Defaulting Into Medicare Advantage Rather than Traditional Medicare Coverage
A bit of an explanation for this Health Affairs article. Today when you are eligible for Medicare Coverage, you are placed in Traditional Medicare. What would or could happen if every new enrollee were to be placed in Medicare Advantage instead of Traditional Medicare Coverage?
The discussion centers on a two-year period in the beginning of enrollment.
“Defaulting Into Medicare Advantage: What It Could Mean for Medicare and Its Beneficiaries,” Health Affairs
When enrolling in Medicare for the first time, Medicare beneficiaries are currently deemed to have chosen traditional Medicare if they do not affirmatively choose a Medicare Advantage plan. This default into traditional Medicare is explicitly required by Medicare statute and has been the way the program has operated since the 1970s, when private plans became available to new Medicare enrollees.
Such a policy shift would affect millions of Americans. More than three million individuals enroll in Medicare annually and thus could potentially be directly affected by a change in default enrollment. The Medicare program does not track the number of beneficiaries who actively choose traditional Medicare as opposed to defaulting into it, but it is likely that a default-to-Medicare-Advantage policy would accelerate the growth in Medicare Advantage and hasten the decline of traditional Medicare enrollment.
Beneficiaries’ initial enrollment choices, whether active or passive, tend to have long-lasting implications because beneficiaries tend to keep the coverage they obtain in their first few years. From 2022 to 2024, only about 8 percent of new enrollees switched from traditional Medicare to Medicare Advantage, and an even smaller proportion, about 1 percent, switched from Medicare Advantage to traditional Medicare. Switching between Medicare Advantage plans is also uncommon: Only about 12 percent of enrollees did so during this period.
Individuals leaving Medicare Advantage tend to have greater health care needs, such as a debilitating condition or advanced age; are more likely to be Black, Asian, American Indian, or Alaskan Native; and more likely to be dually eligible for Medicare and Medicaid than individuals who stay in Medicare Advantage. People who leave Medicare Advantage are also more likely than those who stay to live in rural areas, which may reflect fewer plan options in rural areas or other differences between rural and urban private plans. Financial reasons (23 percent) and provider coverage (23 percent) are the most frequently cited motivations for leaving.
The Historical Landscape
There is some precedent for auto-enrollment of selected Medicare populations in private plans. The financial alignment demonstrations of people dually eligible for Medicare and Medicaid began in 2013 and auto-enrolled beneficiaries into Medicare-Medicaid plans with the option of opting out. The demonstration initially included beneficiaries in 11 states for five years, with a few states extending the demonstration for more years. Additionally, Medicare Part D automatically enrolls low-income, dually eligible beneficiaries into a Part D plan when they first qualify for the Low-Income Subsidy (LIS) program, which helps low-income beneficiaries afford their prescription drug costs.
The opt-out rates in the financial alignment demonstrations varied widely across states and counties, with some states seeing more than half of beneficiaries opting out and others seeing many fewer doing so. The high opt-out rates in some states were attributed to lack of clear information to help beneficiaries and providers understand how the demonstration worked and its purpose, efforts by excluded providers and plans to halt the demonstrations, lack of awareness of the demonstration among providers, and opt-out campaigns by provider groups. Passive enrollment in the Part D LIS program has led to much lower switching; One study found that 90 percent of those who had been automatically reassigned accepted their new Part D plan.
Implications For Beneficiaries
Changing the default Medicare coverage to Medicare Advantage could have both adverse and positive implications for beneficiaries. One adverse effect would be potential limitations on beneficiaries’ freedom of choice within the Medicare program.
