Medicare Advantage plans may involve unexpectedly high out-of-pocket costs

With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the Original Medicare plan. What could be better? But still there is a tiny problem.

According to a new report, Medicare Advantage plans do not actually provide beneficiaries with much advantage, at least for certain seniors. It turned out that seniors in some plans might actually pay more for certain services.

Original Medicare has a standard benefit package that covers the care members receive from nearly any hospital or doctor in the country. For people who choose a Medicare private health plan, Medicare pays a set amount every month for each member. Members may have to pay a monthly premium in addition to the Medicare Part B premium and generally pay a fixed amount (a co-payment of $20, for example) every time they see a doctor. The co-payment can be higher to see a specialist.

The private plans are required to offer a benefit “package” that is at least as good as Medicare’s and cover everything Medicare covers, but they do not have to cover every benefit in the same way. Plans that pay less than Medicare for some benefits, like skilled nursing facility care, can balance their benefits package by offering lower co-payments for doctor visits. Private plans use some of the excess payments they receive from the government for each enrollee to offer supplemental benefits. Some plans put a limit on their members’ annual out-of-pocket spending on medical care, providing some insurance against catastrophic costs over $5,000, for example. But many plans use the excess subsidies to offer dental coverage and other services not covered by Medicare and can leave members exposed to high medical bills if they fall seriously ill. Private plan members can end up with unexpectedly high out-of-pocket costs.

In 2006 enrollees in Medicare Advantage Private Fee-for-Service plans were offered a net extra benefit value (the value of the additional benefits minus any additional premium) of $55.92 a month more than the traditional Medicare benefit package; enrollees in other Medicare Advantage plans were offered a net extra benefit value of $71.22 a month more.

Here are the numbers:

- 19 percent of seniors in Medicare Advantage plans faced higher out-of-pocket costs for home health services than under traditional Medicare in 2007;

- 16 percent faced higher costs for inpatient hospitalization services;

- 9 paid more for care in a skilled nursing facility;

- 52 percent of Medicare Advantage plans didn't have an annual out-of-pocket maximum to cover beneficiaries' spending.