Medicare: Becoming a Private Sector Insurance System

When Medicare began, it was a fee-for-service health insurance—that is, health care providers were reimbursed for the services they provided.

There was Medicare Part A which focused on inpatient hospital care (although it also included aspects of skilled nursing care, hospital care, and home health care) and Medicare Part B which focused on hospital services (although it also included ambulance care , home health care equipment, mental health care, and other services). But there is an obvious issue with paid care: the delivery of health care is shaped by the needs of the patient, as well as by local practices and financial incentives of health care providers. Therefore, even though Medicare is a national program, and Medicare taxes are the same everywhere in the country, Medicare prices and the services provided can vary greatly by location (for example, see. Here).

Therefore, the next major change to the original structure of Medicare did not follow the fee-for-service approach. In 1997, President Bill Clinton signed a law establishing Medicare Part C, where Medicare patients could choose, instead of getting coverage through Medicare A and B, to have the government pay directly to the health insurance company. , the government bought you health insurance. This was nothing new: there have been some people getting Medicare through private insurance going back to the 1970s. But in the late 1990s, the “Medicare Advantage” option, as Part C is often called, became available to all of them.

In a study conducted at the Kaiser Family Foundation, Meredith Freed, Jeannie Fuglesten Biniek, Anthony Damico, and Tricia Neuman looked at “Medicare Advantage in 2022: Enrollment Changes and Important Behaviors” (August 25, 2022). They show that the share of Medicare enrollees enrolled in Medicare Part C is about half and rising rapidly. He also mentions that Medicare Advantage could cover more than 60% of all Medicare patients 10 years from now.

Why are people choosing Medicare Advantage plans? The main reason is that the insurance policy must cover everything in Medicare Part A and B, but it is also allowed to provide additional services – at no additional cost to the patient. Other common benefits include vision, hearing, and dental care, and sometimes services such as transportation to the doctor and money to help join a health group. In addition, Medicare Advantage plans can be customized, to provide more coverage (eg, lower copayments) for services you know you will use. In some states, you can seamlessly switch from health insurance provided through your employer, with a specific company, to health insurance provided by Medicare, through the same insurance company.

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Most Medicare Advantage plans are open to everyone, although there are also specific plans organized through certain organizations and employers, as well as some “special needs” plans that are limited to low-income seniors with certain health conditions or disabilities.

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The rise in Medicare Part C poses additional challenges for health insurance program advocates.

For example, various types of “Medicare for All” laws have been proposed. In other versions, this would be a national insurance plan run by the government. Regardless of the merits or wrongs of such ideas, the real Medicare is going to the choice of plans that are managed by insurance companies, and are supported by the government. Seniors have a choice between having their health insurance managed by the US government or by a private insurance company – and they are choosing their own company.

The next obvious question is: How can private insurance companies offer these Medicare Advantage plans—with limited but real options and additional services? Remember, most plans are open to all, so insurance companies aren’t “pursuing the cream” of enrolling only healthy seniors. Private insurance companies are required to make a profit, while Medicare Part A and B are not.

I don’t have a good answer yet. It is true that the state pays less for Medicare Part C, on average, than Parts A and B, but it is only about $300 per person per year, so it is unlikely to be a major driver. My guess is that the big insurance companies are good at managing health care costs, and maybe not so bad at managing paperwork and administrative costs. After all, insurance companies are paid a small amount per patient, rather than being reimbursed for services such as Medicare A and B. health care costs. But again, the main point is that the elderly are showing more and more by their actions that they prefer Medicare Advantage plans, which are funded by the federal government, but are managed by private insurance companies.