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Beware out-of-network payments in Medicare Advantage

February 12, 2021

Topics: Quote of the Day

By Austin Frakt and Tynan Friend
The Incidental Economist, February 10, 2021

The complexity of Medicare Advantage (MA) physician networks has been well-documented, but the payment regulations that underlie these plans remain opaque, even to experts. If an MA plan enrollee sees an out-of-network doctor, how much should she expect to pay?

The answer, like much of the American healthcare system, is complicated. We’ve consulted experts and scoured nearly inscrutable government documents to try to find it. In this post we try to explain what we’ve learned in a much more accessible way.

Medicare Advantage Basics

Medicare Advantage is the private insurance alternative to traditional Medicare (TM), comprised largely of HMO and PPO options. One-third of the 60+ million Americans covered by Medicare are enrolled in MA plans. These plans, subsidized by the government, are governed by Medicare rules, but, within certain limits, are able to set their own premiums, deductibles, and service payment schedules each year.

Critically, they also determine their own network extent, choosing which physicians are in- or out-of-network. Apart from cost sharing or deductibles, the cost of care from providers that are in-network is covered by the plan. However, if an enrollee seeks care from a provider who is outside of their plan’s network, what the cost is and who bears it is much more complex.

Provider Types

(Explains participating providers – 97%, non-participating providers – 2%, and opt-out providers – 1%.)

How Out-of-Network Doctors are Paid

So, if an MA beneficiary goes to see an out-of-network doctor, by whom does the doctor get paid and how much? At the most basic level, when a Medicare Advantage HMO member willingly seeks care from an out-of-network provider, the member assumes full liability for payment. That is, neither the HMO plan nor TM will pay for services when an MA member goes out-of-network.

The price that the provider can charge for these services, though, varies, and must be disclosed to the patient before any services are administered. (Complicated – depends on provider type, HMO or PPO, and payment options that the out-of-network provider may select. Read the article for the details.)

There are two major caveats to these payment schemes (with many more nuanced and less-frequent exceptions). (See article for details.)


Outside of the pandemic and emergency situations, knowing how much you’ll need to pay for out-of-network services as a MA enrollee depends on a multitude of factors. Though the vast majority of American physicians contract with Medicare, the intersection of insurer-engineered physician networks and the complex MA payment system could lead to significant unexpected costs to the patient.


Personal communication from Diane Archer

I read the Frakt et al. article this morning. They buried the lead. Plans often pay only 60 percent of Medicare’s approved amount, leaving people with twice as high out of pocket costs as traditional Medicare. Also, plans can retroactively deny coverage for out of network care. While the provider cannot bill the patient for the 60 percent, the provider might not want to provide the care and assume the risk of a denial. The provider can request an advance determination from the MAO, but might not want to go through the hassle, limiting access. Lastly, people in MA PPO have an out-of-pocket cap of $11,300, that’s easily more than three times the cost of Medicare supplemental coverage.

One other point. There is no data on average out-of-pocket costs in MA, in network or out of network, overall, or by plan or type of service.


By Don McCanne, M.D.

As the Frakt/Friend article states, “the intersection of insurer-engineered physician networks and the complex MA payment system could lead to significant unexpected costs to the patient.”

Many people believe that they like their private Medicare Advantage plan. It seems to work well for the 80% of people who use only 20% of the care, and the plans make sure that they are marketed primarily to that healthy sector. Other studies have shown that the healthy go into the plans and the sick come out once they find out the truth.

Actually, traditional Medicare with a comprehensive Medigap supplement works better for the patients when they need health care, though they are deceived by private plan marketing, nominal additional benefits, and are dissuaded by the high premiums charged for the Medigap plans. Medigap plans add greatly to the administrative complexity when it would be far less expensive and less complex to eliminate the Medigap plans and fold the benefits into the traditional Medicare program (claims are processed only once instead of twice and there is no superfluous private insurance bureaucracy to pay for) . Then the private Medicare Advantage plans could never compete with the traditional Medicare program.

It’s time that Congress quit catering to the private plans and turned their attention to improving the traditional program – but true improvements and not privatization schemes. (See Gerald Friedman and Travis Campbell, The Hill, “Medicare expansion is a discount compared to ObamaCare“)

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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