018, while an 85-year-old Plan G beneficiary paid an average of $2,720.

    Medicare Advantage beneficiaries, however, paid an average of $1,609 for their plan premiums in 2018, regardless of age. 

  • Out-of-pocket costs also proved to be more stable in Medicare Advantage plans, according to the study. Medicare Advantage plans are required by law to offer an annual out-of-pocket spending limit. Original Medicare does not include an out-of-pocket spending limit.

    According to the study, 3.5 percent of Original Medicare beneficiaries spent more than the Medicare Advantage out-of-pocket limit in their annual health care costs. Original Medicare beneficiaries spent an average of $12,000 annually in out-of-pocket costs, which is nearly double the Medicare Advantage out-of-pocket spending limit of $6,700 in 2019.

Medicare Advantage popularity on the rise

Due to a combination of stable costs and the extra benefits that some Medicare Advantage plans may offer, the Medicare Advantage market has seen a growing popularity in recent years. 

In 2020, more than 34 percent of all Medicare enrollees belong to a Medicare Advantage plan. That compares to 23 percent of all Medicare beneficiaries in 2009, and just 13 percent in 2005.2

Medicare Advantage plan selection and costs can vary by location and provider.

You can learn more about Medicare Advantage plans in your area by calling to speak with a licensed insurance agent. You can also compare plans online for free, with no obligation to enroll.

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