Why Medicare Advantage keeps growing

By Jarrod Fowler, MHA
FMA Director of Health Care Policy and Innovation

In 2023, more than half of Medicare beneficiaries (30.8 million) were enrolled in Medicare Advantage (MA) plans, up from 25% in 2010. MA plans are projected to cover 60% of Medicare beneficiaries by 2030, and the trend toward greater MA enrollment shows no sign of stopping. There are numerous reasons why MA plans have become increasingly popular, including:

Caps on out-of-pocket costs. Traditional Medicare does not impose any limit on out-of-pocket costs unless the beneficiary purchases a separate “Medigap” policy. However, all MA plans come with out-of-pocket limits.

Simplified benefits and additional benefit offerings. Unlike traditional Medicare, MA plans come with prescription drug coverage, which does not have to purchased separately. Many MA plans also offer additional benefits that are not covered by traditional Medicare, such as dental coverage and coverage for prescription glasses.

Insurance agents profit from selling MA plans. According to an analysis by MedPAC, insurance agents may find selling MA plans more lucrative than selling add-on coverage for traditional Medicare. MedPAC estimates that insurance agents may earn $528 more per enrollee over a five-year period by selling MA coverage instead of Part D coverage and Medigap policies. MA plans are also aggressively marketed.

Switching from MA to traditional Medicare can mean losing Medigap coverage. Unlike MA coverage, Medigap coverage is underwritten under certain circumstances and may be denied to MA enrollees with pre-existing conditions. This can make it financially burdensome for many Medicare beneficiaries to switch back to traditional Medicare.

The reality from the standpoint of many beneficiaries is that MA plans have numerous advantages over traditional Medicare. An interesting policy question is how and whether to address this imbalance, given that traditional Medicare generally provides greater access to a wider range of physicians. The issue doesn’t appear to be up for debate, but as MA coverage increasingly dominates the landscape, there may come a time when politicians look at whether something should be done to increase enrollment in traditional Medicare or, conversely, further accelerate enrollment in Medicare Advantage.