How Can Medicare Advantage Plans Have A $0 Premium?
Are there free Medicare Advantage plans?
It seems impossible, doesn’t it? In the day and age when people struggle to afford catastrophic health insurance coverage, how can it be that health insurance companies are giving away plans for nothing?
They aren’t. Not by a long shot.
In this article we’ll answer the following questions about Medicare Advantage plans and many more:
One of the most important things to understand about Medicare Advantage plans is how much it costs to use health care services. Like all private health insurance, covered services (i.e., doctor visits) have copayment or coinsurance out-of-pocket costs. These healthcare costs add up rapidly, particularly when you are hospitalized. These are the costs Medicare beneficiaries need to be concerned about, not the low premiums. The notion of a $0 premium is smoke and mirrors. Beneficiaries continue to pay their Medicare Part B premium, which covers the cost in full. Read Why are Some Medicare Advantage Plans Free? to learn more about "free plans".
Some Medicare Advantage plans offer a zero-dollar monthly premium because what Medicare pays the plan, plus your Medicare Part B premium, cover the full cost. For healthy people who want to keep their monthly costs low, these plans are an attractive option. But, just be aware that the premium is not the only cost. Plans also have copays or coinsurance you must pay when you use services. To learn more about free Medicare Advantage plans, read Why are Some Medicare Advantage Plans Free?
MA Plan Pros
- The maximum out-of-pocket cost is $7,550 a year
- Many plans cost $0 extra a month
- Most plans include drug coverage
- Many include basic hearing, dental, and vision benefits
- May include gym discounts (Silver Sneakers)
MA Plan Cons
- Can only switch during Open Enrollment
- Not easy to compare because plans are not standardized
- No nationwide coverage (plans don't travel with you)
- Most are HMO plans that require referrals to see a specialist
- Plans can change health and drug coverage each year
Learn more in this article.
Medicare Advantage is a great deal if you are not the one paying the copays. Many people with Medicare Advantage plans, including federal, railroad, and large company retirees, have retirement benefits that pay all of some of their Medicare Advantage plan copays. Other people, like Veterans and low-income individuals, have other government programs available to help pay their healthcare costs. If you're not in one of these groups, Medicare Advantage can be very expensive. Read more about the pros and con in What are the Advantages and Disadvantages of Medicare Advantage Plans?
Why Are Medicare Advantage Plans So Cheap?
People who join a Medicare Advantage (MA) plan give up their Medicare Part A and Medicare Part B benefits, but they continue to pay their monthly Part B premium. Behind the scene, the Centers for Medicare & Medicaid Services (CMS) pays the private insurance companies for each beneficiary enrolled in one of their insurance plans.
By no means are MA plans cheap. They are funded by the federal government through the Medicare program. Medicare payments to Advantage plans to fund Part A and Part B benefits exceed $250 billion per year (approximately 33% of the total budget).
How Are Medicare Advantage Plans Funded?
What a zero-dollar premium on a Medicare Part C plan means is that the beneficiary’s Part B premium covers the full cost of the plan. If a plan has extra benefits, like dental, vision, and hearing care, the insurer will add an additional premium. This additional premium is what you see next to each Medicare Advantage plan.
Each month, CMS pays private insurance companies an amount that covers the Part A and Part B costs of beneficiaries in their plans. If an insurer’s plan also includes prescription drug coverage as an extra benefit, CMS provides a separate payment. These payments have nothing to do with the actual medical services used by the beneficiaries.
The amount of the monthly payments is based on two primary factors:
- The health care practices in the county where each beneficiary lives. This influences the annual CMS bidding process.
- The combined health of the beneficiaries in a county. This governs how CMS raises or lowers the rates (i.e., risk adjustment).
What Are The Costs Of Zero-Premium Medicare Advantage Plans?
One of the most important facts to know about Medicare Advantage is how much you will pay when you use health care services. Like all other types of health insurance (HMO, PPO, PFFS, MSA, etc.), covered services (i.e., doctor visits) have copayment or coinsurance out-of-pocket costs. These healthcare costs add up rapidly, particularly when you are hospitalized.
It is crucial that beneficiaries take the time to evaluate their use of healthcare services before joining a plan. By using the MedicareWire plan finder tool, beneficiaries can compare Medicare Advantage plans, including the shared costs.
One of the most important costs to compare is a plan’s MOOP (maximum out-of-pocket). This is an annual cap on copay and coinsurance costs. It does not include any costs you pay for medications through a prescription drug plan (Medicare Part D).
Only by comparing costs with your health care needs can you know if a MA plan is affordable, or if you should buy supplemental coverage through a Medicare supplement insurance policy. Medicare supplement insurance plans work with Original Medicare coverage and cannot be used in conjunction with other private insurance. These plans offer flexibility in choosing healthcare providers, but they do not offer additional benefits. Also, unlike Advantage plans, there are no enrollment period restrictions.
Choosing Between Original Medicare or Medicare Advantage
Now that you know that Medicare Advantage plans are not free, you continue to pay your Part B monthly premium, they have shared costs when you use services, but they have an out-of-pocket limit, how do you choose?
Look at your cost under Original Medicare with a Medicare supplement plan vs. your cost in a Medicare Advantage plan. With the private-fee-for-service system, Original Medicare uses, coming to a cost estimate is as easy as looking at a chart. With Medicare Advantage, it takes a little more effort.
We’ve detailed everything you need to know in What is the Difference Between Medicare Advantage and Medicare Supplement? and Medicare Advantage vs. Medigap: Which is Better for You?
Why Are Medicare Advantage Plans So Heavily Advertised?
The number of ads shown during Medicare open enrollment is mind-boggling, isn’t it?
When the Medicare Part C program was signed into law in 2003, the health insurance industry jumped for joy. Finally, they were going to get a piece of the 80-million person pie.
As of 2021, there are just over 60-million people on Medicare and over 24-million of them are enrolled in a Medicare Advantage plan. By 2032 there will be approximately 80-million people on Medicare.
The stakes are high for both the Medicare program, insurers, and network providers. Medicare is bleeding money and the medical insurance industry is raking it in.
The best way to get all of your questions answered is to speak directly with a licensed health insurance agent. Call 1-855-266-4865 to speak with a HealthPlanOne agent. There’s no obligation.
- Who can join a Medicare Advantage plan?
- Is it better to have Medicare Advantage or Medigap?
- What are the benefits of Medicare Advantage?
- How much does a Medicare Advantage plan cost?
- How does Medicare Advantage work?
Citations & References:
- Costs for Medicare Advantage Plans | Medicare
- How do Medicare Advantage Plans work? | Medicare
- Find a Medicare plan
- Trump Administration Drives Down Medicare Advantage and Part D Premiums for S…
- Institutional Special Needs Plans (I-SNPs) | CMS
- Home – Centers for Medicare & Medicaid Services | CMS
- Medicare Advantage | KFF
- A Dozen Facts About Medicare Advantage in 2020 | KFF
- Medicare Advantage 2020 Spotlight: First Look – Data Note – 9365 | KFF
This article was written by David Bynon and was last updated on .