How does a Medicare Advantage plan get built?
October 21, 2026
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Show Notes
Eddie and Betty's Conversation
Welcome to The American Retirement Advisor. I'm here with Eddie in the studio today, and we are talking about something that I think is going to genuinely change how you look at your Medicare Advantage plan card. Eddie, I have to tell you, I read Ian Schaeffer's piece this week and there was a moment where I put my coffee down.
That bad, or that interesting?
That part really got to me. Because I have been looking at these plan cards for years and I had no idea there was this whole process happening behind the scenes, months before we even get to compare anything.
Right, and most people don't, which is kind of the point of the article. By the time a plan shows up on your screen during enrollment, everything on it was already decided. The premium, the copay, the dental allowance, the drug deductible. All of it.
So when I'm sitting there in October going, oh this one has a zero dollar monthly cost, that number was locked in back in the spring?
June, specifically. Federal rules require every Medicare Advantage company to submit a bid to Medicare no later than the first Monday in June. So the plans you're comparing this fall were built and submitted in the spring.
Wait, so for 2027, the bids were already in by June of 2026?
Correct. And before that, in April, Medicare published its payment rules for the year. So the 2027 payment rules came out April 6th, 2026. The plans then built their bids around those rules, submitted in June, and the whole thing goes public October 1st.
So the timeline is April, June, then it all goes live, then January.
Payment rules, bid, marketing, coverage. That's the full loop.
Okay, so what is actually in this bid? What are they submitting?
The bid is the plan's estimate of what it costs to cover everything Original Medicare covers, Parts A and B, for an average member. And according to MedPAC, which is the independent commission that advises Congress on Medicare payment, that number includes the plan's administrative costs and its profit.
So it's built right into the bid.
It is. Which sounds a little blunt when you say it out loud, but yes, that's how it works.
I mean, they're a business, so I get it. But now I want to know about this benchmark thing, because Ian Schaeffer talks about it and I feel like that's where it gets really interesting.
The benchmark is the ceiling. It's the most Medicare will pay a plan, in a given county, to cover Parts A and B. And it's set by formula based on what traditional Medicare spends in that county.
So it changes depending on where you live?
Completely different. MedPAC explains that county benchmarks are set at 95, 100, 107.5, or 115 percent of projected traditional Medicare spending in that area. So one county's ceiling might be meaningfully higher than the county right next door.
That explains why I've had friends in different parts of the state say they're on the same company's plan but it looks totally different.
Because the starting line shifts county to county. Same company, another benchmark, a whole new set of trade-offs. The article makes exactly that point.
Okay so here is the part I really want you to explain. Where do the extras come from? The dental, the vision, the zero copays. Where does that money actually come from?
From the gap between what the plan bids and what the benchmark is. When a plan bids below its county's benchmark, Medicare pays the plan a rebate, which is a share of that difference.
Not the whole thing?
Right, and the share depends on the plan's star rating. A lower-rated plan gets 50 percent of the gap. Middle tier gets 65. A higher-rated plan gets 70 percent. So a plan that earns better stars gets a bigger pot of money to work with.
Oh that's a detail I had never heard before. The star rating changes how much money the plan has to spend on you.
Directly. And then that rebate has to go back to members. The plan can split it however it wants across five categories.
What are the five?
Extra benefits Original Medicare doesn't cover, like dental, vision, hearing. Lower costs for Part A and Part B services. Lower costs for Part D drugs. A lower Part B premium. Or a lower Part D premium. The plan decides the mix.
So it's like a fixed budget and they're deciding how to divide it up.
That's the whole game. Every dollar they put toward a richer dental allowance is a dollar they didn't put toward a lower specialist copay. It's one pot.
That is such a useful way to think about it. Because I've definitely been the person who sees the dental benefit and thinks, great, this plan is generous. But it's not more generous, it just made a different choice.
And you might be making that call based on the dental without realizing you traded away a lower copay you'd use twelve times a year.
Which is why looking at just the premium is completely misleading.
That's the article's sharpest point, really. Two plans with the same zero dollar premium can feel like totally different products once you use them, because the rebate got divided up differently.
Okay I want to ask the question that I think everyone is thinking right now. If a plan wants to offer more than the rebate covers, what happens?
They charge a premium. So if they want to give you more than the gap pays for, they make up the difference by charging you a monthly premium. That's why not every plan is zero premium.
The zero ones are the plans where the gap was big enough to pay for everything without asking you to chip in.
