New enrollees increasingly opting for the private insurance alternative to the federally-run program
For decades, as Americans approached their 65th birthday, all they had to do to get Medicare, the nation’s government-sponsored health insurance for older adults, was sign up. The program wasn’t all that complicated. You went to the doctor armed with your Medicare card. Your physician or hospital took care of you and billed Medicare. Then you — or the supplemental (Medigap) plan you bought — paid your out-of-pocket share. Easy.
Today’s Medicare isn’t your grandparents’ program. New enrollees have an immediate big decision to make: Should they enroll in original Medicare (also referred to as traditional Medicare) or sign up for the private insurance managed care alternative, Medicare Advantage (MA)? The two options not only differ in how they operate but increasingly in what coverage and services they provide. Making the decision requires looking down two roads that more and more are heading in different directions.Original Medicare’s biggest draw remains the freedom enrollees have to go to any doctor or hospital in the country that takes Medicare. In most cases, you don’t need a referral to go to a specialist or get a covered procedure done. It’s a simple fee-for-service insurance structure that was once commonplace across America but has mostly vanished for those under 65.
In Medicare Advantage, plans can feel more familiar, as they closely resemble the managed care plans offered by many employers, often in the form of a health maintenance organization (HMO) or preferred provider organization (PPO). An MA plan is the one-stop-shopping alternative that bundles hospital, doctor and prescription drug coverage. Most offer extra benefits not in original Medicare. MA plans also cap how much beneficiaries must pay out of pocket each year, something original Medicare does not.
Another big difference: Original Medicare is managed entirely by the federal government (oversight by Congress, day-to-day operations by the Centers for Medicare & Medicaid Services (CMS), meaning it is not operated for a profit. Advantage plans, by contrast, are operated by private and often for-profit organizations that get flat-rate payments from the government to provide health care to an enrollee. By managing costs and a patient’s care carefully, they can — in theory — provide all needed services and still have money left over for their bottom line.
MA’s promise of extra benefits and lower premiums has been effective. In 2008, only 22 percent of beneficiaries were in Advantage plans. Since then, enrollment in these managed care plans has more than doubled and continues to grow. In 2023, more than half of Medicare’s 60 million beneficiaries who have both Medicare parts A and B are enrolled in an MA plan.
The future path
Medicare now finds itself at a crossroads. Based on current patterns, it won’t be long before enrollment in MA plans substantially overtakes enrollment in original Medicare. Does the original need to be changed to remain competitive with MA? More fundamentally, will original Medicare as envisioned by President Lyndon Johnson and Congress in 1965 cease to exist in the years to come?
“I genuinely do believe that the future of Medicare lies in Medicare Advantage,” says James E. Mathews, executive director of the Medicare Payment Advisory Commission (MedPAC), established by Congress to analyze the program and provide advice. Mathews expects there will be a “natural migration” to MA, but he’s not sure whether that means original Medicare will disappear. “It remains to be seen whether there is going to be some subset of the Medicare population for whom Medicare Advantage simply will not work.”
AARP spoke with advocates and current and former Medicare leaders who uniformly say it’s not time to pull the plug on original Medicare, now or in the near future.
Preserving and strengthening Medicare is one of AARP’s key policy concerns. That includes maintaining original Medicare. “We strongly believe that traditional Medicare should be protected and strengthened and that there has to be a level playing field between traditional Medicare and Medicare Advantage,” says Megan O’Reilly, AARP vice president for health and family issues.
CMS Administrator Chiquita Brooks-LaSure oversees all Medicare operations. She says her priority is to strengthen both options. “I believe it’s critical that people have a choice between traditional original Medicare and Medicare Advantage,” Brooks-LaSure said in an interview with AARP.
Even experts who are most bullish on Medicare Advantage say they don’t expect original Medicare to go away. The main reason is choice.
The case for keeping original Medicare
Under original Medicare, you can go to any doctor, lab or hospital in the U.S. that participates in the program (about 90 percent of medical professionals do). In MA plans, enrollees mostly must go to providers within the plan’s network, and these networks are highly regionalized. Going out of network means facing a much higher copay for each visit. In some cases, the care may not be covered at all.
“There are always going to be a lot of people who are going to say, ‘Look, I want to go to a doctor I want, and I don’t want to be limited,’ ” says Tom Scully, who was CMS administrator from 2001 to 2003 and is a supporter of Medicare Advantage. As a result, “I think original Medicare will never go away.”
