NCPA - National Center for Policy Analysis

Health Insurers Responding to Medicare Advantage Incentives

February 4, 2004

Health plans participating in the Medicare Advantage program are responding to billions of dollars in increased funding included in the new Medicare prescription drug benefit legislation, according to the recently merged AAHP-HIAA (formerly the American Association of Health Plans and Health Insurance Association of America).

Medicare Advantage is an optional managed care program for seniors that offers a choice of companies offering enhanced coverage over traditional fee-for-service Medicare. Companies offering the plans claimed that the amount they received from Medicare per enrollee did not cover their costs; as the premiums paid by seniors rose and availability was limited, fewer seniors opted for the plans. Since 1999, the number of seniors in these plans has fallen from more than five million to 2.4 million.

A new survey indicates that some of the10 percent increase in funding this year will be passed on to seniors through lower premiums. Many plans will offer Health Savings Accounts (HSAs), creating new choices for seniors. According to the survey:

  • Plans representing more than 93 percent of Medicare Advantage will use the money to lower monthly premiums -- in a typical example, one health plan in New England will decrease its premiums by an average of 23 percent -- with beneficiaries saving as much as $67 per month.
  • Plans representing 80 percent of beneficiaries will reduce the cost of co-pays and deductibles
  • Plans representing more than 60 percent of beneficiaries will use the funding to enhance or increase benefits, including prescription drug coverage, preventive screenings and disease management programs.
  • Thirty-three companies plan to offer HSAs, and 30 other companies are still considering it.

Thirty-seven companies are applying to offer drug discount cards, with 14 more companies yet to decide. Thirty-one companies are considering offering new Medigap packages in 2006.

Source: Robert Pear, "Insurers Plan Broader Medicare Coverage," New York Times, February 4, 2004; News Release, "AAHP-HIAA Survey Shows Results of 2004 Medicare Advantage Funding: Lower Premiums, Better Benefits, Increased Availability for Beneficiaries," February 3, 2004, AAHP-HIAA.

For AAHP-HIAA survey results


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