What You Should Know. If you're currently enrolled in a Medicare Advantage plan or considering one - you may have wondered how these plans really work. How can private insurance companies offer benefits like dental, vision, and gym memberships, sometimes with low or even zero premiums?
The answer lies in how these plans are funded- primarily through federal government payments, not just your monthly premium.
A Quick Look at Medicare Advantage
Medicare Advantage (Part C) is an alternative to Original Medicare, offered by private insurance companies approved by Medicare. These plans must cover everything Original Medicare does, often including extras like prescription drugs, hearing, vision, and more. Even though the plan is private, the government pays the insurer to manage your care. There are three ways these plans get paid.
1. Location-Based Payments
Each year, Medicare sets a payment benchmark for every U.S. county, based on average spending in that area. Insurance companies then submit bids:
• If a bid is lower than the benchmark, the plan receives a rebate, which must be used for added benefits or lower costs.
• If a bid is higher, you may pay a higher premium.
2. Payments Based on Your Health
Medicare pays more for people with complex or chronic health issues to ensure proper care. This system helps fund additional support but also raises concerns about plans inflating diagnoses to increase payments- a practice Medicare is monitoring closely.
3. Bonuses for Quality Care
Plans are rated 1 to 5 stars based on service, care, and member satisfaction. Plans with 4 stars or higher earn bonus payments, which can be used to enhance your benefits or reduce out-of-pocket costs.
Why It Matters
Medicare now pays about 4% more per person for Medicare Advantage than for those on Original Medicare. While these extra payments help fund benefits, they also raise concerns about the long-term financial sustainability of the Medicare program. Experts are calling for reforms to ensure money is spent fairly and wisely.
How You Can Stay Informed.
As a beneficiary, here's what you can do:
• Understand your plan's star rating -higher-rated plans may be getting bonuses they use for your benefit.
• Review your Annual Notice of Change (ANOC) each fall for updates to your plan.
• Shop around during open enrollment (October 15 – December 7) to ensure you get the best coverage and value.
Medicare Advantage plans offer valuable benefits, and most of the funding comes from Medicare itself. Knowing how the system works helps you to make smart, informed choices. As Medigap premiums continue to rise, Medicare Advantage is becoming more attractive for many retirees. If you're interested in exploring your options this fall, call us at 602-281-3898 to schedule an appointment.
We're here to make Medicare 123Easy!
By American Retirement Advisors
American Retirement Advisors helps retirees and pre-retirees navigate Medicare, estate planning, and retirement income — so you can enjoy the retirement you've earned.
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Easy Eddie's Take
This really hits the nail on the head here. Most people are surprised when they learn that the Centers for Medicare & Medicaid Services actually pays private insurers more than it costs to cover the same person in Original Medicare. For 2026, that difference is running about 4% higher, which explains how Medicare Advantage plans can offer those extra benefits like dental coverage, vision care, and even grocery allowances.
Here's what I see folks asking about most: "Can I switch from Medicare Advantage back to Original Medicare and get a Medicare Supplement plan?" The answer is yes during the Annual Open Enrollment Period from October 15 to December 7, but you might face medical underwriting for a Medigap policy if you're outside your guaranteed issue period. That's why it's worth understanding your plan's star rating - those 4 and 5-star plans are using their bonus payments from Medicare to give you better benefits.
The key thing to remember is that whether you choose Original Medicare with a Medicare Supplement or a Medicare Advantage plan, you're still in the Medicare system. A little preparation during open enrollment can make a big difference in your healthcare costs for the whole year.