Medicare Part C, also known as Medicare Advantage (MA), was created under the Balanced Budget Act of 1997. Initially called Medicare+Choice, the program allowed beneficiaries to receive their Medicare benefits through private health plans rather than traditional fee-for-service Medicare. Renamed Medicare Advantage under the Medicare Modernization Act (MMA) of 2003, it expanded plan offerings and introduced incentives for private insurers to participate.

Generally speaking, MA plans have a narrower network, lower premiums, and more benefits (i.e., gym, transportation, etc.). These plans receive a capitated amount from the Centers for Medicare and Medicaid (CMS) at the start of each year based on patients’ expected costs and pocket what they don’t spend on medical and administrative activities. They are required to spend 85% of their capitated amount of medical care. While MA has been a cash cow for the last decade or so, it is facing headwinds:

• The number of patients that will enroll is stagnating because the number of people turning 65 every year is stagnating. More specifically, MA enrollment has grown historically by 9% annually from 2019 to 2022; however, we estimate the growth rate will reduce to 5% annually from 2022 to 2027.
• Additionally, CMS is cracking down on up-coding (or over-diagnosing patients to get paid more, rather than reducing medical expense through preventative care). This trend should be curbed by V28, a new and more conservative coding methodology.
• Seniors have been using healthcare services a lot (maybe because they are getting the surgeries they had delayed during COVID), which increases costs for MA plans.

The industry is also facing some tailwinds. Trump 2 and Dr. Oz will be more favorable to Medicare Advantage plans. Additionally, the 2026 Advance Rate Notice saw "better than expected" Medicare Advantage rates.

Enrollment Numbers

In 2024, almost 33M Americans or 54% of Medicare beneficiaries were enrolled in MA plans. A lot of this growth came from boomers aging into Medicare and MA plans’ ability to market lower premiums and greater benefits (dental, transportation, etc.) to seniors.

With enrollment increasing, the number of MA plans have increased as well. The average beneficiary had access to 43 plans in 2023, more than double the number in 2017. Despite this optionality, a 2016 analysis found that from 2007 to 2014, only ~10% of MA beneficiaries voluntarily switched plans each year.

Commonwealth Fund: MA Policy Primer, used throughout this page

Network Differences

Most MA plans are either Health Maintenance Organizations (HMOs) or Preferred Provider Organizations (PPOs). HMOs typically limit coverage to in-network providers, while PPOs allow out-of-network care at higher costs.

PPOs / HMOs often contract with Management Services Organizations (MSOs) to manage the operations for PPO / HMO products, handling tasks like billing, compliance, staffing, and technology infrastructure. For an HMO product, MSOs often assume financial risk (along with the MA plan) by contracting with a closed network of high-quality, low-cost PCPs and specialists. These downstream providers often sign risk sharing-contracts with the MSO. These contracts typically fall into two buckets: full-risk and shared savings. Full-risk typically means that providers receive a set amount (aka capitated rate) for each patient and bear all of the patient’s medical costs. Shared savings means that the MSO and provider both have “skin in the game,” sharing in the savings and losses associated with the population of patients. In a PPO product, the MSO often does not take financial risk because they don’t have control over the patient’s network of providers.

A 2017 study found MA networks included fewer than half of Medicare physicians per county on average. On the other hand, Traditional Medicare beneficiaries can see any doctor that accepts Medicare, which includes the majority of providers. It remains unclear whether network size impacts care quality. Some experts argue narrow networks help control costs and care quality, while others prioritize access to care. Regardless, the market (led by consumers) has been trending toward more open networks.

Coverage Differences

Medicare Advantage (MA) plans are required to cover all services provided under Traditional Medicare Parts A (e.g., hospital care, hospice, skilled nursing, some home health care) and B (e.g., doctor visits, durable medical equipment, outpatient drugs, mental health care, ambulance services). Most MA plans (89% in 2024) also include Part D prescription drug coverage.

Like Traditional Medicare beneficiaries, MA enrollees must pay the Part B premium, which is $174.70 per month in 2024 (higher for those with higher incomes). Some MA plans partially or fully cover this premium.

Since 2011, MA plans have been required to cap out-of-pocket costs for services under Parts A and B. In 2024, the maximum is $8,850 for in-network services and $13,300 for combined in-network and out-of-network services.

How MA plans get paid