How do $0 Premium Part C plans make money?

Medicare Advantage (Part C) plans are popular for seniors who want an all-in-one alternative to Original Medicare. These plans are known for offering extra benefits like prescription drug coverage, dental, vision, and even gym memberships. However, one of the most attractive features of Medicare Advantage plans is the $0 premium option.

If you’ve ever wondered how these $0 premium plans work—and how insurance companies can offer them without losing money—you’re not alone. We’ll break it all down so you can understand exactly how these plans operate and whether they’re the right choice for you.

What Are Medicare Advantage Plans?

Medicare Advantage, also known as Part C, is a type of health insurance plan offered by private companies approved by Medicare. These plans bundle together the benefits of:

Medicare Part A

Covers hospital stays, skilled nursing care, hospice, and some home health care.

Medicare Part B

Covers doctor visits, outpatient care, medical supplies, and preventive services.

Many Medicare Advantage plans also include:

• Medicare Part D: Prescription drug coverage.
• Extra Benefits: Dental, vision, hearing, and wellness programs.

To enroll in a Medicare Advantage plan, you must:

1. Have both Medicare Part A and Part B.
2. Live in the plan’s service area.

What Does a $0 Premium Plan Mean?

When you see ads for $0 premium Medicare Advantage plans, it means the plan doesn’t charge an additional monthly fee. However, this doesn’t mean your healthcare is completely free. Here’s what you need to know:

You Still Pay Your Medicare Part B Premium:

• 2025, the standard Medicare Part B premium will be $185 per month.
• This premium is usually deducted from your Social Security check. You’ll receive a quarterly bill if you’re not on Social Security.

The $0 Premium Refers to the Plan’s Additional Cost:

• The private insurer doesn’t charge you extra for the Medicare Advantage plan.
• So, while the plan is “$0,” you’re still responsible for your Part B premium.

What Do Medicare Advantage Plans Cover?

Medicare Advantage plans are required to cover everything that Original Medicare covers, including:

• Hospital stays (Part A).
• Doctor visits and outpatient care (Part B).

In addition, many plans offer extra benefits like:

• Prescription drug coverage (Part D).
• Dental, vision, and hearing services.
• Gym memberships or wellness programs.

One of the most significant advantages of Medicare Advantage plans is the “maximum out-of-pocket” limit. For example, if your plan has a $4,000 limit, you’ll never pay more than that in a year for covered services. This significantly differs from Original Medicare, which has no spending cap.

How Do Insurers Make Money with $0 Premium Plans?

You may be curious about how private insurance companies can give plans with no premiums and still make money. How are these plans paid for? That is the question. Here’s a full summary:

Payments from the Government

Medicare pays private insurers a fixed monthly amount for every person enrolled in their plan, called a “per member per month” fee.

• Example: If a company has 50,000 enrollees, they receive a monthly payment from Medicare for each one, regardless of how much healthcare those individuals use.

These payments are based on:

• The estimated cost of providing Part A and Part B benefits.
• The healthcare practices in the county where the enrollee lives.

Risk Scores

A “risk score” in Medicare Advantage is a numerical value that represents the predicted cost of treating a specific beneficiary compared to the average Medicare patient based on their demographic information and current health conditions.

Medicare uses a risk score to determine how much to pay for each enrollee. This score is based on:

• Your health conditions.
• Your demographics (age, gender, etc.).

Example: If your risk score is 1.0, Medicare pays the average amount for your care. If your score is 2.0, Medicare pays double because you’re expected to need more care.

Star Ratings and Bonuses

Medicare evaluates plans based on a “5-star rating system”. Plans with higher ratings (4 stars or more) receive bonus payments from Medicare.

• Example: In 2023, Medicare paid out $454 billion to Medicare Advantage companies, including these bonuses.

By managing care efficiently and keeping costs low, insurers can offer $0 premium plans while making a profit.

What Do You Pay with a Medicare Advantage Plan?

Even with a $0 premium plan, you’ll still have some out-of-pocket costs, such as:

Copays

A fixed amount you pay for each service (e.g., $20 for a doctor’s visit).

Coinsurance

A percentage of the cost of a service (e.g., 20% of a lab test).

Deductibles

The amount you pay before your plan starts covering costs.

However, many plans offer $0 copays for preventive services and other benefits to help keep costs low.

Advantages of Medicare Advantage Plans

Predictable Costs

With a maximum out-of-pocket limit, you’ll never face unlimited healthcare expenses.

Extra Benefits

Many plans include dental, vision, hearing, and prescription drug coverage.

Convenience

All your benefits are bundled into one plan.

Things to Consider Before Enrolling

Before choosing a Medicare Advantage plan, make sure to:

Check the Plan’s Network

Ensure your preferred doctors and hospitals are in-network.

Review the Maximum Out-of-Pocket Limit

This is the most you’ll pay in a year for covered services.

Compare Additional Benefits 

Look for plans that offer the extra benefits you need, like dental or vision coverage.

Conclusion

Medicare Advantage (Part C) allows beneficiaries to receive their Medicare benefits through private insurance companies instead of Original Medicare.

• These plans must cover at least 80% of medical expenses and include an annual maximum out-of-pocket limit to protect beneficiaries from excessive costs.
• They must cover all services Original Medicare provides and often include additional benefits.
• Insurers are paid a fixed monthly amount per enrollee and receive bonus payments based on quality ratings.

When you work with LMS Insurance Group, you get more than just coverage. You get a trusted partner in your healthcare journey. We can help you find the best Medicare Advantage plan for your needs or requirements, so contact us today.