Why Medicare Advantage Plans Were Created

Why Medicare Advantage Plans Were Created

When Medicare was first made law over fifty years ago, insurance carriers created Medicare Supplements, or Medigap plans, to help people insure against the various cost-sharing for which they would be responsible under the new federal health insurance program for seniors. These plans, as originally designed, help consumers cover the expense of Medicare Part A & B deductibles and co-insurance. For many years, these were the only type of supplemental plans available. As part of the Balanced Budget ACt of 1997, though, the government created a whole new type of program called Medicare Advantage (MA). These plans are not medicare supplements, though, and they operate very differently so it’s important that you know the difference before making a decision on which kind of plan would be right for you.

Why did Congress create Medicare Advantage plans is not an easy question to answer. Well, they came about as the result of several factors.

First, there were was the increasing costs for Medicare itself and for medigap plans. Over the years, the Medicare deductibles and co-insurance increased with inflation, as does the cost of most things in America. Since many medigap plans cover these costs for insured members, the monthly premiums for those same plans also continued to increase.

Second, at the same time, many Americans counted on social security to be their entire retirement income, and sometimes they didn’t realize until it was too late that this income was not nearly enough to meet all their living expenses. The outcome was that a fair amount of people over age 65 could not afford the cost of Part B and the premium for a medigap plan. This problem was compounded by the fact that Medicare did not cover for retail prescription drugs, so citizens had to pay for these entirely out of their own pockets. The outcry from Medicare beneficiaries was clear: many were having to make choices between healthcare costs and groceries or rent.

When some beneficiaries decided to forego medicare supplements and just take their chances, an epidemic of tragedies soon followed. Someone healthy at age 65 might have decided not to buy insurance. However, when that individual later developed a health condition requiring, for example, an open heart surgery or chemotherapy, he  found himself facing tens of thousands of out-of-pocket expenses for the 20% he owed after Medicare had paid its share. Congress feared these individuals then would be denied care because they couldn’t pay.

Finally, there has always been an inherent budgeting problem with Medicare, because there is no way to estimate exactly how much one individual beneficiary will spend on healthcare costs each year. Some are quite healthy so they cost very little; others have serious conditions which costs hundreds of thousands of dollars. This created a guessing game in the congressional budget office when trying to estimate how much our federal government would spend annually on healthcare for our aging Americans.

Why the Medicare Advantage plans were created

When Medicare was created by law more than fifty years ago, insurance companies created Medicare Supplements, or Medigap plans, to help protect themselves from the many cost-sharing that would be responsible for the new federal insurance program. Health care of the elderly. These plans, as originally designed, help consumers cover the deductibles and coinsurance expenses of Medicare Parts A and B. For many years, this was the only type of supplementary plan available. However, as part of the Balanced Budget Act of 1997, the government created a new type of program called Medicare Advantage (MA). However, these plans are not medication supplements and work very differently; Therefore, it is important that you know the difference before making a decision about what type of plan would be right for you.

 

Why did Congress create Medicare Advantage plans? Well, they arose as a result of several factors.

 

First, there was an increase in the costs of Medicare and medigap plans. Over the years, Medicare deductibles and coinsurance have increased with inflation, as has the cost of most things in the United States. As many medigap plans cover these costs for the insured, the monthly premiums for those same plans also continued to increase. Second, at the same time, many Americans depended on social security as all retirement income and sometimes did not know until it was too late that this income was not enough to cover all living expenses. The result was that a reasonable number of people over 65 could not pay the cost of Part B and the premium of a Medigap plan. This problem was compounded by the fact that Medicare does not cover prescription drugs at the retail level, so citizens had to pay for these drugs from their own pocket. The protests of Medicare beneficiaries were clear: many had to choose between health care costs and purchases or rentals.

 

When some beneficiaries decided to abandon drug supplements and simply took a risk, a tragedy epidemic soon occurred. Someone healthy at 65 may have decided not to buy insurance. However, when this individual developed a health condition that required, for example, open heart surgery or chemotherapy, he found tens of thousands of direct expenses for the 20% he owed after Medicare paid his share. Congress feared that these people would be denied attention because they could not afford it.  Finally, there has always been a budget problem inherent in Medicare, because there is no way to estimate exactly how much an individual beneficiary will spend on health care costs each year. Some are quite healthy and cost very little; others have serious conditions that cost hundreds of thousands of dollars. This created a guessing game in the congressional budget office, as it tried to estimate how much our federal government would spend annually on health for older Americans.