For Arizonan Patrick Witter, a wider choice of medical providers was why he chose original Medicare. The 73-year-old retired educator says the freedom of choice and the ability to have a long-term relationship with his doctors are what’s most important. “I’ve been seeing my urologist for 14 years,” says Witter, a survivor of bladder cancer. “I’ve been seeing the same cardiologist since 1995 when they saved my life and put a stent in my heart. There’s a certain amount of loyalty and trust with those doctors who you know both professionally and, in many ways, personally.”
Until they enroll, many Americans don’t realize how costly and complicated Medicare can be. That is especially true if you choose original Medicare. Most original enrollees must make three regular insurance payments: one for basic Part B coverage, one for a Part D prescription plan, and one more for a Medigap policy to cover some or all of the expenses that Medicare doesn’t. And there are other expenses on top of the premiums; for example, original Medicare Part B has an annual deductible ($226 in 2023); there’s also a deductible for every hospital visit, which in 2023 is $1,600. Those charges take a heavy financial toll.
By contrast, an Advantage plan enrollee usually has just one recurring payment: It includes the government-mandated Part B coverage cost and, in some cases, a small additional premium, which varies by what plan you choose and where you live. You pay various copays and deductibles for your services and doctor visits, but the rest is fully covered by the plan, and you know going in what the copay is for the different providers. Costs under MA can also add up, though, especially if you need hospital care; most plans have a per-day hospital charge.
An important dividing line when choosing a Medicare path is whether a beneficiary can afford to pay the added monthly costs of a Medigap policy to supplement original Medicare coverage, as well as for a separate Part D prescription plan.
High-income earners can usually afford what is typically a few hundred dollars a month premium for a Medigap policy. Others might have subsidized Medigap coverage as part of a retiree benefit. And there’s government help for people on the low end of the economic scale: People with the lowest incomes might qualify for Medicaid, which would pick up their out-of-pocket costs, or they could be eligible for a Medicare Savings Plan (MSP) that pays for some, or all, of a low-income consumer’s costs.
But for people in the economic middle — those who cannot afford a Medigap plan but whose income is too high to qualify for Medicaid or a Medicare MSP — a Medicare Advantage plan is often the cheaper option on a month-to-month basis.
Karen Blanchard chose a Medicare Advantage plan when she qualified for Medicare at age 65, and she’s had no regrets. “It seemed like that plan had a lot more to offer than just, you know, A and B,” says Blanchard, 74, who lives in Southampton, Massachusetts. Blanchard was a high school secretary when she retired and before that worked for an insurance company. “I think I’m doing better than people who signed up for basic,” she says. When Blanchard first enrolled in her MA plan, she had a small MA premium in addition to the basic Part B monthly premium that all beneficiaries pay. Now her MA plan has no premium. For her, choice was not an issue because her doctors were in the network of the plan she chose.
Not a fair fight
The difference in “choice” between original Medicare and an MA plan isn’t simply which doctor you can see. In an MA plan, the care you need is likely to be more scrutinized than in an original plan. Insurers that run MA plans often require what’s called prior authorization before paying for your tests and procedures; that means a doctor must get approval for recommended care from internal reviewers before the treatment will be covered. Some plans also require referrals to specialists, meaning if you wish to see, say, a cardiologist, you’ll need your primary care doctor’s blessing. People in original Medicare usually don’t need referrals to see specialists, and as long as Medicare covers a test or treatment a doctor orders, except in a few situations, Medicare will pay for it.
The networks of doctors and facilities that treat MA patients are almost always based geographically. So older adults who travel a lot or who live in different places during the year most often find that if they need nonemergency medical care while away from home, their MA plan won’t cover it. There are no networks or geographic restrictions in original Medicare. Let’s say you develop a health condition that requires specialized surgery or highly advanced therapies to treat; in an MA plan, you likely won’t be covered if you seek care from a doctor or medical center that specializes in your issue but is out of the network.
On the other hand, most MA plans have benefits that original Medicare does not. The out-of-pocket cap is a big one; in 2023, MA enrollees know they won’t have to pay more than $8,300 in total annual health costs, although many plans have lower out-of-pocket limits than that. Once again, there is no out-of-pocket cap in original Medicare.
