How Medicare Advantage Works
Our Federal government can’t pay for all the healthcare coverage it promised under the Medicare program–the liability is now in the trillions.
It created the Medicare Advantage program to try to decrease the costs of those promises.
Under Medicare Advantage, private insurance companies agree to be fully responsible for the healthcare costs of patients who sign up.
The government pays the insurance company a fee every month for every patient who signs up. The amount of that payment is determined by the age, sex and disease burden of each individual patient. The disease burden is determined from data submitted by the clinicians after each care encounter for that specific patient.
Once the government pays the monthly fee (a.k.a. capitation), it has no further responsibility for covering any additional cost of that patient’s healthcare. It has shifted that responsibility to the insurance company. The government is off the hook.
If the patient’s healthcare costs are less than the monthly payment received from the government, the insurance company keeps the difference as profit.
If the patient’s healthcare costs are more than the government payment, the insurance company takes the loss.
And that is it.
The insurance company takes on the government’s liabilities in the hopes it can control costs enough to make a profit.
That’s Medicare Advantage in a nutshell.