Limits On Medigap Availability After First Year
Medigap is critical to reducing unpredictable out-of-pocket expenses not covered by traditional Medicare. Medicare beneficiaries in all but a few states are not able to obtain Medigap coverage without medical underwriting if they don’t pick such a plan within one year of enrolling in Medicare Advantage. Outside of this one-year period, they do not have guaranteed issue rights under the law to purchase such supplementary coverage and may be denied coverage or subject to underwriting, meaning that those with chronic conditions or other preexisting conditions may have difficulty obtaining Medigap coverage affordably or at all. In other words, auto-enrollment in Medicare Advantage could effectively lock most defaulted enrollees into private plans for the remainder of their lives, even if they would prefer to switch to traditional Medicare later on.
Provider Networks
Once in Medicare Advantage, new beneficiaries face restrictions on choices a part of the private coverage. Medicare Advantage plans have provider networks; this is a major reason that enrollees give for switching back to traditional Medicare, which covers care provided by any provider that accepts Medicare. Provider networks can help to steer beneficiaries to higher-quality, lower-cost providers. However, they can also result in beneficiaries receiving lower-quality care and experiencing more difficulties accessing care, depending on network design.
Prior Authorization Requirements
Private plans also restrict access to, and impose waits for, certain services through prior authorization requirements, which are generally not part of traditional Medicare. Such barriers to care can limit the use of low-value and unnecessary services, but they can also delay needed care and have quality and cost implications in the form of deferred services.
Lack Of Reliable Information
A third effective limitation on enrollees’ freedom of choice is the lack of reliable and understandable information. Such would enable new enrollees to make well-informed decisions under time pressure about the benefits and disadvantages of Medicare Advantage. Currently, fully two-thirds of adults age 65 or older say that they need better information to choose their Medicare coverage.
The information available from public sources, including Medicare.gov and federally supported State Health Insurance Assistance Programs, has proven insufficient. Many are likely unaware these resources exist; indeed, the subtle implications of choosing Medicare Advantage in exchange for their freedom to switch to traditional Medicare at a later time may be difficult for new beneficiaries to grasp. As a result, they rely chiefly on family and brokers for advice. Brokers typically have significant financial incentives to direct beneficiaries to Medicare Advantage plans. Often, they are only licensed to enroll beneficiaries in some of the plans in an area.
Supplemental Benefits, Beneficiary Satisfaction, Quality, and Value-Based Care
Balanced against these potential restrictions on choice are some neutral or positive implications of auto-enrollment in Medicare Advantage. Beneficiary satisfaction tends to be equivalent for Medicare Advantage and traditional Medicare. With respect to quality and affordability, most evidence shows few differences in the overall quality of care and little to no difference in the affordability of care between traditional Medicare and Medicare Advantage.
Medicare Advantage plans offer benefits not available under traditional Medicare, including access to services such as vision, hearing, and dental coverage, although there are questions over the extent to which those benefits are meaningfully available to enrollees. Private plans also include limits on out-of-pocket spending and lower premiums for Medicare Parts B and D. Auto-enrollment could reduce some plans’ expenditures on marketing and brokers, on which some currently spend heavily, and a de-emphasis on marketing could reduce confusion and inaccurate information about plans’ benefits.
Medicare Advantage plans also have the potential to operate as value-based care organizations and provide better coordination than traditional Medicare. Such enhanced coordination could be particularly helpful for beneficiaries in poor health and those with multiple chronic conditions.
Implications For The Medicare Program
The increased enrollment in Medicare Advantage resulting from making that the default enrollment option could also have important implications for the Medicare program, the federal budget, and the deficit. Medicare Advantage currently costs the Medicare program about 20 percent more per beneficiary than does traditional Medicare, according to the Medicare Payment Advisory Commission. Medicare Advantage plans may reduce beneficiaries’ health care expenses by effectively managing chronic conditions. However, those savings primarily accrue to the health plan and are included in the excess payment calculations.
Thus, it seems likely that accelerating enrollment in Medicare Advantage would increase federal expenditures compared to current policy. Increased Medicare Advantage enrollment would add to soaring federal deficits and place even greater pressure on discretionary programs, including public health programs. Adding to already-growing Medicare Advantage enrollment by making it the default option would accelerate the insolvency of the Medicare Part A Hospital Insurance Trust Fund and continue to raise Part B premiums for beneficiaries.