Or they made choices that kept costs within what the rebate covered. Yeah.
So here's what I keep thinking about. If all of this is decided in the spring, why does my plan feel like it changes every single year? I get that Annual Notice of Change and something is always different.
Because the gap shifts. A new county benchmark, a revised star rating, or a revised projection of what members will use can all move the size of that gap. And the gap is what pays for everything. So when it shifts, the plan has to rebalance.
So that Annual Notice of Change that lands in my mailbox every fall is basically the result of whatever happened to the bid last spring.
Ian Schaeffer puts it exactly that way in the article. That connection was what I found so clean about his framing -- two things most people experience as totally separate, and he just snaps them together.
It's like getting a restaurant menu and not realizing it changed because ingredient prices went up six months ago.
That's a good one. The menu looks the same but what went into it is completely different.
And you don't find out until you order.
Right, which is why reading that Annual Notice matters. Even if the plan looks the same on the surface.
So the article wraps up with some practical guidance for when people are sitting down to compare plans. What does Ian Schaeffer say?
Three things. First, a lower premium is only one of the five places a plan can put its rebate, so you have to compare the whole card, not just the headline number. Second, start with what you will use: your doctors, your hospitals, your prescriptions, and then look at the extras.
So the dental isn't nothing, but it probably shouldn't be the first thing you look at.
Especially if you're seeing a specialist every few weeks. That copay math is going to matter a lot more.
What's the third thing?
Expect change. A plan that fit you perfectly in 2026 was built on a different bid. The article says it plainly: don't assume last year's plan is still last year's plan.
I feel like that third one is the one people skip. Because comparing plans takes time and if yours seemed fine last year, it's very easy to just let it roll over.
And then wonder in February why something that used to be covered isn't anymore.
At which point the main enrollment period is over. Because enrollment ended December 7th.
Right, and it opens on October 15. Whatever you choose starts January 1. So you have about seven weeks to review things. And there are a lot of moving parts to check.
Which, honestly, is a lot to hold in your head at once. And I think this is a case where knowing the structure, knowing that the rebate is a fixed pot and that every benefit is a trade-off, that at least helps you ask better questions.
It does. And some of the finer details, like how your specific plan's star rating affects what you're seeing, or the exact rules around certain benefits in your county, those are the questions I'd be writing down and bringing to one of our advisors. Because that's where the general rules stop and the specifics really start to matter.
That's a fair point. The framework from the article gives you the vocabulary to have the conversation, but the county-level numbers and how your particular situation fits into all of it, that's a different kind of question.
And it changes every year. Which is kind of the whole lesson.
Now I want to mention something the article teases at the end that I think is worth flagging for listeners. There's an event coming up.
Fiscal Fridays in Scottsdale. October 23rd. David Schaeffer is hosting a live conversation with a Medicare health plan executive, someone who has spent their career inside the health insurance business.
And they're keeping his name a surprise until the show, which I respect. That's good radio.
That's the premise, and it's what we've been talking about today: how does a plan decide between dental and drugs? That's the conversation this person can have in a way that nobody else really can.
Because they've been in the room where those decisions get made.
The article notes that the guest speaks for himself, not for any health plan. And Fiscal Fridays is an educational show.
Doors open at 10 in the morning, the show starts at 10:30, and there are only twenty seats. Twenty.
That is a small room. Which means it's probably a good conversation and not a presentation to a crowd.
If you want to grab one of those seats, you can call 602-281-3898 and they'll hold one for you. Or there's a link on the show page.
I'd move on that. Twenty spots goes fast.
Before we wrap up, I want to make sure we give listeners one place to go if today's conversation made them want to look at their own plan differently.
The article's framework is useful for that. Know your benchmark drives the ceiling, the gap funds the extras, and the rebate is a fixed trade-off. Once you see it that way, the plan card stops looking like a list of features and starts looking like a set of choices somebody made.
That may or may not match your actual life.
Which is really the only thing that matters when you're picking one.
And the specifics of whether your plan's choices match your actual life, that is very much a conversation worth having with someone who can run the numbers for your situation, in your county, with your doctors.
Not a general podcast. No offense to us.
None taken. We're good at the framework. The advisors are good at the math that affects your wallet.
Fair division of labor.
Thank you so much for spending time with us today. If this conversation opened up a question you haven't thought to ask before, that's what it was supposed to do. Sit down with one of our advisors at American Retirement Advisors and bring that question with you. That's what they're there for. We'll see you in the next one.