Most MA plans cover basic dental, vision and hearing services. Some provide what are called Medicare flex cards that beneficiaries can use to pay for over-the-counter medications and other drugstore items, as well as healthy food. In recent years, Congress began allowing MA plans to pay for making improvements to beneficiaries’ homes, such as wheelchair ramps and shower grips in bathrooms. Some plans pay for gym memberships or transportation to doctors’ offices.
David Lipschutz, associate director of the Center for Medicare Advocacy, supports the ability of Medicare to help pay for nonmedical services that can help keep an older American healthy. But he says it’s not fair that enrollees must be in a Medicare Advantage plan to take advantage of those extras. “One should not be forced to enroll in a private plan to access such services,” Lipschutz says.
The primary concern with Advantage plans, besides their geographic boundaries, is the quality of care they deliver when a member has serious health issues. Advocates and patients agree that MA plans seem fine as long as you’re healthy. But too often, beneficiaries with serious illnesses find it more difficult to get the care they say they need. “We have indeed seen that beneficiaries who disenroll from Medicare Advantage plans do tend to be sicker,” says MedPAC’s Mathews. A 2022 report from the Government Accountability Office (GAO), a congressional watchdog, found that “Medicare Advantage beneficiaries in the last year of life left the program to join traditional Medicare at twice the rate of other beneficiaries. This could indicate potential problems with their care.”
When people first enroll in Medicare, they may not be able to predict what kind of care they may need years down the road. “Denials may be more frequent in Medicare Advantage plans than in traditional Medicare for people who have serious health problems,” says Tricia Neuman, senior vice president and head of the Medicare program at KFF, formerly the Kaiser Family Foundation. “That could be a real concern. When people age into Medicare, they tend to be healthier than they will be as they grow older and have more health problems, and that may not be top of mind.”
Original Medicare may have another disadvantage: television. Throughout the year, but most prominently during Medicare open enrollment season each fall, ads for Medicare Advantage plans blanket broadcast and cable television stations. From NFL Hall of Famer Joe Namath to “Captain Kirk” William Shatner to Jimmie Walker of “dy-no-mite” fame, celebrities urge older adults to call an 800 number and get lots of extras and benefits from Medicare Advantage plans. Individual insurers also run ads, and some Medigap plans take to the airwaves. There are no such commercials for original Medicare.
“There’s nothing that helps lay out the trade-offs” between original and Medicare Advantage, says Gretchen Jacobson, vice president of Medicare at the nonpartisan Commonwealth Fund. “So if you just pay attention to the Medicare Advantage marketing, you may not really understand what the advantages and disadvantages are.”
Each year, Medicare mails a “Medicare & You” handbook to beneficiaries that more objectively details how the types of Medicare compare. Jacobson said Commonwealth’s research shows that only a small percentage of people actually look at it. “We should be having education in person and virtual education seminars available to people,” she says.
To address this confusion, CMS announced a crackdown this year on misleading Medicare ads. The agency ordered that commercials must disclose what insurance plan is being advertised and that television pitches can’t misuse the Medicare logo or card to lead consumers to believe celebrity endorsers represent the federal government.
Consumers also should know that there is a financial incentive for insurance agents and brokers to steer clients to Advantage plans. That bias matters: Almost one-third of people 65 and older say they used an agent or broker to make their initial Medicare choice.
“When we did focus groups with brokers, many said they are paid more to put people into Medicare Advantage plans, sometimes much more,” Jacobson said. But “if they were going into Medicare tomorrow, most of them said they would choose to be in traditional Medicare.” These brokers do not get any commission for helping someone enroll in original Medicare. Likewise, they said most Part D prescription plans don’t offer commissions; for those that do, the rate is low. As for Medigap policies, an agent might get some money for signing people up, but agents say it’s not as much as what they get for a Medicare Advantage enrollment.
CMS sets maximum commission rates for MA and Part D plans but doesn’t regulate Medigap commission rates. Jacobson says she believes that if the government set a floor on Part D commissions — that is, guarantee a reasonable income to an agent by placing an enrollee in a Part D plan — it could help make choosing traditional Medicare with Medigap and Part D plans more competitive.
How to level the playing field
Experts say it’s way past time to take action that would level the playing field between original and Medicare Advantage.
