Medicare Advantage Costs 40% Less than Fee-For-Service Medicare

Medicare Advantage has a significant cost reduction value over traditional, fee-for-service Medicare, a recent report from UnitedHealth Group (UHG) found.

“Medicare Advantage (MA) plans cover the same services as Medicare FFS and typically offer additional protections and services, not covered by Medicare FFS, that support beneficiaries in staying healthy, improving care outcomes, and avoiding unforeseen medical costs,” the report stated. “Compared to Medicare FFS, MA beneficiaries with chronic conditions receive more preventative care and experience fewer emergency department visits and lower rates of avoidable hospitalizations.”

While fee-for-service Medicare covers 83 percent of costs in Part A hospital services and Part B provider services, Medicare Advantage covers 89 percent of these costs along with supplemental benefits ranging from Part D prescription drug coverage to out-of-pocket healthcare spending caps. Medicare Advantage plans can also have rich supplemental benefits that help trim costs and add value.

The report looked at costs for a typical Medicare Advantage beneficiary: a 72-year-old who lives on a fixed income of less than $27,000. This individual’s healthcare spending amounted to $3,632 per year in 2019.

This was 39 percent less than a beneficiary would pay to receive fee-for-service Medicare plus a prescription drug plan and a Medigap Plan F.

It was also less than fee-for-service Medicare with a prescription drug plan and Medigap Plan G ($5,441) or fee-for-service Medicare with just a prescription drug plan ($5,109).

Fee-for-service Medicare plus a prescription drug plan and Medigap Plan F saw $4,668 go toward premiums with an additional $1,292 for out-of-pocket costs. In contrast, Medicare Advantage members saw nearly $2,000 go to premiums and a little over $1,600 go to out-of-pocket costs.

Out-of-pocket costs could be less with fee-for-service than with Medicare Advantage when coupled with a prescription drug plan as well as a supplemental plan. Nevertheless, high deductibles still led to a significant price difference that favored lower Medicare Advantage costs. Medicare Advantage costs were also more stable.

The costs in Medigap plans also varied by gender, health condition, and age whereas for Medicare Advantage the cost was relatively predictable. 

To demonstrate the variability of Medigap costs, the study compared the costs for different ages on different Medigap plans in 2019.

Beneficiaries on Medigap Plan G who were 65 paid $1,393 in premiums. However, those who were 85 paid $2,720.

A 65-year-old under Medigap Plan F paid $1,920 in premiums in 2019, while those who were 85 paid $3,748 in premiums.

Meanwhile, anyone on Medicare Advantage, whether they were 65, 85, or any other age in the Medicare-eligible spectrum, paid $1,609 for their healthcare coverage, UHG stated.

Medigap Plan F is ending, which could spell changes in Medigap Plan G premiums and costs. As plans covering Part B deductibles phase out, payers like Blue Shield of California are using Plan G to fill the gap left by Plan F. For 2019, however, the changes are just beginning to take effect as new enrollees are unable to select Plan F.

Not only were premiums predictable in Medicare Advantage in 2019, but so were out-of-pocket healthcare costs, the report found. Medicare Advantage plans’ maximum out-of-pocket limit caps beneficiaries’ out-of-pocket healthcare spending.

The report found that 3.5 percent of beneficiaries under traditional Medicare spent more than the Medicare Advantage out-of-pocket spending limit, putting on average approximately $12,000 toward out-of-pocket costs. This by far surpasses Medicare Advantage plans’ maximum out-of-pocket limit of $6,700.

The report found that 65-year-old beneficiaries with average health saved $1,265 to $1,918 on Medicare Advantage. Their 85-year-old peers in Medicare Advantage saved between $1,893 and $3,076.

This could mean between $50,000 and $85,000 in savings over time, depending on the plan being compared due, in part, to their 6 percent lower cost sharing in Medicare Advantage compared to Medicare fee-for-service beneficiaries.

As the industry shifts toward value-based care, Medicare Advantage plans are proving to be a crucial stepping stone to cutting down costs overall through its flexibility and innovation.