Washington, D.C. — A new report from the Center for American Progress finds that a series of policy failures has created a one-way door into Medicare Advantage—trapping millions of beneficiaries in private insurance plans that no longer meet their needs.
Each year, millions of Americans become eligible for Medicare and must choose between traditional Medicare and Medicare Advantage. Traditional Medicare allows patients to receive services from nearly any doctor or hospital, but there is no limit on out-of-pocket costs, leaving beneficiaries exposed to potentially catastrophic medical bills.
To protect themselves from that risk, most beneficiaries in traditional Medicare purchase a private supplemental policy known as Medigap, which can cost hundreds of dollars per month.
Medicare Advantage plans offer an alternative with capped out-of-pocket costs, low or zero premiums, and extra benefits, such as dental or vision coverage. But the report finds that this choice is far less flexible than it appears, with structural flaws in Medicare’s rules often steering beneficiaries into Medicare Advantage and making it difficult to switch back later.
“The Medigap trap exists because traditional Medicare and Medicare Advantage have never competed on a level playing field,” said Neda Ashtari, associate director of Health Policy at the Center for American Progress and co-author of the report. “Until we create real parity between the two—in financial protections, plan disclosures, and the rules governing enrollment—we’re not offering beneficiaries a choice. We’re engineering an outcome.”
- Traditional Medicare’s lack of financial protections creates the vulnerability. Traditional Medicare is the only major insurance program in the United States without a cap on out-of-pocket costs. As a result, beneficiaries must either pay hundreds of dollars each month for Medigap or enroll in Medicare Advantage, which offers financial protection at a fraction of the price. For many people living on fixed incomes, that is hardly a real choice.
- Federal overpayments make Medicare Advantage artificially attractive. Medicare Advantage plans receive federal payments averaging an estimated 114 percent of what the government spends on comparable beneficiaries in traditional Medicare. Those excess payments—amounting to tens of billions of taxpayer dollars each year—help subsidize the low premiums, out-of-pocket caps, and supplemental benefits that make Medicare Advantage appear more affordable. Traditional Medicare receives no comparable subsidy and cannot compete on the same terms.
- Critical information is hidden at the moment of decision. When beneficiaries are choosing between the two coverage options, Medicare Advantage plans are not required to clearly disclose the restrictions that come with enrollment. Prior authorization rules are not explained upfront, provider networks are difficult to evaluate, and there is no simple way to compare plan restrictions with the broad access offered by traditional Medicare. By the time beneficiaries experience denied claims, dropped providers, or delayed treatments, the window to switch has often already closed.
- Federal enrollment rules close the window permanently. Federal law guarantees the right to buy a Medigap plan only during a brief enrollment window. After that period expires, Medigap insurers in most states can deny coverage outright or charge dramatically higher premiums based on health status. Without access to affordable Medigap, returning to traditional Medicare means facing unlimited out-of-pocket costs with no financial protection—effectively trapping beneficiaries in Medicare Advantage plans that no longer meet their needs.
The report outlines a series of reforms to dismantle the trap, starting with establishing an out-of-pocket spending cap in traditional Medicare to eliminate the financial vulnerability that drives people toward Medicare Advantage and the need for Medigap in the first place. The authors also call for reducing the federal overpayments that give Medicare Advantage an artificial edge, strengthening disclosure requirements so beneficiaries understand the restrictions they are accepting, and expanding guaranteed-issue Medigap protections—paired with market-stabilizing reforms—to ensure people have an affordable path back to Medicare.
Read the report: “Escaping the Medigap Trap: A Path to Real Choice in Medicare” by Brian Keyser and Neda Ashtari.
For more information or to speak with an expert, please contact Christian Unkenholz at [email protected].