Nancy-Ann DeParle, who ran Medicare from 1997 to 2000, says original Medicare needs to be improved. “I think we need to look closely at the benefits, things like the lack of an annual spending cap,” DeParle says. “And I think we need to take a hard look at what to do to make it more competitive with Medicare Advantage.”
DeParle also would like to see policymakers focus on the rules governing Medigap plans. Theoretically, a beneficiary can change from a Medicare Advantage plan to original Medicare during the program’s annual open enrollment period. But there’s a catch. If you want to get a Medigap plan to cover original’s out-of-pocket charges, you may not be able to. That’s because in all but a handful of states, if someone doesn’t enroll in a Medigap plan when they first sign up for Medicare, insurers can charge them higher premiums or even refuse to sell them a plan, something that often happens when someone has a preexisting condition. “I’ve said for a long time, going back to when I was running Medicare 20 years ago, that we needed to look at Medigap,” DeParle says.
Another potential way to improve original Medicare is to provide enrollees with a more coordinated approach to getting their health care while preserving their freedom of choice of providers, some experts say.
CMS has supported and continues to develop Accountable Care Organizations (ACOs). These groups were created to coordinate the care of patients, including those enrolled in original Medicare. Physicians, hospitals and other medical providers voluntarily join an ACO, which gives them the data and resources to better coordinate a patient’s health care and reduce costs.
ACOs don’t provide the care. Their job is to give physicians the tools they need to improve care and reduce costs. For example, a physician in an ACO will learn how many of their patients haven’t gotten a flu shot or are prediabetic, then they can work on getting those needs taken care of. In 2023, more than 13 million Medicare beneficiaries get care from providers affiliated with ACOs.
CMS has set a goal of having all Medicare enrollees being part of a coordinated care arrangement by 2030. CMS Administrator Brooks-LaSure says her agency is advocating for these relationships to make certain that beneficiaries’ care is truly coordinated.
“I’m trying to make sure we’re not just looking at the disease that a person may have or the condition that they have, but what’s going on with them more holistically,” Brooks-LaSure says. “Do they have food insecurity? Do they have housing insecurity? Is the primary care doctor talking to the specialists and making sure they get whatever support services a person needs to be able to take their medicine or change their diet?”
Bob Rauner, M.D., chief medical officer for the OneHealth Nebraska ACO, says the quality measures that ACOs must meet aren’t applied to Advantage plans. “I think Medicare Advantage should be on the same benchmarks and the same quality measures as the Medicare Shared Savings Program [Medicare’s largest ACO], and let’s compete head-to-head to see who really is better,” Rauner says.
What comes next?
Ultimately, Congress sets the rules for Medicare. Here, too, the playing field for MA versus original isn’t level. Allowing MA plans to offer extra benefits isn’t as politically charged a move as it would be to pass a law allowing original Medicare to offer the dental, vision and hearing coverage that most MA plans do. That’s because Advantage plans use part of the fixed amount they get per patient from the federal government to fund these extra services. But expanding original Medicare’s benefits would likely require putting more taxpayer dollars into the program. Although there have been proposals on Capitol Hill in recent years to grow original Medicare’s offerings, none have made it over the finish line — in large part due to the funding issue.
Then there’s solvency. In their latest report, the Medicare trustees, which gauge the fiscal health of the program, say the trust fund that helps pay for the Part A hospital care portion of Medicare will be depleted by 2031, meaning payments to health care providers would be much reduced. This annual report is used by policymakers to decide when to step in and make any needed course corrections in the program. Most political observers agree that lawmakers are not likely to take up any substantive changes to Medicare until they come up against that solvency deadline.
Other than maintaining the program’s solvency, lawmakers have historically been loath to make major changes to Medicare, which could land them in political peril. The latest significant adjustments came in 2006, when the prescription drug benefit was added; in 2010, when the Affordable Care Act expanded free preventive care and cut some excess payments to MA plans; and in the 2022 Inflation Reduction Act, which over the next few years will make major enhancements to the Part D prescription drug benefit, including a $2,000 annual cap on out-of-pocket prescription costs beginning in 2025 and the ability of Medicare to negotiate the prices of some prescription drugs.
MedPAC and other Medicare watchers have urged Congress to do more to level the playing field between original and Advantage. Ever since its inception in 1997, MA and its plans have been paid more to take care of Medicare beneficiaries than original Medicare pays. Early on, the idea was to give insurers a profit incentive to create and sustain MA plans. Now many experts say it’s time to stop those extra payments, something health insurers have strongly opposed.
