Ep. 1: Explaining the basics of Medicare and Medicare Advantage

In this VHH fundamentals episode, we provide a primer on the basics of Traditional Medicare (Parts A, B, and D) and Medicare Advantage (Part C) for physicians and healthcare leaders. We explore key differences in out-of-pocket costs, premiums, and coverage between the two, preparing you for a deeper dive into health policy and healthcare finance on our full podcast episode. Whether you're leading a practice or guiding patient care, understanding the fundamentals of Medicare is essential for navigating today's healthcare landscape. Don't miss this overview to better support your patients and organization!

Introduction to the Value Health Voices Podcast

Welcome to Value Health Voices Fundamentals. These fundamental sessions are recorded either by myself, Dr. Anthony Paravati, or my colleague, Dr. Amar Rewari, your co-host of Value Health Voices, in which we lay out some of the basic things to understand to be able to follow along the conversation and the interviews we have with our guests on our main episode.

Episode 1 of Value Health Voices, our new podcast, lays out the differences between traditional Medicare and Medicare Advantage. We lay out the differences both from the perspective of the beneficiary, so what the member or patient experiences, and also from the perspective of the clinician, in particular the physician. Because taking care of a patient who has Medicare and taking care of a patient who signed up for Medicare Advantage, certainly you make the same clinical decisions, but the implications for getting those patients taken care of and the implications for payment are very different.

So we thought as a prerequisite for that episode, that we would record the differences between Medicare's A, B, C, which is Medicare Advantage, and D, so that the episode is a little easy to follow. I will go through those things and then when you get to the episode itself, hopefully any gaps that were there in terms of understanding these sections of Medicare will be filled in.

Medicare Part A: Inpatient Services

Let's start in the obvious order: Medicare A, Part A. Under the traditional Medicare program, and that's what I'm going to be talking about for most of what I say, other than when I say Medicare Part C, there are parts A, B, and D. Part A is the part of Medicare that covers inpatient services. Now, the great thing about Medicare Part A for most beneficiaries is that they will have no premium to pay if they earned income in the United States and paid Medicare taxes for 10 years.

There's no premium for Medicare Part A for those beneficiaries. For those who did not pay Medicare taxes, currently in 2024, they could pay up to $506 per month as the premium for Medicare Part A. Medicare Part A takes up about 40 to 45% of the federal government's expenditures for the Medicare program, and this percentage has been flat for Medicare Part A.

Medicare Part B: Outpatient Services

Medicare Part B is the section of Medicare that pays for outpatient services. So if you go and see a physician in the office, you undergo testing in the outpatient environment, you receive radiotherapy or undergo procedures in a surgical center in the outpatient environment, once again, all those things are under Medicare Part B. The federal government's expense for Medicare Part B is something in the neighborhood of 30 to 35%, and it is a growing share of Medicare spending.

For the majority of beneficiaries, there's no way around the Medicare Part B premium, which is currently $174 per month. Now, people following along watching this, they may say that they pay a different amount. That's true, there are variations. But let's, for the sake of simplicity, say that the monthly premium for Part B is $174.

There is also an annual deductible for Part B that is currently $240. So that means that the first $240 that the beneficiary spends for Part B services in a year comes out of their own pocket unless they qualify for a waiver, such as a dual eligible person who is both Medicare and Medicaid eligible. After the deductible is met, there is a 20% coinsurance for Part B services. So that means that if you've met the $240 and then you received services under the Part B program that totaled $1,000 in total spend, the beneficiary would pay $200 for that as a coinsurance. Coinsurance is for anything that is expenses for doctor services, outpatient therapy, or durable medical equipment; all are exposed to this 20% coinsurance.

Medigap Supplemental Insurance

I'll talk about a special option, a wrinkle to Medicare Part A and B that is important to understand the full conversation. To get around the coinsurance, for example, that I just talked about for Part B, beneficiaries can decide to buy what are called Medigap plans. These are kind of a supplemental insurance and they pay monthly for this insurance. Therefore, this supplemental insurance will pay for the services not otherwise covered in the Medicare A and B program. These supplemental insurances are for out-of-pocket costs like deductibles, copayments, and as I was saying, coinsurance.

These premiums can vary on a monthly basis, generally from $100 to $300 per month. Generally, you see seniors who are, let's say, more well off choosing the traditional Medicare program and then opting to also pay for a Medigap supplemental plan.

Medicare Part D: Prescription Drug Coverage

Before I get to Medicare Advantage, which has been nicknamed in a way Medicare Part C, let's talk about Medicare Part D and then I'll come back to Medicare Advantage. In closing, Medicare Part D is the relatively new part of the Medicare program. Within the last, I think, 30 years—Medicare program had its start here in the United States in the late 1960s, but when Medicare began, there was no Part D program. So the Medicare Part D program, if a beneficiary is enrolled in traditional Medicare, they will need a separate Part D plan for prescription drug coverage.

