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Five reasons that Medicare Advantage plans have recently improved their coverage

Just three years ago, Medicare Advantage plans were the Wild West of retiree health insurance coverage. There were good Advantage plans, to be sure, but they weren’t always easy to find. And there were many inferior ones that enticed retirees with freebies like gym memberships and Part B premium rebates, but that had large coverage gaps lurking in their fine print.

In those not-so-long-ago days, retirees were at peril of choosing a bad plan. In particular, Private Fee-for-Service (PFFS) plans came in for much criticism from Medicare advocates. At the time the fastest growing type of Advantage coverage, these plans had disenrollment rates of 21%, twice the average of other types of Advantage plans, and many enrollees became disenchanted with them.

This year’s lineup of Advantage plans is the strongest since 2006, when $14 billion in annual government subsidies encouraged insurers to launch new plans, many of them hastily assembled. And while there are still a fair number of weak plans remaining in 2011, they are less likely to leave retirees who have serious illnesses with large medical bills.

Here are five reasons why Medicare Advantage plans are safer choices than they were as recently as last year. Many of the data points mentioned below are from the Kaiser Family Foundation’s Medicare Advantage 2011 Data Spotlight:

1) As a result of 2008 legislation, most PFFS plans have either formed provider networks or have gone out of business. Until this year, PFFS plans were not required to have networks, and the plans advertised that “any willing provider” would accept them. Retirees’ major complaints about these plans, however, were that many doctors would not accept them. Also, those who did accept them for one visit could decide not to accept them for a follow-up visit. As a result, retirees sometimes had to pay 100% of the costs of doctor’s visits or else find new doctors who would accept the plans.

2) For the first time in 2011, almost all Advantage plans must have out-of-pocket limits. About one-half of the plans this year have Medicare’s recommended limit of $3,400. With the exceptions of Advantage PPO’s, plans cannot have OOP limits higher than $6,700. Regional PPO’s do not have a required OOP limit, and local PPO’s cannot have OOP limits greater than $10,000. For retirees, enrolling in plans with OOP limits of $3,400 is desirable, although only if all their physicians are in the plan network (non-network costs typically do not count toward a plan’s limit).

3) Advantage plans can no longer impose higher cost-sharing for dialysis, chemotherapy, and skilled nursing facility care than original Medicare does. As an example, original Medicare covers 80% of the cost of dialysis treatments, and Advantage plans must cover at least 80% of this cost as well. Prior to this year, Advantage plans could require higher cost-sharing for these services, all three of which are related to serious illnesses, e.g., last year a plan might pay only 70% of the cost of dialysis treatments.

4) This year more than 84% of Advantage plan enrollees will be in plans that have quality ratings of three stars or better. Medicare began gathering data about the quality of Advantage plans in 2005, but because three years of data are needed to produce accurate ratings, Medicare did not display ratings on its web site until 2008. There is evidence that retirees are beginning to use these ratings, which range from one to five stars (five being best), in choosing Advantage and Part D plans.Currently, 24% of enrollees are in plans with either four or five stars, and fewer than 8% of enrollees are in plans with 2.5 or fewer stars (another 8% are in plans too new to be rated). Next year, Medicare will start to adjust its payment rates so that higher-rated plans will receive more money.

5) There are 13% fewer Advantage plans in 2011 than last year, with many of the weaker and smaller plans having disappeared. While the number of plans available does not necessarily relate to the plans’ quality, it’s now somewhat easier for retirees to analyze their various options.

Some analysts have said that the eventual reduction in the number of plans was anticipated when the Medicare Modernization Act was signed in 2003. It was correctly believed that new entrants would flood the Advantage plan marketplace.

Over time, though, the market was expected to become more efficient, particularly as subsididies were reduced. Retirees were expected to seek out the superior plans and abandon the inferior ones, which could no longer survive. To some extent that has happened, although Congress intervened in 2008 and again last year to hasten the process by imposing new requirements on Advantage plans.

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