Comparing a private exchange with Medicare Advantage: some basics.

Employers and other sponsors of group health plans that cover retirees are looking for ways to reduce costs, on both a cash and retiree medical liability basis, and provide more value to retirees.

Both of those goals can be achieved for retirees over age 65 through two popular approaches: group Medicare Advantage (MA) plans and private Medicare exchanges.

This article provides an overview of both approaches. They offer unique and very different value propositions to plan sponsors and retirees. We compare their strengths and weaknesses from the perspective of both stakeholders. The goal is to help plan sponsors decide which approach may be more appropriate as a retiree medical strategy for their post-65 retirees.

What are group Medicare Advantage plans?

Group MA plans combine benefits covered through traditional Medicare (Part A and Part B) and additional benefits offered by a plan sponsor through coordination of benefits (COB) into one plan.

Group MA plans can, and typically do, include Medicare Part D pharmacy benefits. Alternatively, pharmacy benefits may be provided separately through a self-insured group plan.

Group MA plans, which are offered by private insurers, provide senior-centric coordination and management of clinical care. Programs include wellness and prevention, acute illnesses, chronic conditions, advanced illnesses and end-of-life care. Clinical and customer service teams within these programs help participants effectively manage their healthcare needs and navigate the healthcare system.

This level of support and coordination of care creates cost savings and can improve the participant experience, while providing the same level of benefits or better. This is in contrast to COB with traditional Medicare, where health management is often limited or nonexistent.

To subsidize the cost of MA plan coverage, insurers receive monthly per-person payments from the Centers for Medicare & Medicaid Services (CMS). The goal is that CMS pays the MA plan an amount similar to what it costs them under the fee-for-service program.

Those payments are based on geographic area of residence and an individual risk score for each plan participant. The better the insurance companies are at managing risk scores, the greater the payment they receive from CMS.

This is achieved primarily through medical coding accuracy, ensuring all the diagnoses of a patient are collected, thereby capturing each participant’s true health risk. The payments are also based on the insurer’s CMS Five-Star Quality Rating for the plan, with greater payments to plans with higher ratings based on quality measures (e.g., clinical measures, member experience and medication adherence). Insurers charge premiums to plan sponsors to cover the cost of benefits and enhancements above what Medicare provides.

What Is a Private Medicare Exchange?

A private Medicare exchange is a marketplace owned and operated by a company or non-profit organization where Medicare beneficiaries can purchase individual coverage available in their area. 

Options typically include Medicare supplemental coverage (more commonly known as “Medigap” plans), MA plans and prescription drug (Part D) plans. The number of choices and rates may vary depending on who owns the exchange (as each exchange itself has some form of uniqueness), where retirees live and, for Medigap plans, their age, gender and smoking status.

Information about the coverage options and the premium amounts is available on each exchange vendor’s website.

To help retirees select the plan that best meets their specific medical and prescription drug needs, exchange vendors provide high-touch call center support. That guidance is supplemented by web tools. Once retirees are in an exchange, the vendor provides customer support and advocacy services for life.

To offset the cost of coverage on a Medicare exchange, plan sponsors typically, but are not required to, give retirees a defined contribution through a Health Reimbursement Arrangement (HRA) plan that’s often administered by the exchange.

Through the HRA, retirees are reimbursed tax-free for healthcare costs, whether it be premiums or out-of-pocket expenses. Of course, these are limited by the available funding the plan sponsor provides.