All the drugs that would be prescribed and administered to a beneficiary, again in the outpatient setting, would flow through the Medicare Part D program. Right now there's a premium on a monthly basis of about $55 per month. That's the national average. And there's an annual deductible as well. So that annual deductible can vary, but it is capped at $545.

Summary of Traditional Medicare Costs

If you add up all the parts of Medicare in the traditional sense, A, B, and D, you can see that there's a substantial amount of out-of-pocket expense for the Medicare beneficiary. Let's focus on Part B for a second because that's where most of it lives. So there's the $174 premium. Then there's the 20% coinsurance for all the services administered to the beneficiary after the $240 deductible. So again, if you consumed only $200 of services, the coinsurance will never kick in because you haven't exceeded the deductible. After the $240, the Part B services are paid 80% by Uncle Sam and 20% by the beneficiary, unless the beneficiary decides to obtain a Medigap supplemental insurance plan. We talked about that as somewhere in the neighborhood of $100 to $300 on a monthly basis to wipe away the coinsurance. That's again, the whole point of the supplemental plan.

Most seniors are not going to pay any kind of premium. As I said, for Medicare Part A, there are various rules. There is a deductible, by the way, which I may not have mentioned. There's a deductible for Part A of $1,632 currently. So again, if you spend a day or a couple of days in the hospital in a year, you'll likely exceed this deductible of $1,632. But the first $1,632 will come out of the senior's pocket. Uncle Sam picks up everything over that. And then we talked about Part D plans that have premiums of about $55 on average a month. And then there's the annual deductible, which can't be more than $545.

Medicare Part C: The Medicare Advantage Option

So when you add up all those things, you can see why a portion of America's seniors say, "I can't afford these recurring monthly expenses. I need another solution." And that gave rise to the popularity of so-called Medicare Advantage plans. As I said, these have come to be known as Medicare Part C plans.

Medicare Part C is all over the map. Medicare Part C, Medicare Advantage, is administered by private insurance companies. Everyone knows the names for the US followers: United, Cigna, Anthem, Humana, that group, just to name some. It's possible that a senior can find a plan with no premium whatsoever. The average monthly premium currently though for Medicare Advantage plans is $18. That's quite a bit of cost savings compared to all the expenses I ran through when explaining traditional Medicare's A, B, and D sections.

One thing that's interesting though about having a Medicare Advantage plan is that in most cases the senior still has to pay the Medicare Part B premium. So they might pay, let's say on average $18 a month for their Medicare Advantage premium and then $174 for the Part B premium. Again, this is a typical experience. There can be variations on that for various scenarios.

Out-of-pocket costs under the Medicare Part C or Medicare Advantage, there's a maximum out-of-pocket limit which can vary, but once again, in general, in 2024 it's $8,850. These Medicare Advantage plans can have copayments, they can have deductibles, and they can have coinsurance for services. But these vary widely by plan. In general, taking all these things together, they are substantially less an out-of-pocket expense than the more or less guaranteed out-of-pocket expenses under the traditional Medicare program.

In general, to be very clear about the prescription drug piece, in a Medicare Advantage plan, coverage for prescription drugs will be included in that Medicare Advantage plan. And again, the individual plans will have different rules. But in general, it is not typical to see a person enrolled in a Medicare Advantage plan and enrolled in Medicare Part D. That would be redundant in most situations.

Additional Benefits and Network Restrictions

The other thing that's interesting about Medicare Part C and in the main episode is that we'll talk about these other benefits that can come along with Medicare Advantage. Everything from dental, vision, hearing; these are usually benefits that are at no extra cost, or with low premiums for them. So in the episode, we'll talk about how it's possible that Medicare Advantage plans can cover a senior, a Medicare beneficiary who is 68 years old, 78 years old, 88 years old, who is going to have health expenses. How can they do it at so much less on an out-of-pocket basis than the traditional Medicare enrollee?

Just to give a kind of a preview, there are narrow networks. So under the traditional Medicare options, you can go wherever you want. Under Medicare Advantage, the Medicare Advantage plan administrator—again, I said the private insurance companies—they will have narrow networks. They'll negotiate lower costs with the hospitals and physician groups than those centers that they would exclude from the program. So the narrow networks, they have extensive utilization management, which is industry jargon for they have policies for what they're going to cover. And if the care doesn't meet those policies, the senior who's enrolled in the Medicare Advantage plan can get it. Whereas under the traditional Medicare program, so long as it's a service that Medicare covers, there's not going to be any kind of intervening by any third party to tell the senior that they can't get it or to tell the physician, "You can't provide that care to the Medicare beneficiary."

Those are just a couple of ways. There are other ways too, that they make it work economically and that has to do with kind of risk scoring of how sick patients are. That influences what the government pays the private insurance company for the Medicare Advantage enrollee. But we'll get into all of that in the main episode. So hopefully this primer on the Medicare program and its various sections will make it easy to follow along on the main episode.