Since Congress gave approval to private insurers to offer Medicare alternative insurance plans, millions of Americans have enrolled in Medicare Advantage plans. Those enrollees have already made Medicare Advantage into a major revenue source for insurers, including Humana (NYSE:HUM), UnitedHealth Group (NYSE:UNH), and Aetna (NYSE:AET); but even better times may be ahead for insurers, given that enrollment in Medicare Advantage programs jumped 9.8% in August from a year ago, extending a trend of Medicare Advantage expanding its footprint in the United States (data courtesy of Bloomberg Intelligence).


Source: Aetna.

Confusing, but an important decision
Traditional Medicare provides seniors with a form of healthcare for all. Americans who have paid into the social security system for at least 10 years are automatically enrolled in Medicare at 65 years of age. But beginning in 1997, those enrolling in Medicare get the option of replacing their traditional Medicare part A, which pays for in-patient healthcare services, and part B, which pays for out-patient healthcare services, with Medicare Advantage, which is sometimes also known as Medicare part C.

Deciding whether or not to opt out of traditional Medicare for a Medicare Advantage plan isn't an easy decision. It requires considering a host of factors, including how often you expect to receive treatment, and what type of treatments you expect to receive.

For example, Medicare Advantage plans often bundle prescription drug coverage -- also sold separately as Medicare part D prescription plans. Medicare Advantage plans can be offered under a variety of co-pay and co-insurance scenarios. Additionally, while traditional Medicare doesn't cap an individual's out-of-pocket annual spending on healthcare, Medicare Advantage plans do.

Those are important advantages, but there are reasons to stick with Medicare instead. While Medicare Advantage may cost the same as traditional Medicare in certain states, enrollees may need to make an additional premium payment to insurers in other states. Also, traditional Medicare doesn't typically require pre-authorization for visiting specialists, and may provide more flexible healthcare provider networks than Medicare Advantage plans.

Given all the moving pieces, whether or not to adopt a Medicare Advantage program remains a difficult decision that differs from person to person.


Source: Aetna.

Filling a void
Medicare drawbacks and patient demands for healthcare coverage flexibility provide a market ripe for insurers. Some insurers, such as Humana, have made Medicare Advantage a cornerstone of their business. Humana's 2.36 million Medicare Advantage members account for 75% of the company's sales, or roughly $8.8 billion in revenue during the second quarter alone. 

Other larger and more diversified insurers, including UnitedHealth Group and Aetna, get a much smaller percentage of their revenue from selling Medicare Advantage plans.

Rising demand
It's probably not shocking to hear that more and more seniors are choosing Medicare Advantage plans, given that baby boomers will be turning 65 years of age at a pace of more than 10,000 people per day through 2029. This senior boom is already helping the quarterly earnings reports of insurers. For example, Humana reported that membership grew 16.4% year over year, or by 333,000 new members, in the second quarter.

At UnitedHealth Group, which serves nearly 3 million seniors through Medicare Advantage plans, more than 65,000 seniors signed up for such plans in the past year. Membership in Aetna's Medicare Advantage plans grew from 948,000 to 1.1 million in the past year.

Fool-worthy final thoughts
In 2013, Medicare Advantage enrollment represented 17.4% of total Medicare enrollment, up from 14.2% in 2011. During that period, the total number of people enrolled in Medicare Advantage plans surged from 6.96 million people to 9.1 million people (data courtesy of Bloomberg Intelligence).

The number of people enrolled in Medicare Advantage plans offered by Humana and Aetna grew by 17.2% and 18.9%, respectively, in August versus last year. And while growth at UnitedHealth was more tepid at just 1.5%, demand for these plans is likely to continue higher, rather than lower, as more baby boomers turn 65. 

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.