People with Medicare have the option of receiving their Medicare benefits through the traditional Medicare program administered by the federal government or through a private Medicare Advantage plan, such as an HMO or PPO. In Medicare Advantage, the federal government contracts with private insurers to provide Medicare benefits to enrollees. Medicare pays insurers a set amount per enrollee per month, which varies depending on the county in which the plan is located, the health status of the plan’s enrollees, and the plan’s estimated costs of covering Medicare Part A and Part B services. The plans use these payments to pay for Medicare-covered services, and in most cases, also pay for additional benefits and reduced cost sharing. Plans are required to meet federal standards, including providing an out-of-pocket limit. Medicare Advantage plans are also permitted to limit provider networks, and may require prior authorization for certain services, subject to federal requirements.

This brief provides information about Medicare Advantage plans in 2023, including premiums, cost sharing, out-of-pocket limits, supplemental benefits, prior authorization, and star ratings, as well as trends over time. A companion analysis examines trends in Medicare Advantage enrollment.

Key highlights include:

• In 2023, more than 7 in 10 (73%) enrollees in individual Medicare Advantage plans with prescription drug coverage pay no premium other than the Medicare Part B premium, which is a big selling point for beneficiaries.
• Most Medicare Advantage enrollees have access to benefits that are not covered by traditional Medicare, such as vision, hearing and dental. Plans are able to offer extra benefits because they are paid $2,350 per enrollee, on average, above their estimated costs of providing Medicare-covered services (known as “the rebate”). The rebate has increased substantially in the last several years, more than doubling since 2018.
• Nearly all Medicare Advantage enrollees (99%) are in plans that require prior authorization for some services, which is generally not used in traditional Medicare. Medicare Advantage plans also have defined networks of providers, in contrast to traditional Medicare.
• Most Medicare Advantage enrollees are in plans with a quality rating of at least 4 out of 5 stars, explained in part by the fact that more than half (51%) of plans receive ratings at or above this threshold.

In 2023, most people (73%) enrolled in individual Medicare Advantage plans with prescription drug coverage (MA-PDs) pay no premium other than the Medicare Part B premium ($164.90 in 2023) (Figure 1). The MA-PD premium includes both the cost of Medicare-covered Part A and Part B benefits and Part D prescription drug coverage. In 2023, 97% of Medicare Advantage enrollees in individual plans open for general enrollment are in plans that offer prescription drug coverage.

Altogether, including those who do not pay a premium, the average enrollment-weighted premium in 2023 is $15 per month, and averages $10 per month for just the Part D portion of covered benefits, substantially lower than the average premium of $40 for stand-alone prescription drug plan (PDP) premiums in 2023. Higher average PDP premiums compared to the MA-PD drug portion of premiums is due in part to the ability of MA-PD sponsors to use rebate dollars from Medicare payments to lower their Part D premiums. When a plan’s estimated costs for Medicare-covered services are below the maximum amount the federal government will pay private plans in an area (known as the benchmark), the plan retains a portion of the difference, known as the “rebate”. According to the Medicare Payment Advisory Commission (MedPAC), rebates average over $2,300 per enrollee in 2023.

For the remaining 27% of beneficiaries who are in plans with a MA-PD premium (5.1 million), the average premium is $57 per month, and averages $38 for the Part D portion of covered benefits – slightly lower than the $40 monthly PDP premium.

In 2023, the average enrollment weighted MA-PD premium, including among those who do not pay a premium, is $15 per month. However, average MA-PD premiums vary by plan type, ranging from $14 per month for HMOs to $17 per month for local PPOs and $46 per month for regional PPOs. Nearly 6 in 10 Medicare Advantage enrollees are in HMOs (58%), 40% are in local PPOs, and 2% are in regional PPOs in 2023.

Average MA-PD premiums have declined from $36 per month in 2015 to $15 per month in 2023. The reduction is driven in part by the decline in premiums for local PPOs and HMOs, that account for a rising share of enrollment over this time period.

Since 2015, a rising share of plans estimate that their cost of providing Medicare Part A and Part B services (the “bid”) is below the maximum amount that CMS will pay in the area where the plan operates (the “benchmark”). The difference between bids and benchmarks enables plans to offer coverage that typically includes extra benefits without charging an additional premium. As plan bids have declined, the rebate portion of plan payments has increased, and plans are allocating some of those rebate dollars to lower the part D portion of the MA-PD premium. This trend contributes to greater availability of zero-premium plans, which brings down average premiums.

Since 2011, federal regulation has required Medicare Advantage plans to provide an out-of-pocket limit for services covered under Parts A and B. In contrast, traditional Medicare does not have an out-of-pocket limit for covered services.

In 2023, the out-of-pocket limit for Medicare Advantage plans may not exceed $8,300 for in-network services and $12,450 for in-network and out-of-network services combined. These out-of-pocket limits apply to Part A and B services only, and do not apply to Part D spending, for which there is a separate out-of-pocket threshold of $7,400 in 2023, above which enrollees pay 5% of costs. (The 5% coinsurance requirement for Part D enrollees in the catastrophic phase will be eliminated starting in 2024 as part of the Inflation Reduction Act). Whether a plan has only an in-network cap or a cap for in- and out-of-network services depends on the type of plan. HMOs generally only cover services provided by in-network providers, whereas PPOs also cover services delivered by out-of-network providers but charge enrollees higher cost sharing for this care. The size of Medicare Advantage provider networks for physicians and hospitals vary greatly both across counties and across plans in the same county.

In 2023, the weighted average out-of-pocket limit for Medicare Advantage enrollees is $4,835 for in-network services and $8,659 for in-network and out-of-network services combined. For enrollees in HMOs, the average out-of-pocket (in-network) limit is $4,033 (Figure 3). Enrollees in HMOs are generally responsible for 100% of costs incurred for out-of-network care. However, HMO point of sale (POS) plans allow out-of-network care for certain services, though it typically costs more than in-network coverage. For local and regional PPO enrollees, the average out-of-pocket limit for both in-network and out-of-network services is $8,605, and $9,643, respectively.

Source: https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2023-premiums-out-of-pocket-limits-cost-sharing-supplemental-benefits-prior-authorization-and-star-ratings/