These increased expenditures might be moderated by greater competition among Medicare Advantage plans. But to date, such competition has not proven effective in reducing per capita expenditures for the Medicare program or the federal government. Two large national insurers account for almost half of Medicare Advantage enrollees.
Auto-enrollment could also reduce concerns about adverse selection if plans wish to offer benefits known to attract sicker and more costly enrollees, such as expanded behavioral health, although few plans have chosen in the past to do so.
Mechanics Of Default Enrollment
Traditional Medicare is the same for everyone everywhere, but Medicare Advantage plans differ with respect to provider networks, extra benefits, prescription drug coverage, cost sharing for Medicare-covered services, and out-of-pocket limits. This makes matching plans to beneficiaries’ needs and circumstances particularly important. A mismatch could have adverse effects on beneficiaries’ health, out-of-pocket spending, and Medicare spending overall. Under the best of circumstances, making the best possible choice would add to the administrative costs of Medicare and would be complex and difficult to achieve.
However, the matching process would be handicapped from the start because the Medicare program typically has no information about a beneficiary’s health care needs when they first enroll in the program. Ideally, the process would take into account beneficiaries’ health care status, economic situation, and preferences about care, but the program has no such information. It also doesn’t know when people enroll in Medicare if they have retiree health coverage from a former employer or union, or if they have already picked and paid for a Medigap policy. This creates a situation in which a mismatch between beneficiaries’ needs and plan assignment would be likely, particularly for the average beneficiary.
Beneficiaries dually eligible for Medicare and Medicaid would be unlikely to have retiree health coverage or the means to purchase a Medigap policy, making plan assignments somewhat easier. However, the Medicare program would have better information about the needs and preferences of current Medicare beneficiaries who gain Medicaid coverage than about those of Medicaid beneficiaries who gain Medicare coverage.
Looking Forward: If We Make Medicare Advantage The Default, How Can We Do It Right?
If Medicare Advantage plans were to become the default for Medicare enrollment, several policy changes could reduce disadvantages for enrollees and the Medicare program. First, the Centers for Medicare and Medicaid Services (CMS) could extend the period during which new enrollees would be able to enroll in Medigap plans without underwriting—that is, the period during which they would enjoy Medigap guaranteed-issue and community rating rights. This would enable new enrollees to gain experience with their new Medicare Advantage plans before it became financially prohibitive to switch to traditional Medicare.
Second, Medicare authorities could more tightly regulate the marketing of Medicare Advantage plans and the incentives facing brokers so that new enrollees have more comprehensible and balanced guidance. Medicare could increase the availability and usability of its own information on plan performance on Medicare.gov and through publicly supported programs such as State Health Insurance Assistance Programs. It would be particularly important to require Medicare Advantage plans to accurately portray beneficiaries’ past experience with the accessibility, quality, and use of optional benefits, such as dental care.
Third, CMS could do more to reduce unjustified denials of services by Medicare Advantage plans and long and frustrating waits for prior authorizations. Supervision of the use of artificial intelligence in this process would be particularly important.
The prospect of default enrollment into Medicare Advantage raises the fundamental question of whether the benefits of Medicare Advantage justify changing or ignoring existing law, restricting beneficiary choice, and increasing federal costs. Because of the health needs of the Medicare population, the question of plan fit is critical: While beneficiaries can change their coverage, few might do so if not given the tools and unbiased help needed to evaluate their options, and access to affordable supplemental coverage through Medigap. On the other hand, defaulting new Medicare beneficiaries to Medicare Advantage could possibly increase the proportion of beneficiaries in value-based care arrangements.
Medicare Advantage will likely continue to grow, even without a change in default policy. The question is whether the federal government wishes to significantly increase that rate of that growth and hasten the arrival of a totally privatized Medicare system.
Major Series: Health Policy At A Crossroads, Health Affairs