Another key difference between MA and Original Medicare comes down to the way that providers in the network are reimbursed. Remember, with a health insurance plan, the insurer commits to pay providers some amount after the patient’s out-of-pocket expenditures.
Original Medicare uses a fee-for-service model, where each service given to a Medicare patient gets a specific pre-determined fee. For example, the Prospective Payment System (PPS)
is a formula-based system for setting the reimbursement amount for hospital services. If the care provider does not want to work for that reimbursement rate, they can opt out of accepting Medicare coverage, however most providers in the US accept Medicare.
In this regard, MA plans tend to seem more like other private health plans. Like much of private insurance, MA plans follow a managed care organization (MCO) model, where the insurer works with a network of care providers. The reimbursement that these care providers get is determined through the insurer negotiating such rates, which explains why certain providers may not be covered by MA plans, and why in other situations, the amount providers are reimbursed by MA plans is significantly more varied.
This also means that in an MA plan, the member will typically be limited to getting care from in-network providers. There are more specific classifications of MCO (such as HMOs, PPOs, and EPOs), but review of their differences to patients are better suited for a discussion specifically about private insurance.
So why bother with giving Medicare benefits through MCOs and other private bodies? Well, one analysis
provides this explanation:
…the MA program has pursued two stated goals. The first is to expand Medicare beneficiaries’ choices to include private plans with coordinated care and more comprehensive benefits than those provided through traditional Medicare ™… The second is to take advantage of efficiencies in managed care and save Medicare money
Whether MA allowed saved money is a bit disputed, as there has been debate over whether the managed care organizations can deliver on promised efficiency.