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Both Medicare Supplements, sometimes referred to as Medigap Plans, and Medicare Advantage (MA) plans require that the person have Medicare Parts A and B. Part A (Hospital coverage) is earned during working years by paying Medicare taxes. It is awarded automatically and will not cost anything additional once a person turns 65.
Part B (Medical coverage) is also automatically awarded if the person is collecting Social Security. If the Medicare eligible is not collecting, they will have to enroll in Part B either online at Medicare.gov or in person at their local Social Security office. The cost of Medicare Part B will be between $104.90 and $228.00 per month based on the persons income, and year they became eligible. Most new Medicare eligible will pay $121.80 if their Adjusted Gross Income is less than $85,000.
Medicare Part A include services provided during an inpatient stay in a hospital or skilled nursing facility. Part B services include doctor’s office visits, any kind of outpatient therapy, surgery, tests or treatments.
There are 4 different options for those with Medicare parts A and B.
What are my choices when I get Medicare?
1. Do nothing. Medicare A and B alone do not provide any drug coverage. You will have a 1% per month penalty if you don’t get Medicare drug coverage when you are first eligible. In addition, you would be responsible to pay 20% of all Medicare Part B services with no limit on out of pocket expenses. You would also pay $1,288 for a hospital stay. Physician’s office visits won’t break the bank, but 20% of ongoing chemotherapy or kidney dialysis certainly can.
2. Add a Medicare Prescription Drug plan called “Medicare Part D.” Medicare contracts with private insurance companies to provide the Medicare Part D. Different companies offer different premiums, copays and drugs that are covered. Medicare Drug plans can range from about $15 per month up to $120 per month but there are some medications that can cost even $1,000 per month without any coverage. If this is all a person chooses to do, they are still leaving yourself exposed to thousands of dollars that you will be responsible for including 20% of all Part B services with no annual cap, and daily expenses while in a hospital or nursing home.
3. Purchase a Medigap plan (Medicare Supplement). Medigap plans pick up what Medicare does not cover like the 20% of Part B Services and the Medicare Part A hospital deductible of $1,288 per benefit period. In other words, the person will continue to use traditional Medicare parts A and B and Medicare still pays their portion. The supplement pays the difference based on the plan design you choose. Medicare Supplements do not cover prescriptions, so for full protection, a Medicare part D drug plan should also be purchased.
There are 11 different Medicare Supplement plan designs that are standardized by Medicare. Unfortunately Medicare Supplements are labeled with letters A, B, C, D, F, HDF, G, K, L, M and N. You can see how this can easily be confused with Medicare Parts A,B,C and D. When comparing one company to another, the Medicare Supplement plan benefits will be identical from company to company. Medicare Supplements do not control what providers the person uses, so they can go to any doctor, lab or hospital in the United States that accepts Medicare. There is no provider network and there are no referrals required, or pre-authorizations by the insurance company for treatment.
Medicare Supplements are designed to cover different medical expenses depending on the plan, and the majority of consumers choose a plan that pays all or most services at 100%. The most common Medicare Supplement plan designs will pay everything that Medicare does not with the exception of the Medicare Part B annual deductible of $166 or maybe up to $20 for an office visit and $50 for an emergency room visit.
4. Enroll in a Medicare Advantage Plan. Medicare Advantage plans do not pick up what Medicare doesn’t cover, it does not add to Medicare. Instead, it completely replaces Medicare Parts A and B with Medicare part C, also called Medicare Advantage. Medicare Advantage plans contract with Medicare to provide all medical care, and most plans include prescription drug coverage.
All Medicare Advantage plans are required to cover all the services that traditional Medicare covers, but they can, and do charge co-pays, deductibles and co-insurance for the services. As an example, a Medicare Advantage plan could charge $350 per day in the hospital for the first five days. If the person had traditional Medicare with nothing else, they would pay $1,288 for the hospital admission.
Once a person enrolls in a Medicare Advantage plan, their health care is “managed” by the Medicare Advantage plan. Medicare Advantage plans control costs by promoting preventive care but also by using more cost effective methods of treatments and testing. Most plans also use a “gatekeeper” who is the primary care physician. For most HMO plans, the PCP helps to limit unnecessary specialist visits and tests by treating you themselves.
When a person enrolls in a Medicare Advantage plan, Medicare pre-pays the Medicare Advantage plan a fixed amount per month to provide medical care. The amount that Medicare pays the Advantage plan is based on the geographic area the person lives in. Once Medicare has paid the Advantage plan it’s monthly flat fee, they are out of the equation. It’s now up to the Advantage plan to determine the care that will be provided.
A simple example of cost control would be when the doctor wants their patient to have an MRI, but the Advantage plan will only allow an X-ray. So if the plan is paid a flat fee to take care of you, for example $800 per month by Medicare, the less they spend on you the more they make in profits.
Most Medicare Advantage plans require members to use a list of doctors and hospitals and also get referrals for specialists. Some Advantage plans offer PPOs which allow the member to go out of network for a much higher co-payment, deductible or co-insurance.
What to look for when you Compare Medigap to Medicare Advantage Plans
Deciding to enroll in a Medicare Supplement or a Medicare Advantage plan is a very individualized decision. The best way to make this decision is to use an independent agent who offers both types of plans. They can compare the pros and cons of each plan and should take into consideration the person’s financial ability to pay the monthly premiums, where or who they would prefer to get medical care and what types medical care the person uses.
I would never recommend doing nothing simply because Medicare by itself has no out of pocket maximum. Every Medicare recipient should have some type of coverage in addition to Medicare Parts A and B to limit their total out of pocket expenses for if and when they get sick. When a client asks me “what’s better…a Medicare Supplement or Medicare Advantage plan, I will always tell them that if they can pay the monthly premiums, around $100 to $150 per month, Medicare Supplements are better because they allow them to have access to the best medical care by not limiting the doctors and hospitals they can use, and not requiring pre-authorizations or referrals for care.