Why Do Some Zip Codes Get More Medicare Benefits?

Medicare Advantage Plans play an increasingly vital role in healthcare for over 28 million seniors enrolled in the private Medicare Plans offered by health insurers that contract with Medicare. A key question is why do Medicare Advantage Plan benefits, premiums and costs vary so significantly based on zip code and county? Examining the factors underlying these geographic discrepancies in Medicare Advantage coverage and costs can shed light on the issues.

What is Medicare Advantage?

Medicare Advantage Plans, sometimes called Medicare Part C, are private plan alternatives to Original Medicare provided through health insurers that have contracts with Medicare. They bundle Medicare Part A, Part B, and often Part D prescription drug coverage together in a single plan. Medicare pays these private insurance companies a set monthly amount per enrollee, and the plans provide at least the same benefits as Original Medicare. Many Medicare Advantage Plans offer extra benefits not included in basic Medicare like dental, vision and wellness programs.

How Medicare Advantage Plan Payment Rates Are Determined

A key factor driving differences in plan benefits and costs across counties is that the Centers for Medicare & Medicaid Services (CMS) pays Medicare Advantage Plans at different benchmark rates across the country. These benchmark rates are based on a formula using local traditional Medicare spending levels.

Here’s how it works:

• CMS calculates county-level benchmark payment rates derived from historical Traditional Medicare (Parts A and B) spending per beneficiary in each area. Counties where medical costs, and thus Medicare spending, are higher get higher benchmark payment rates.
• Plans then submit bids stating their estimated costs for providing basic Medicare benefits in a given service area.
• Final Medicare Advantage payment rates are based on comparing each plan’s bid to the benchmark. (Benchmark – Bid = Rebate which helps finance extra benefits for members)
• In counties where traditional Medicare spending is high, benchmarks are higher, which gives insurers more room to enhance benefits and lower member costs. In low spending counties, it’s tighter for plans.

This results in geographic adjustment in what Medicare pays plans based on local medical costs and utilization under Original Medicare.

Why Medical Costs Vary By Zip code

Healthcare costs differ around the country based on factors like:

• Local cost of living, which affects hospital labor and real estate costs
• State liability laws that drive malpractice insurance rates for doctors
• Supply of healthcare providers and bed capacity at hospitals that impact utilization and rates
• Regional population health tied to diet, exercise, smoking and other cultural factors

Since cost of living and healthcare delivery costs vary geographically, Medicare uses county benchmarks adapted to local conditions to pay plans. This gets passed down to Medicare beneficiaries in terms of plan benefits, premiums, and cost sharing.

Examples of Geographic Variation in Medicare Benefits

To illustrate how Medicare Advantage Plans available in your area, here are two examples:

Miami-Dade County (High Benchmark):

• Benchmark Rate – $949/month
• Plan Bid – $725
• Rebate Amount – $224

A plan with this larger rebate amount could offer:

• Lower premiums
• Higher benefits caps
• Lower copays and coinsurance
• Additional benefits like dental, vision, OTC drugs

Kanawha County, WV (Low Benchmark):

• Benchmark Rate – $379/month
• Plan Bid – $275
• Rebate Amount – $104

A plan with this lower rebate amount may need to:

• Charge higher premiums
• Set lower caps on benefits
• Impose higher deductibles and copays
• Limit supplemental benefits

These examples demonstrate how geographic differences in benchmarks translate down to member costs and benefits.

Impact on Member Costs

The geography-based payment adjustments can lead to significant out-of-pocket cost differences for members depending on their zip code:

• Premiums – Plans must charge premiums high enough to cover their costs after rebates are applied. In low-payment counties, premiums are typically higher.
• Deductibles – Plans may need to charge deductibles for certain services in lower-payment areas to limit financial risk. Deductibles may not apply in high-payment counties.
• Copays & Coinsurance – Member cost-sharing for things like doctor visits, hospital stays and drugs are generally lower in high benchmark counties where plans have more room in the rebates they receive.
• Maximum Out-of-Pocket Costs – Due to lower rebates, plans in low-payment counties may need to set lower caps on total out-of-pocket costs, resulting in higher spending risk.
• Supplemental Benefits – Rebate amounts in high-payment zip codes allow plans to offer more “extra” benefits like dental, vision and hearing coverage and fitness programs that aren’t available to members in lower-payment areas.

