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Dissecting Health Insurance: Medicare Part C

Part C plans are also referred to as Managed Care plans or Medicare Advantage. Many different private insurance companies participate in this program and will sell plans under their own name.

How to Make Sense of This

In previous posts I have covered Medicare Part A and Medicare Part B. Both of these programs are run by the federal government. When you file a claim using these programs, the federal government is the one paying the bills. When you pay your monthly premium, you mail your check to a government office. Medicare Part C and Part D work a little differently. These programs are funded by Medicare but they are actually run by private companies.

Medicare Part C

In the area where I live, Blue Cross has a managed Medicare plan called BlueAdvantage; UnitedHealthcare has one called SecureHorizons. These are plans offered by the company and usually include the benefits you would receive under Medicare Part A (hospital) and Part B (doctors and other professional fees). They often also include a prescription drug benefit (Part D) and may include other benefits like a gym membership or free screening exams.

The way these plans work is Medicare pays these companies a fixed amount per month per member. This is very similar to how HMOs were structured several decades ago. Does anyone wonder why those plans are not around anymore? The company then agrees to cover your medical costs as long as you are a member. They then try to structure a plan that provides you with benefits comparable to what you might get directly from Medicare. The idea is that by managing your health more efficiently they will be able to spend less on medical care for their members and they make money in the savings that can generate. They claim to do this by encouraging healthy behavior (gym memberships), preventative health services (free screening exams) and encouraging primary care management over specialty care (lower co-pays for primary care).

Here is an interesting table showing the annual spending per Medicare beneficiary by state for 2009 (the last year the data is available).

In Alabama the average annual spending for a Medicare patient is $9718. If the managed care company agrees to accept $700 per month per member they will receive $8400 for the year. That saves Medicare about 10-15%. They then turn around and charge the patient $200 per month. The collect $2400 a year from the patient and another $8400 a year from Medicare. If they can cover all the costs that year for less than $10,800, they make money.

If you go to the doctor’s office, they file a claim for your bill with the company you use, not Medicare. If you are hospitalized, the hospital bills your insurance company, not Medicare. The situation gets a little complicated though because all the Medicare rules still apply, but the insurance company gets to add its own set of rules on top of Medicare’s rules. This makes is more difficulty for doctors and hospitals to keep track of how they are supposed to bill for different things because every insurance company has their own set of rules and they are not all the same.

That would be like letting every professional football team make up their own rules for their home stadium. The NFL rules would still apply but each team would have to learn the rules of their opponent if they were playing anywhere but home.

The sad reality is that I have experienced these managed care plans from the provider side and the marketing does not match up with the reality of these programs. They pay physicians less than normal Medicare rates. They create new rules that bundle services together into one payment instead of paying separately for multiple different services that are provided during the same office visit. They reject some claims outright without explanation and do not process appeals. From my perspective, they promise patients more by giving providers less. They keep the difference.