Explainer: Taking the Misunderstanding Out of Medicare Advantage

NJ trails country in percentage of seniors who choose private insurance plans

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More than one in seven New Jersey seniors are enrolled in Medicare Advantage, the private health insurance plans that are an alternative to conventional Medicare.

New Jersey’s Medicare Advantage plans have been undergoing a variety of changes. New options are now available, such as the Geisinger Gold plan offered for residents served by the five-hospital Meridian Health System. And significant changes are being made to current plans, such AmeriHealth New Jersey’s decision to expand its Medicare Advantage coverage area and UnitedHealthcare’s decision to drop some doctors from its Medicare Advantage plan.

The Roots of Private Medicare Plans

Medicare was established in 1965 based on a model in which the government would pay healthcare providers directly for each service they provided, known as fee-for-service.

In 1976, a pilot program was launched that allowed private insurers to manage patients’ care through health maintenance organizations (HMOs), in which the federal government would pay insurers to contract with providers, who would receive a fixed amount for providing a range of services for a specified number of patients. The goal of the program was to see whether the private sector could deliver better, less expensive care than the government.

Changes Over Time

Few residents enrolled in the private plans until 1997, when the federal budget increased funding for the program in some areas.

Another surge in enrollment came in 2003, when the program was renamed Medicare Advantage and a more broad-based payment increase occurred. While federal payments to the private plans were originally limited so that they were lower than the average cost for traditional Medicare beneficiaries, over time they grew to be more than 10 percent higher. With higher payments, enrollment in the plans grew steadily, reaching nearly 30 percent of national Medicare enrollment, according to the Kaiser Family Foundation.

Potential Advantages

While the private plans must offer benefits similar to those of traditional Medicare, they have some flexibility in what they offer, such as lower monthly premiums when compared with the premiums for traditional Medicare Part B, which covers doctor and outpatient hospital visits, as well as medical supplies. The range of benefit packages has been used by insurers to attract patients and lead doctors to contract with the plans. Individual members have cited the lower premiums in choosing the plans.

Recipients of traditional Medicare pay no premium for Part A, which covers inpatient hospital visits, if they or their spouses paid Medicare taxes while working. However, there is a premium for Part B. Currently, it’s $104.90 per month.

Medicare Advantage plans cover the services in both Part A and Part B of traditional Medicare. The Medicare Advantage monthly premiums in New Jersey range from paying nothing to $219.30.

The Only State to See a Drop

New Jersey was the only state to see a reduction in the share of its Medicare recipients enrolled in Medicare Advantage plans in 2014.

Residents have never enrolled in the private plans at the same rate as those in other states, with New Jersey’s Medicare Advantage share of total Medicare enrollment at half of the national rate. Potential reasons for the difference are rooted in the unique features of healthcare in the state, including more requirements on insurers than in other states and the larger number of small medical practices, which can present a challenge for managed care.

The ACA Impact

The 2010 Affordable Care Act reduced the gap between Medicare Advantage and traditional Medicare per-patient costs. In response to insurance industry criticism of these reductions, federal officials instituted a program paying insurers bonuses to offer high-quality plans, but this program is ending. There is annual lobbying over how the program is funded, with insurers saying they are feeling increasing financial pressure that will affect enrollees.

Targeting Medicare Advantage Plans

Seven insurers currently offer Medicare Advantage plans in the state, with Geisinger Gold being the newest.

Geisinger President and CEO Dr. Glenn Steele is aiming to squeeze unnecessary costs out of the healthcare system by focusing on concentrating services on those patients whose health can benefit the most. For example, Geisinger Gold enrollees with chronic condition may be assigned a nurse who provides customized care and closely tracks the patients’ health.

Controversial Change — and Federal Response

Last October, UnitedHealthcare notified some doctors in the state that it was terminating their contracts. Company officials said the changes were made to both improve outcomes and lower costs, but doctors raised concerns of the impact on their patients. The federal Centers for Medicare & Medicaid Services recently responded by saying that patients will be able to switch plans in the middle of the year if their doctor is dropped.

Enrollment Periods

Residents can enroll in a Medicare Advantage plan when they’re first eligible for Medicare (such as when they turn 65 or develop a disability). Otherwise, they are limited to the annual Medicare open enrollment period, from Oct. 15 to Dec. 7.