The emerging role of Medicare Advantage, the private-plan alternative to traditional Medicare, is gradually changing the Medicare program in ways that have important implications for beneficiaries, providers, and spending. Fueled by policy changes adopted by both Democrats and Republicans, enrollment in Medicare Advantage plans has more than tripled since 2005, from approximately 6 million to 20 million beneficiaries. Between 2018 and 2028, Medicare Advantage enrollment is projected to rise from 34% to 42% of the Medicare population (Figure 1). At the same time, federal spending on behalf of Medicare Advantage enrollees is projected to grow from approximately $200 billion to more than $580 billion (not including additional Medicare spending associated with coverage of prescription drugs under Medicare Part D).1
In this article, we begin with a brief comparison of Medicare Advantage relative to traditional Medicare. We then examine the extent to which the Medicare Advantage program is achieving goals with respect to benefits and out-of-pocket costs, plan choice, federal spending, and quality.2,3 We highlight areas in which more evidence is needed to better understand the implications of the shift from traditional Medicare toward private-plan enrollment, and we identify ongoing challenges.
Medicare Advantage or Traditional Medicare — Opportunities and Trade-offs
Private health plans, now known as Medicare Advantage plans, have been an option for Medicare beneficiaries since the 1970s. (For simplicity and ease of reading, we refer to all Medicare private plans collectively as Medicare Advantage plans. Medicare private plans include Medicare Advantage plans as well as Medicare cost-reimbursed plans. In 2018, approximately 600,000 Medicare beneficiaries were in cost-reimbursed plans.) Medicare Advantage plans provide all Medicare-covered services (other than hospice) but differ from traditional Medicare in several respects. First, they are paid differently: the federal government makes capitated payments to Medicare Advantage plans on behalf of plan enrollees (adjusted for health status and other factors), in contrast to traditional Medicare, in which payments are generally based on services rendered and are not capitated. Second, Medicare Advantage plans, unlike traditional Medicare, are required to limit enrollees’ out-of-pocket spending for Medicare-covered services and typically provide extra benefits, such as dental care and gym memberships. Third, virtually all Medicare Advantage plans offer prescription-drug coverage as an integrated part of the benefit package. In contrast, traditional Medicare does not cover the prescription-drug benefit directly, as it does hospital and physician services; instead, beneficiaries must enroll in a separate stand-alone prescription-drug plan to get the Medicare Part D drug benefit.
Fourth, Medicare Advantage plans generally require enrollees to use a defined network of providers, or pay more for out-of-network care. In contrast, in traditional Medicare, beneficiaries can seek care from virtually all physicians, hospitals, and other providers nationwide. Fifth, Medicare Advantage plans, unlike traditional Medicare, typically rely on utilization-management techniques, such as prior authorization, to control service use and spending. Lastly, Medicare Advantage plans have more tools at their disposal than the traditional Medicare program to manage the care of enrollees, such as reward programs to encourage healthy behaviors. Beginning in 2019, plans will also be able to provide targeted services for persons with chronic conditions, such as extra vision benefits for persons with diabetes; in 2020, plans will be able to provide nonmedical services, such as home-delivered meals.