Experts agree that lawmakers will not allow original Medicare to go under and will do what’s needed to make sure it’s funded. But few expect there to be a wide-ranging look at the program anytime soon.
Former CMS Administrator DeParle says that “as we get closer to 2031, I believe the two parties will come together” to ensure solvency of the program and hopefully make some improvements, including to original Medicare. “Even though it’s very polarized, no one is going to let Medicare go under.”
The Fight Continues
AARP remains committed to medicare improvement
Throughout its 65-year history, AARP has fought to make sure that older Americans have access to quality and affordable health care. “We believe that the health of our senior citizens is the concern of all our people,” said AARP founder Ethel Percy Andrus. AARP lobbied for the creation of Medicare in the early 1960s and, since its establishment, has continued to press for program improvements. That has included:
- Strongly supporting the creation of Part D coverage for prescription drugs, which passed in Congress in 2003.
- Continually fighting against high drug prices, including a campaign to close the “doughnut hole” that temporarily limited what Part D would pay for prescription drugs.
- Successfully fighting during the 2009 Affordable Care Act debate to make sure the law lengthened Medicare’s solvency and added improved preventive care to the program.
- Making sure during the COVID-19 pandemic that Medicare enrollees had free access to testing, at-home hospital care, telehealth visits, and coverage for vaccines and treatments.
- A huge win in 2022, successfully fighting for the inclusion in the Inflation Reduction Act of some landmark changes to Medicare’s prescription drug coverage, including a cap on Part D out-of-pocket costs; rebates to Medicare paid by drug companies that raise their prices more than the rate of inflation; and the ability for Medicare to negotiate the prices of some medications with their manufacturers.
AARP continues to fight to strengthen Medicare benefits. Specifically, AARP is working to add a dental benefit to original Medicare and has supported a legislative package that would add vision and hearing coverage.
In addition, AARP is escalating its work in 2024 to help family caregivers. To start, we are fighting to get caregivers better access to health information about their loved ones and to compensate health care providers for training caregivers. This concern is part of a broader effort to help older Americans be able to choose where to live out their lives. This includes having an affordable choice between remaining in their homes and communities or residing in nursing homes or other long-term care facilities.
The ABCs of Medicare
Original Medicare: Medicare as it was originally created in 1965. Beneficiaries go to any doctor in the country that accepts Medicare. Doctors and hospitals bill Medicare, and the federal government pays.
Medicare Advantage: The private insurance alternative to original Medicare. Beneficiaries enroll in a managed care plan—usually either a health maintenance organization (HMO) or preferred provider organization (PPO).
Fee-for-service: A method of insurance in which medical providers get paid for each service they perform.
HMO: Stands for health maintenance organization, a closed-panel managed care insurance product in which the doctors all are on the HMO’s staff.
PPO: Stands for preferred provider organization, a managed care insurance product in which patients can select from a network of independent care providers that contract to provide care to the PPO’s enrollees.
Medicare Part A: The portion of Medicare that covers hospital and hospice care and some home services.
Medicare Part B: The portion of Medicare that covers doctor visits, diagnostic tests and other outpatient services.
Medicare Part C: Also known as Medicare Advantage; a Part C plan provides Part A, Part B and usually Part D coverage to its enrollees.
Medicare Part D: The portion of Medicare that covers the costs of prescription drugs.
Medigap: The term used to describe supplemental policies sold by private insurers that help pay out-of-pocket costs not covered by original Medicare.
Medicare Savings Programs: Also referred to as MSPs, these are four programs run by the federal government for beneficiaries with low incomes. The plans help pay out-of-pocket costs for Medicare.
Medicaid: The federal-state health insurance program for people with low incomes. Some Medicare beneficiaries can enroll in both Medicaid and Medicare. These individuals are called dual eligibles.
Prior authorization: A practice used by Advantage plans to review whether a doctor-recommended test or treatment is medically necessary. If it isn’t, the plan usually won’t pay.
Accountable Care Organizations: Groups of doctors, hospitals and/or other providers who come together voluntarily to coordinate the care of the Medicare patients they serve. When we did focus groups with brokers, many said they are paid more to put people into Medicare Advantage plans, sometimes much more.