If you're near the age of 65, you're probably getting bombarded with advertisements that ask you to enroll in a Medicare plan.
Open enrollment for Medicare Advantage (MA) begins on Oct. 15 and runs through Dec. 7. During this time, folks new to Medicare can join a new MA plan. Previous Medicare enrollees can also switch to a new MA plan or switch back to traditional government-managed Medicare.
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The main advantage of an MA plan is that it provides more comprehensive coverage, including vision, hearing, and dentistry services that traditional Medicare generally doesn't cover.
Here are three reasons most folks are better off with traditional Medicare.
1. The government doesn't need to report quarterly earnings to shareholders
None of the health insurance providers offering MA plans are public benefit corporations. This means their management teams are compelled by law to act in the best interests of shareholders, even if those actions negatively affect the rest of us.
This could explain why spending on medical care averaged just 83% for MA plans in 2020. The other 17% went to shareholders and administrative expenses. In 2021, administrative expenses for traditional Medicare totaled just 1.3% of total spending.
2. Medicare Advantage comes with some limitations
With original Medicare, you can go to any doctor or hospital in the U.S. that accepts Medicare. Folks with MA plans are generally limited to doctors and other providers that are in their plan's network and service area.
In most cases, traditional Medicare enrollees can see a specialist without a referral. The company managing your MA plan has a financial incentive to limit your access to specialists and the expensive tests they run.
Typically, you don't need approval, called prior authorization, before traditional Medicare covers services like chemotherapy or inpatient hospital stays. MA enrollees, on the other hand, often need to ask their doctor to fill out a prior authorization form that could be denied.
The prior authorization burden for MA enrollees is probably heavier than you imagine. In 2023, MA plan providers made nearly 50 million prior authorization determinations. That same year, traditional Medicare enrollees submitted just 400,000 prior authorization reviews.
The vast majority of prior authorization forms are approved, but not all of them. In 2023, 6.4% of requests were denied, and it looks like many of those denials shouldn't have occurred in the first place. That year, 81.7% of prior authorization appeals were at least partially overturned.
3. Industry leaders are consolidating
This year, non-profit organizations like Premera Blue Cross and BCBS Arizona are no longer offering MA plans. Aetna, which is a CVS Health business, is entering 23 more counties than it's exiting this year. UnitedHealth Group's UnitedHealthcare segment is entering four more counties than it's exiting this year.
One thing these big MA plan providers have in common is a huge roster of healthcare providers they employ directly. This means they can report higher spending on medical expenses by raising the amount their employees charge for services.
In addition to shrinking competition for MA plan providers, MA enrollees also have fewer providers to choose from. Many health systems frustrated with prior authorization requirements and high denial rates are no longer accepting MA plans. In 2023, 1 in 5 health systems surveyed by the Healthcare Financial Management Association stopped accepting at least one MA plan, and the trend has continued.
This year, 31 health systems have dropped at least one MA plan, which is in line with 32 systems that decided they'd rather be out-of-network last year. Traditional Medicare might not be right for everyone, but at least far fewer health systems are rejecting it.
