How does an insurance company make any money if they don't charge you a premium?
With all the ads on TV from companies offering $0 premiums for signing up with them on their Medicare Advantage plan, one question has to have crossed your mind: How do they do it and stay in business? So I went to the internet to find out.
In the first place, you do pay a premium. The $135.50 a month that is deducted from your Social Security check goes to the government. The insurer can charge a premium but doesn't. It is much better to say, “zero premium.” Instead, they bid on how much they will take from Medicare for the right to be your insurer. They must cover the same treatment that Medicare covers with Parts A and B. They get paid monthly. This is Reason number one to be an Advantage Insurer: They get their money upfront.
The insurer picks the providers they allow in the plan. That's profit point number two: They control how much they pay the provider and how expensive to make it for you to go out of the plan. They can within broad limits determine deductibles co-pays, coinsurance and your yearly maximum amount of pocket. For example, Medicare allows them to set a maximum out of pocket of $6,700 and to define what payments count as out of pocket, set the price with the provider, determine whether the care is covered or needed, and set other payments you make. And to top it all off, they get the money from the federal government upfront. What's not to like?
I'm Karl Winkler, and that is my perspective.