While benefits and costs are never the sole driver in choosing a Medicare Advantage Plan, seniors comparing options during open enrollment need to be aware of how geographics and plan payments impact what’s offered. Members in neighboring counties could face significantly higher out-of-pocket costs for things like premiums, copays and dental benefits based on geographic benchmark rate differences.

Criticisms and Challenges Around Geographic Disparities

Paying Medicare Advantage Plans based on county leads to wide variations in what members pay and receive in different parts of the country. Some of the criticisms and controversies surrounding the geographic differences include:

• Inequity – Is it fair for seniors who live across county lines from each other to face vastly different costs and benefits based solely on zip code?
• Access to Benefits – Geographic adjustments mean lower-income seniors in poorer counties have reduced access to comprehensive benefits and face higher costs.
• Stifling Competition – Some argue lower benchmark rates in rural areas make it hard for plans to operate profitably, reducing choice of plans.
• Excess Profits – On the flip side, higher benchmarks in prosperous areas may allow inefficient plans to earn excessive profits according to critics.

Proposals to modify geographic payment adjustments are often raised to help equalize regional differences. However, making major methodology changes proves challenging given opposition from various stakeholders. For now, significant geographic variances remain baked into Medicare Advantage payment systems.

Key Takeaways on Geographic Differences in Medicare Advantage

In summary, notable regional differences exist in what Medicare pays Medicare Advantage Plans based on local healthcare costs under Original Medicare. This translates down to consumers in terms of premiums, benefits packages, and supplemental benefits available in different counties and zip codes. Beneficiaries considering Medicare Advantage Plans during open enrollment should understand that benefits and out-of-pocket costs can vary drastically between neighboring counties. While geographic disparities remain controversial, the payment methodology aims to adjust for regional cost differences that impact plan costs.

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FAQs

How do I know if my zip code qualifies for extra benefits on a Medicare Advantage Plan?

Some Medicare Advantage Plans offer additional benefits depending on your zip code, such as lower monthly premiums or reduced cost sharing. Be sure to confirm with the insurance provider whether your specific zip code qualifies you for any extra benefits before enrolling in a plan.

When do I become eligible for Medicare if I’m turning age 65?

If your birthday makes you age 65, you generally become eligible for Medicare on the first day of the month before your birthday. For example, if your birthday is May 15th, your Medicare eligibility date would be May 1st.

Can I keep my Original Medicare benefits if I enroll in a Medicare Supplement Plan?

Yes, a Medicare Supplement Plan (also known as a Medigap Plan) is meant to cover some costs that Original Medicare does not pay for like copayments, coinsurance, and deductibles. Enrolling in a Supplement Plan allows you to keep all of your Original Medicare benefits.

What are the main Medicare options available in my area?

The two primary Medicare options are Original Medicare or a Medicare Advantage Plan. You can visit the Medicare website, contact your State Health Insurance Assistance Program (SHIP), or meet with a local agent to identify all of the Medicare Plan choices available based on your zip code.

How does my zip code affect which Medicare Advantage Plans I can choose?

Medicare Advantage Plans are only available in certain areas defined by zip codes. Plans have service areas mapped to specific zip codes, so your enrollment options may be limited based on where you live. Checking your zip code eligibility is important before considering an Advantage Plan.

Can I enroll in Original Medicare if I’m over 65 but still employed with health insurance?

If you or your spouse is still actively employed and covered by an employer group health plan based on that employment, you may be able to delay enrolling in Original Medicare without penalty as long as that employer insurance is considered creditable coverage.

Do all Medicare Supplement Plans (Medigap) cover the same benefits?

No, not all Medicare Supplement Plans offer the same coverage. There are standardized Medigap Plan designs labeled A through N that each cover different benefits to fill gaps in Original Medicare. The benefits are identical among insurance companies offering a specific plan type.

Can I enroll directly in a Medicare Supplement Plan without first enrolling in Original Medicare?

No, Medicare Supplement Plans are meant to supplement Original Medicare coverage. You must be enrolled in both Part A and Medicare Part B of Original Medicare program before purchasing a Medigap policy to cover costs that Original Medicare does not pay.