Timothy Taylor on Medicare Advantage

Why are people choosing Medicare Advantage plans? The main reasons are that the insurance plan is required to cover all of Medicare Part A and B, but is also allowed to provide additional services – at no additional cost to the patient. Some common add-ons include certain vision, hearing and dental services, and sometimes services such as trips to the doctor and subsidies for health club memberships. Also, Medicare Advantage plans can be customized, so that they offer more coverage (say, lower co-pays) than you know you’re likely to use. In some cases, you can make a fairly seamless transition from health insurance provided through your employer, by a specific company, to health insurance provided by Medicare through the same insurance company.

This is from “Medicare: Becoming a Channel for Private-Sector Insurance.” Conversational Economist, August 30, 2022. The whole thing is worth reading. It makes me wonder if, when I retire at age 66, I should have taken Medicare Advantage. i didn’t I had great insurance as a federal employee and the feds paid the same for me and my wife’s insurance as they would have if I had stayed on the job. Still, I’m paying $7,000 a year for my health insurance. And of course that doesn’t include co-pays and deductibles.

I found this part particularly interesting:

For example, various versions of “Medicare for all” legislation have been proposed. In some versions, this would be a universal national health insurance scheme run by the government. Whatever the merits or demerits of such a proposal, the actual real-world Medicare shifts to a choice of plans operated by insurance companies and funded solely by the government. Seniors have a choice between having their health insurance managed by the US government or a private insurance firm—and they’re choosing private firms.

Since 48% of Medicare beneficiaries are on Medicare Advantage, up from just 19% in 2007, this means that one of the biggest lobbies against Medicare for All, if led by the government, would be participating in Medicare Advantage.

I heard that it is true that Medicare Advantage costs more than what the government pays for Medicare Parts A (hospitals) and B (doctors). But here’s what Tim Taylor wrote about it:

I don’t have a completely convincing answer here. It is true that the government pays a little more for Medicare Part C [that’s the name for Medicare Advantage], on average, compared to Parts A and B, but it’s only $300 per person per year, so it’s unlikely to be the main driver. My guess is that large insurance companies are better at managing health care costs, and probably not worse at managing paperwork and administrative costs. After all, insurance companies are paid a flat amount per patient rather than reimbursed on a fee-for-service basis like traditional Medicare A and B. One may, of course, raise concerns about how private insurance would be regulated. Health care costs. But again, the point is that seniors are increasingly showing by their actions that they prefer Medicare Advantage plans, which are funded by the federal government, but run by private insurance companies.

$300 per person is less than I thought. This is close to rounding error.

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